The German economy is the EU, setting up a business or working as a freelancer is a great opportunity to earn a good income. Are you a student in Germany and want to open a business or work as a freelancer? However, are foreign students permitted to do so? Germany is a highly regulated country, we will definitely need to look into rules to answer this question.
International students can start a business in Germany if their residence permit allows self-employment, otherwise, they can get appropriate approval at the immigration office or apply for a new residence permit.
Students often come up with business ideas while studying at university, also, the great commercial environment in Germany stimulates their creativity even more. We usually separate international students from EU citizens and non-EU citizens. Different rules and regulations apply for both of them, thus, they need to keep it in mind when planning self-employment in Germany.
Start a Business in Germany as a Foreign Student
Myself being a foreign student and studying business, I wanted to start a business for the last 2 years, but it’s not that easy as it seems. Your ability the setting up a business, become self-employed or freelancer depends on the nationality and current residence permit.
When can international students start a business in Germany?
Firstly let’s look at regulations in Germany for EU and non-EU students.
Students from the European Union or EEA countries will have much fewer difficulties if they want to start a business in Germany. Fortunately, freedom of establishment and freedom of trade applies to all persons within the EU, the EEA, and Switzerland.
This means that everyone from these countries is allowed to set up a business in Germany and all other member states. Additionally, freedom of movement applies to them as well. Thus, students can move and stay for a prolonged period of time in the EU without having a residence permit.
However, students from non-EU/EEA country can only open a business in Germany if they meet one of these criteria:
- To have a valid residence and work permit with permission for self-employment
- To have a trade permit
- To have a credible business idea
So the main drawback for non-EU/EEA students can lie in their residence permit because it’s often doesn’t have authorization for self-employment.
How To Start a Business in Germany as a non-EU Student?
So as you learned before EU citizens don’t encounter many obstacles when starting a business in Germany and can just go for it. Non-EU students are still able to become self-employed too, but they need to know some additional information.
As a student, you have a student residence permit, which is purposed to study in Germany. Firstly, foreign students must check the residence permit they already have and see if self-employment is actually allowed. If you see words like “Erwerbstätigkeit gestattet”, then the student is already legally permitted to start a business in Germany or become a freelancer.
You Can Run Your Business only Part-Time as a Student
Despite the permission, a student will be limited in working hours/time he or she can spend in the business. Because you are supposed to study most of the time with this residence permit (according to § 16 Residence Act), Germany allows students to work only 120 full or 240 half days during the year.
This amount of time students can work/run their business without approval by the Federal Employment Agency if they wish more, approval is required. However keep in mind, If you want to start a full-time self-employed activity, you will hardly get an approval.
What if you don’t find this statement on the residence permit?
Your current residence permit doesn’t allow you to start a business, so what now? Fortunately, German law isn’t that strict and offers some possibilities for foreigners.
1. Apply for permission to be self-employed during your studies
Since you already have a residence permit in Germany, you could ask a foreigners’ authority (“Ausländerbehörde”) to authorize your self-employed activity separately (Erlaubnis zur Ausübung einer Selbständigkeit).
One paragraph in the law says, that a person with an existing residence permit in Germany, might get approval for self-employment. They must be capable of performing the selected business activity and prove it with certifications or permits.
Also, in that case, the student is only allowed to work 120 full or 240 half days in a year. Self-employment must not hinder the success of the study.
2. Start the company without the permission for self-employment
In Germany, foreign students can still be part of the start-up/company even without permission for independent work! However, they will only able to hold shares in GmbH, for example. Thus, you can start a company alone or with other partners and hold your shares. International students without a permit shouldn’t be involved in the managerial work of the company.
Therefore, you and your partners need to hire people immediately from the beginning, to avoid working in the company (unless your partners are permitted to self-employment). However, it may be possible in certain cases if the position as managing director doesn’t constitute a self-employed activity.
3. Extend your student residence permit after graduation
In Germany, all students have the opportunity to look for a job for 18 months after graduation. Thus, upon successful completion of the studies, you can apply for an extension of a residence permit for up to 18 months.
During this time students are permitted to work in any position including self-employment until they have found a suitable to their degree job. Moreover, graduates aren’t limited by working time anymore and can work on their business full time. Be aware that after 18 months you will either need to find a job or apply for a different residence permit.
4. Apply for a new residence permit for self-employed
The last option will be to apply for a new residence permit which will allow you to open a business in Germany or become self-employed. The benefit of this permit, that you can still study at university as long as you have a visa and money to support yourself.
So it allows you to run a business and study at the same time, or entirely focus on the company if you don’t study anymore. It all sounds good, but there are difficulties with this visa. Thus, one must fulfill the criteria of residence permit for self-employed, which includes:
- there is a high economic interest or a special regional need,
- the activity can be expected to have a positive impact on the economy and
- the financing of the implementation is backed by equity or a loans
As a rule, the first 2 criteria are automatically met if at least 250,000 EUR is invested and five jobs are created. But if it’s not the case your business idea must be very valuable and reasonable for Germany.
The criteria of the first requirement are based in particular on the sustainability of the business idea, the entrepreneurial experience of the student, the amount of capital invested, the impact on the employment and training situation in the country, and the contribution to innovation and research.
As you can see, it’s not very easy for foreigners to get a business residence permit, but one should try anyway! Most importantly you must present all relevant information about founding a company in Germany, such as a business plan, a certificate of profitability, and plausibility.
Apply for Business Residence Permit in Germany
Probably the only option you have now is to apply for a business residence permit, which will allow you not only to run the business full-time but also to study if needed.
The first step is to proceed with the business idea and prepare all the documentation. After that, you can apply for a permit within Germany assuming your previous residency is still valid.
According to German regulations, the following persons are considered to be self-employed and should apply for a business visa:
- Sole proprietors including freelancers or owners of the trade
- General partner of the limited partnership
- Managing directors and representatives of partnerships and corporations, if they have contributed capital to the company
- The biggest shareholder of a GmbH
Documents you need for a business residence permit
The main documents required for the application of business residence permit in Germany:
- Valid passport
- Proof of qualifications and formal requirements of self-employment
- Certificates and qualifications of the most recent activities
- Proof of securing the financing of livelihood and self-employment
- Business plan
- Profit forecast
- Health insurance
For people older than 45 years additional requirement to have a pension plan applies. Moreover, a rental contract and proof of health insurance are very helpful.
Nonetheless, keep in mind the main criteria for your business in Germany we talked about before. If an applicant doesn’t fulfill them immigration office won’t approve the visa/residence permit.
- there is a high economic interest or a special regional need
An economic interest can be assumed if large investments are made, thus new job places are created. It also includes some resulting improvements in the market situations of already resident companies or technically high-quality products are manufactured.
- the activity has a positive impact on the economy and
- the financing of the implementation is backed by equity or a loan commitment
If you need money to finance your business in Germany you can apply for one of the easy to get loans, such as Auxmoney.
Have a business plan
In addition to a solid business idea, you should prepare a business plan. A business plan will give a better overview of the various steps and requirements of the business. It is also useful to have when a student applies for approval of part-time self-employment.
Thus immigration office (Ausländerbehörde) will see all scope of your self-employed activity and its part-time intend.
Your business plan for a self-employed residence permit should emphasize the following moments:
- the economic viability of the business idea
- the intention of making a profit
- finances and investments
- entrepreneurial and personal experiences
- possible economic effects and impact on the employment & training situation of the region
- a possible contribution to research and Innovation
Will you get it?
Rules for non-EU citizens are quite tough. Your business idea will go through examination where the German government will decite if you can open a company in Germany and, therefore, receive a residence permit or not.
The decision of the immigration office will depend mostly on your financial situation and business idea. They look at all cases very individually.
The examination will approve:
- Economical or regional interested in your business
- The amount of invested capital
- If labor and education markets are affected by your business
- Sustainability of the startup
- The profitability of the startup
Keep in mind, that you will most likely need to sell your product or service to the local market unless you are creating a location-independent online business. Take legal advice from the local layer before you do any important decisions. You can request a consultation with experts here.
If an applicant receives it, it will be limited by some period of time, usually 1 or 3 years (according to § 21 AufenthG). If the company ended up being successful and the owner’s livelihood is secured. Already after 3 years, you can apply for a permanent residence permit in Germany.
Starting a Company or Become a Solo-Proprietor in Germany?
In Germany, you can become self-employed in different ways, e.g. start a company or sole-proprietorship.
Sole-proprietorship in Germany
The easiest and less expensive way to work on yourself (especially as a student) is to become a sole proprietor (Einzelunternehmer). The owner will have unlimited liability for the debts and obligations that arise. Many online businesses are often founded this way.
The process is super uncomplicated and low-cost. Steps to take when setting up as a solo-proprietor in Germany:
- register in the Handelsregister, the German Trade Register
- apply for a Gewerbeschein (trade license)
- pay 20 EUR the Gewerbesteuer (trade tax)
- register the business with the tax office (Finanzamt)
Starting a company in Germany
Firstly you need to choose which form of company you want to found. There are 4 different forms of enterprises in Germany:
- GmbH – Limited liability company
- KG – Limited partnership
- AG – Public limited company or Joint-stock company
- Offene Handelsgesellschaft (OHG) – General partnership
GmbH – is the common LLC and the most common way to start a business in Germany. It is suited to small and medium-sized businesses.
Unfortunately, starting capital for LLC is at least 25,000 EUR from which 12,500 EUR have to be deposited in a corporate bank account during the registration procedure. So you can start with 12,500 EUR and deposit the rest later on.
The incorporation procedure is rather simple, as the shareholders of the company have to sign the deed of formation and the articles of association. The procedure is performed with the assistance of a public notary in Germany.
KG – The limited partnership – to start a German limited partnership you need a capital of 50,000 EUR, which has to be split into shares. This type of company is more suitable for small and medium-sized businesses.
AG – Public limited company – also not rare cases in Germany, many big companies operate in this way. To start AG you need starting capital of 50,000 EUR and must be registered in the Register of Companies.
OHG – General partnership – in order to start a general partnership in Germany, there is no need for capital. In contrast to GmbH and AG, the partners in an OHG have unlimited liability. A general partnership has to be registered with the Trade Register.
Steps To Take
It is important to mention that you can’t set up a company in Germany without visiting Germany. The founders of the company need to sign the application for registration in front of the notary.
Generally, company formation consists of the preparation of required documents and registration with several German authorities. Below you can see the most important steps for company formation in Germany:
- Choose a form of the business or company type: this ranges from a sole proprietorship, limited liability company, the joint-stock company, or the limited partnership.
- Choose a company name: the name of the new legal entity needs to be unique and can be checked for availability.
- Execute the formation with a notary: take steps I listed above in the pricelist
- Deposit the share capital.
Request the help of legal professionals in Germany, before you make any significant decisions about your business. It will save you a lot of nerves, time, and money.
For all those procedures you will need a banking account, get an easy online setup with this bank at minimal costs!
Don’t forget about taxes for self-employed in Germany
How to be a business owner, self-employed, or freelancer in Germany and avoid the bureaucratic nightmare? Get Sorted!
It’s an online tool for managing all your tax obligations, reports, payments, and communications with the Finanzamt (tax office) in Germany. The tool will do all the bookkeeping, tax, and VAT declarations.
Sorted is available for small business owners, freelancers, and for people with the side income. So whether you study, have a side job or business in Germany, this tool will be super helpful.
What can you do with Sorted?
- Legally register as a freelancer or self-employed if you are just starting out
- Create legally correct invoices
- Prepare and submit tax reports
- Get help from professional tax advisers
- Connect to your bank account for the full transparency
- Track your income and expenses
- Full overview over taxes
Most importantly, it allows you to submit your tax reports to the German tax office. Based on your income and expenses, Sorted will automatically fill in all of your tax reports, and after, you can submit it online in one click.
Moreover, all necessary features are available at zero monthly costs, but you can sign for the Pro or Business version at any time. Sign for a free account here.
What Are Costs of Starting the Business in Germany
Depending on which business you want to start and which form it will cost you a different amount. Below you can see the basic expenses when opening an LLC/Joint-stock company or become a solo-proprietor
To set up the business in Germany will cost you 1,011 EUR for LLC (GmbH), 2,500 EUR for the joint-stock company (AG), 2,000 for GmbH & Co. KG and 50 EUR for a sole proprietorship.
Self-employed/Sole trader/Sole proprietor
A sole proprietorship is the most inexpensive and easy option to become self-employed in Germany. You only need to register a business or trade-in Gewerbeamt (trade office) of your city, which costs between 15 and 65 EUR.
GmbH – Limited Liability Company
Share capital is a must if you want to set up a GmbH. You must have at least 25,000 EUR in order to start an LLC in Germany.
When setting up a limited liability company you have to hire a notary to help you with registration. You will need a wide range of their services which in total comes to 850 EUR. Plus VAT – taxes on received services 19% – a total of 1,011 EUR.
Read the full article:
Finance Your Business in Germany
If you need the money to finance your business in Germany, you can also apply for a loan at Auxmoney. They offer financing options for self-employed, freelancers, and founders.
There you can apply for a personal loan within five minutes. The application process is completely online. The amount you can borrow ranges from 1,000 and 50,000 EUR, and the duration of the credit can be between 12 and 84 months. If you plan to finance a company in Germany, you can even borrow up to 750,000 EUR.
Moreover, you don’t need to provide a reason why you need a loan. Auxmoney is rated as 4,8 out of 5 among its clients. So go ahead and borrow some money if you don’t have enough of the personal saving to make a leap in your business!
Health Insurance for Business Owners & Freelancers
Health insurance is one of the biggest expenses for self-employed people in Germany. Previously you probably have paid for student insurance or your employer was responsible for it, but not now.
Self-employed people are obligated to pay their health insurance every month in accordance with their income. In Germany, you can choose either a statutory or private health provider.
Public health insurance costs a fixed rate per month – 14,6% of your income, not the revenue but actual profit.
Thus, the benefit of private insurance is tremendous for business owners in Germany. The private provider can be a better choice for a business owner, it has a monthly/yearly rate that doesn’t depend on the income.
Why self-employed in Germany should consider private health insurance?
Private insurance will be a smarter decision, since it doesn’t charge a percentage of your profits but the pre-agreed fixed rate.
Most freelancers, self-employed, and ex-pats can opt for Ottonova and Feather in Germany. The price ranges between 261 EUR and 480 EUR per month. And if you’re a younger, healthier business owner, private insurance will be even cheaper for you.
Besides that, you can sign for public insurance, which costs a minimum of around 300 EUR a month.
As your earnings grow, public health insurance contributions will grow as well. That’s why we recommend private coverage – it doesn’t depend on your income.
Hence, taking out the private plan from the beginning is a better idea.
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