Business entities in Germany
Healy Consultants will assist Clients select the business entity most conducive to their business needs. There are several ways to set up your business in Germany, the most common being the limited liability company (GmbH). Alternatively, our Clients may choose to set up a German public limited company (AG), while multinationals may choose to register a branch office.
The German Limited Liability Company (GmbH)
Germany LLC formation is the most common way to start a business in Germany. This type of company is most often used by international businesses setting up a German subsidiary, and has traditionally been used by entrepreneurs to set up their small businesses. This entity faces no business restrictions and can be incorporated in any sector of the economy;
In order to set up an LLC, our Clients must i) appoint one shareholder and one director ii) deposit a minimum paid up share capital of €25,000 in the corporate bank account iii) enter the company in the German Trade Register;
Best for entrepreneurs – the UG limited liability company (mini-GmbH)
The UG company allows entrepreneurs to put less capital at risk when setting up a business in Germany, as there is no minimum share capital requirement for this form of company. Instead, 25% of the company’s profits must be contributed to its reserves each year until those reserves total €25,000, at which point the company converts to a standard GmbH. This means that less capital is at stake until the business is successful and generating profits, reducing our Client’s risk and decreasing the cost of capital.
Healy Consultants recommends the UG to entrepreneurs trying to set up a business in Germany. The UG has earned the nickname “mini-GmbH” thanks to having the same limits on its liability and no restrictions on the business it can undertake, while removing the requirement of having €25,000 in share capital. Businesses with more than 3 shareholders may not use the UG and must instead incorporate a GmbH.
The German Public Limited Company (AG)
This entity is recommended for businesses planing to receive outside investment or listing on a stock exchange, thereby requiring easy transferability of shares. German public limited company setup requirements stipulate an increased minimum share capital of €50,000. The incorporation and management of an AG also involves more bureaucratic requirements and red tape.
GbR (Gesellschaft bürgerlichen Rechts)
This flexible business model is equal to civil partnership, which is the simplest form of partnership. Such type of company can be formed either by a one individual or through a contract agreed upon by two or more persons. GbRs have limited legal capacity which are listed in the German Civil Code (BGB 705).
Limited partnership with a LLC as general partner (GmbH & Co. KG)
This form of business entity is a combination of an LLC with an LP. The LLC is appointed as the sole general partner of the partnership. The limited partners, are only liable to the extent of their registered holdings. As a result, this entity combines the advantages of a partnership and an LLC.
Dependent Branch (Zweigniederlassung)
This type of business branch is dependent in every aspect on the head office. The parent company also manages the central administration of the branch. When trading, the dependent branch must always use the name of the parent company.
- This structure performs its operations within the confines of the head office’s scope of business;
- It will have a management team, bank account and capital resources separate from the head office;
- However, the liabilities of the branch accrue to the head office, as the it does not have a separate legal personality.
Independent Commercial Agent
- Representative offices are not recognized under German law; instead, foreign firms hire an agent who will work independently;
- The actions of agent are not the actions of the parent firm, so our Client does not need to register with the German Commercial Register.
General Partnership (OHG)
- This is an association between two or more people wherein all partners carry unlimited personal liability for the debts of the business;
- Business entities can enter into a general partnership; the formed entity will be GmbH & Co. OHG.
Limited Partnership (KG)
- This differs from OHG with respect to partner liability. One or more partners enjoy limited liability, while there must be at least one general partner with unlimited liability;
- The names of the limited liability partners must be registered in the Commercial Register for legal purposes.
European Stock Corporation (SE)
Two or more existing companies in different EU states may merge to create a European Stock Corporation. This allows them to do business across Europe with just one vehicle, rather than setting up a network of subsidiaries. The combined entity requires share capital of at least €125,000.
Comparison of German company types
|Germany LLC||German AG||Autonomous Branch|
|How long to set the company up?||5 weeks||4 weeks||3 weeks|
|How long to open company bank account?||4 weeks||2 weeks||2 weeks|
|Wholly Foreign owned||Yes||Yes||Yes|
|Minimum Initial capital||25,000||50,000||0|
|Corporate Bank Account||Commerzbank||Commerzbank||Deutsche bank|
|Tenancy agreement required before incorporation||Yes||Yes||Yes|
|File annual tax return||Yes||Yes||Yes|
|Managing Director need to travel?||Yes||Yes||Yes|
|Resident director required||No||No||No|
|Resident shareholder required||No||No||No|
|Minimum directors allowed||1||1||1|
|Germany company secretary required||No||No||No|
|Corporate shareholders allowed||Yes||Yes||Yes|
|Corporate director(s) allowed||No||No||No|
|Public register of shareholders and directors||Yes||Yes||Yes|
|Allowed to trade on Stock Exchange||No||Yes||No|
|Bearer Shares allowed||No||Yes||No|
|Germany Corporate Tax Rate||0.3||0.3||0.3|
|Company tax payable on?||Worldwide Income||Worldwide Income||Germany based Income|
|Annual financial statements required||Yes||Yes||Yes|
|Statutory audit required||Yes||Yes||Yes|
|Tax exempt free zones available||4||4||4|
|Withholding Tax on Dividends without DTA||0.26||0.26||0|
|Withholding Tax on Dividends with DTA||5% - 15%||5% - 15%||0|
|Allowed to issue sales invoices||Yes||Yes||Yes|
|Allowed to sign contracts||Yes||Yes||Yes|
|Allowed to import and export goods||Yes||Yes||Yes|
|Must appoint a Supervisory Board||No||Yes||No|
|Must rent an office in Germany||Yes||Yes||Yes|
|Can buy German property?||Yes||Yes||Yes|
|Can own equity in other German companies?||Yes||Yes||Yes|
|Estimate of engagement costs||€||€||€|
|Germany company incorporation fee||5,500||5,830||6,340|
|Average total Germany business setup costs||10,990||11,320||12,680|
|Average annual costs including accounting and tax fee||4,700||7,055||7,567|
|Sample engagement fee invoice|