Starting a business in Germany can be a rewarding experience, especially given its strong economy, location in Europe and high quality of life.
Germany, often seen as Europe’s economic powerhouse, is a place with unmatched opportunity.
However, starting a business in Germany should be approached with careful planning and consideration, especially for Non-EU citizens. Here, we take you through everything you need to know about setting up a business in Germany.
What To Consider Before Starting A Business In Germany
Starting a business in Germany isn’t just about work, it impacts on life too. Some important things to consider are:
Cost of Living
Germany has a high standard of living, but costs can be high or low depending on where you decide to live. According to Statista, the average housing expenses in Germany are around €923 per month. However, this does vary dramatically from city to city.
Berlin and Leipzig for example are generally more affordable, while cities like Munich and Frankfurt are more expensive. Make sure that you research housing, utilities and transport costs before you move, in order to workout what you need for a good lifestyle.
Language Barrier
While English is spoken in larger cities and businesses, being able to speak German will certainly help. This not only helps communicate with customers and network, but also shows respect for the local language.
Your Visa Type
If you are a non-EU or EEA citizen, you’ll need a business visa to enter and work in Germany. This visa is a short-term solution, as it’s only valid for 90 days within a 180-day period.
Once you have your business visa, you can work with the local authorities to transition to a longer term residents visa, which will allow you to work and live in the country.
How To Start A Business In Germany
Before getting stuck into admin, you’ll need to do some research and planning to make sure your business is viable. Germany is a competitive market with a big entrepreneurial scene, so you’ll need to think about:
Your Niche: Identify who your target audience is, what they want and who your competitors are.
Your Business Plan: The German government will want to understand that you have a viable business plan, especially when you apply for your permit. Think about how much capital you need, what your projected revenue will be and how to break into the market. Bonus points if you can get this translated to German to impress the local authorities.
Once you have these nailed down, it’s over to the admin. Here are some steps you will need to follow:
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Choosing The Right Business Structure
Germany offers a number of different business entities, each with its pros and cons. Here are the most common:
- Sole Trader (Einzelunternehmen): Simple to set up, but the owner is liable for all debts and taxes.
- Limited Liability Company (GmbH): Best for SMEs as it provides protection for shareholders but only requires a minimum capital of €25,000.
- Entrepreneurial Company (UG): A “mini GmbH” with lower capital requirements (starting from €1), ideal for startups.
- Partnership (GbR): Best for businesses with multiple owners.
- Stock Corporation (AG): Better for larger companies aiming to drive investment, with a minimum share capital of €50,000.
Choosing the right structure is important, as it will affect your tax payments and how your business interacts with shareholders.
Registering Your Business
Once your business idea is clear, you need to go through these steps to legally start your business in Germany:
- Get a residence permit (for non-EU citizens): Non-EU citizens need a residence permit for self-employment. You will have to prove that your business will positively impact the German economy.
- Register your address: You must register at the local registration office (Bürgeramt) once you have an address in Germany.
- Open a German bank account: This is important for recording business finances and paying your taxes.
- Register with the tax office (Finanzamt): Depending on whether you’re a freelancer (Freiberufler) or a tradesperson (Gewerbetreibender), you will either register with the tax office or get a trade licence (Gewerbeschein) from the local trade office (Gewerbeamt).
For this process you will need:
- A passport
- A German tax ID number
- A valid visa
- A bank account
- A residence permit.
Once you go through these stages, you will get your VAT and tax number, which you will use to identify and pay taxes for your business in Germany.
Depending on the type of business you choose to run, you may also need to apply for a permit. For example, restaurants will need food handling permits, while construction businesses may need building permits.
It’s worth noting that these permits can change from city to city. A café in Berlin might require different permits than one in Munich so consult a professional if you are unsure of the documents you will need.
Understand Local Tax Laws
Corporate Income Tax (Körperschaftsteuer) is the tax that companies pay on business profits at a rate of 15%. They must also add a a solidarity surcharge of 5.5% bringing the rate to 15.83%, which is relatively low compared to other European countries.
Germany’s VAT rate is 19%, applied to most goods and services, while a reduced rate of 7% applies to essential goods like groceries. Businesses must register for VAT if their annual turnover is more than €22,000.
Understanding these taxes and getting professional advice can ensure you abide by all laws.
Hire Employees
If your business plans mean you will be hiring employees, you must make sure you register with the social security system. This covers: health insurance, pension insurance, unemployment insurance and accident insurance.
When it comes to German labour laws, the minimum wage in Germany is €12.41 per hour, as of 1 January 2024 and a full working week is between 36 to 40 hours. Mothers are also entitled to 14 weeks of maternity leave.
As these laws change annually, make sure you are up to date with the latest guidelines!
Should You Start A Business In Germany?
Starting a business in Germany as a foreigner can be tough, but is definitely achievable with the right planning and guidance.
Understanding local laws, considering where you will operate and getting professional help can all speed up the process. So, what are you waiting for? Viel Glück!