Registration of a company in Germany

Located at the heart of Europe, Germany is a leading member of the European Union in terms of economy, politics, and military defense. The country is Europe's industrial locomotive and one of the weightiest world economies. In the global rankings, European country holds the fourth position, after the U.S., China, and Japan. The traditional leading sectors of the German economy are the automotive industry, chemicals, and engineering, while business and services are robust and world-reputable. In most recent years, Germany has been pioneering digital innovation and Industrie 4.0, while more recent trends are environmental technology and the digital economy. The top-class infrastructure, the high level of education, and the skilled workforce contribute to making Germany a global industrial leader and a prominent nation for investors and entrepreneurs. Notably, the government encourages local and foreign investments through attractive incentives and a favorable tax frame.

Categories of Companies in Germany

Any investor is allowed to set up a company in Germany through a corporation, partnership, or branch office. Corporate entities are the most suitable options in many cases. Although the company registration procedures are straightforward, resorting to expert advice is recommended. German legislation encompasses four main categories of corporations:

• Gesellschaft mit beschränkter Haftung (GmbH) (Limited liability company) – It is the most frequent legal form of a corporation. The minimum share capital is €25,000, and shareholders are not accountable for possible company's debts.
• Aktiengesellschaft (AG) (Joint Stock Corporation) – The minimum share capital is €50,000, which can either listed on the stock exchanges or not. AG companies enjoy a strong reputation on the market but require complex structures and administrative duties.
• Kommanditgesellschaft auf Aktien (KGaA) (Partnership Limited by Shares) – It is a stock corporation (AG) where the general partners are individually liable. In a nutshell, as an AG, the company can build up a large capital share; as a partnership, it creates personal involvement and bonds between the partners and the corporation.
• Offene Handelsgesellschaft (OHG) (General partnership) – It has a partnership agreement (Gesellschaftsvertrag) binding the shareholders to engage proactively in managing the business. Unlike in GmbH and AG, partners have unlimited liability.

Other legal forms are available, combining various characteristics of the principal categories. One category, the Mini GmbH, deserves a special mention. It is a leaner version of the GmbH class where companies are allowed to start their business with a capital of €1,00.

How to Register a Company in Germany

The first step to start a company in Germany entails selecting the legal form. Most investors choose limited liability categories, typically Gmnh or Mini GmbH. Then, entrepreneurs need to choose the name and purpose of the corporation. To make the company official and legal, statutes and registration statements, as well as a notary act, are required. Remarkably, the German government favors foreign investment through a series of incentives aimed at easing access to all sectors and financial programs to amortize the initial costs. Incentives include tax deductions and attractive loans to invest in research.

The Tax System in Germany

German corporate taxation is competitive and favorable to both local and foreign entrepreneurs, with the average tax contribution floating around 30%. Companies are burdened by their worldwide profits. However, it is important to point out that Germany has reached bilateral investment treaties (BITs) and double taxation agreements with about 90 countries. Typically, German-resident corporations are subjected to two main classes of taxes:

• The corporation tax (Körperschaftsteuer) burdens for 15% of incomes; however, a solidarity surcharge of 5,5% rises the rate to 15.825%.
• The trade tax (Gewerbesteuer) is the result of a fixed rate of 3,5% and a municipal quote.The latter varies according to the location of the company; commonly, the trade tax is higher in urban settings than in rural environments.

The current COVID-19 pandemic has pushed the German government to adopt temporary tax measures to tackle the adverse situation. Interventions aim at increasing the liquidity of corporations. Some of the measures taken include a reduction of the value-added tax and an increase in the maximum loss carryback volume for 2020 and 2021 losses. Registering a company in Germany offers many advantages, including a robust and steady economy, specialized laborforce, and inclusion in the European Union. Prifinance is a reliable assistant to select the most suitable entrepreneurial options. Identifying the most appropriate class of corporations, carry out the company registration process, and calculate the corporate and trade taxes can be treacherous to the inexperienced eye. At Prifinance, a team of experts is available to unfold how to open a company in Germany and offer a wide range of priceless advisory services.