Cost of Setting Up Business in Germany: How Much Will You Need?

Jun 27, 2020Business in Germany, Living in Germany, Taxes

Starting a business is exciting, especially in the economically thriving country as Germany. However, the prozess isn’t simple and surely not free. Before even thinking about launching a new business, you need to consider all costs involved and if you can afford it at all.

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.

This post will help you understand how to organize your finances when starting a business in Germany and which options for incorporating are available to you.

The Cost Breakdown for Starting a Business in Germany

Costs for forming a company in Germany depend on which type of incorporation you choose, or maybe you even decide to become a sole proprietor, which is the most inexpensive option. See the cost breakdown for all forms of corporations and self-employment in Germany.

If you need money to finance your business in Germany, you can apply for one of the easy-to-get loans, such as Auxmoney.

Self-employed/Sole trader/Sole proprietor

Sole Trader is the most inexpensive and easy option to become self-employed in Germany. However, you will be liable with all your personal assets, so there is no protection from liability in case if your business is facing bankruptcy.

So you get what you pay for.

As a sole proprietor, you only need to register a business or trade-in Gewerbeamt (trade office) of your city, which costs between 15 and 65 EUR. If you start as a sole trader which is very common in Germany, you only will have trade register costs to get your business running.

Overall you can country with less than 50 EUR for the founding of sole proprietorship.

GmbH – Private Limited Liability Company 

GmbH- Private Limited Liability Company is the most common incorporation form in Germany. Founders and members aren’t liable with their private assets but only with what the company owns.

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.

As well as go through some authorities in Germany: German Trade Register, Trade office, Tax Office, IHK (German Chamber of Commerce), or HWK.

Exactly cost breakdown for setting up an LLC in Germany – the most common way to incorporate!

ServicesCosts
Company's contact conducted by the notary (must)125 EUR
Appointment for a company registration at commercial registry with notary (must)62,50 EUR
List creation of all shareholder by the notary (voluntary)57,60 EUR
Creation and mailing of XML file made by the notary (must)37,50 EUR
Supervision of the share capital payment by the notary (voluntary) 62,50 EUR
Mailing, Calling 40 EUR
Fee for registering company at register court (commercial registry) - (must)150 EUR
Fee of trade office (must)30 EUR
Total costs815 EUR

These costs are net, which means you have to add the VAT to this.

As you can see, most of the steps are obligated and also require you to hire a notary. Without a notary, you can’t incorporate a company in Germany.

AG – Joint Stock Company

This company type is suited to large businesses because of the possibility to increase the initial capital through the registration of the shares to the stock market.

The German AG or joint-stock company requires a share capital of a minimum of 50,000 EUR. The members are only liable up to the amount they have contributed to the capital, just like in the case of the LLC.

The founding process is also very similar to LLC (GmbH), owners will need to proceed with registration in various places: German Trade Register, Trade office, Tax Office, IHK (German Chamber of Commerce), or HWK. You can see all procedures in the table above.

The biggest difference to the LLC is that you need to invest 50.000 EUR as a shared capital when incorporating an AG in Germany. However, only 12,500 EUR must be available at the time of the cash formation.

The total costs of founding a joint-stock company start from approx. 2,500 EUR depending on the share capital.

GmbH & Co. KG – Form of German Limited Partnership

The “Gesellschaft mit beschränkter Haftung & Compagnie Kommanditgesellschaft” is a special form of KG (limited partnership) combined with a GmbH (LLC). Therefore, German GmbH & Co. KG is a hybrid form between a partnership and a corporation.

When setting up a GmbH & Co. KG owner will need to proceed with registration in various places in Germany: German Trade Register, Trade office, Tax Office, IHK (German Chamber of Commerce), or HWK and do it for both companies and therefore pay for both.

While founding one company, you practically will set up two companies in one: GmbH and KG. So that’s why costs are divided, and you will be paying the double price.

Firstly the capital of 25,000 EUR is required (because of GmbH).

Followed by notary costs: for the GmbH, the notarization costs amount to 207 EUR to 678 EUR; for the KG, the costs of notarial certification are 124 EUR to 276 EUR. The pricelist and all necessary procedures for the GmbH you can see in the table above.

Here are the most important of them:

  • Costs of business registration: 60 EUR for each
  • Registration in companies register: 150 EUR for each
  • And finally to proceed with a business registration that costs between 10 EUR and 60 EUR for each.

Therefore, when founding a GmbH & Co. KG, owners will pay the price twice. You need to decide if it’s worth it or not.

Additional costs when running the business will be double-entry bookkeeping, accounting, inventory, which are required for both companies.

Running costs

Now you know how much will it cost you to start a business in Germany but what about other costs? While running and managing your business, you will encounter many of them. Let’s have a look at all the important categories of expenses which you should expect.

While having a business in Germany, you will have to pay different contributions and taxes to the government. Many of them are part of the social contribution and payroll taxes that were paid by the employer when you were an employee. But now it’s time when you will need to take care of them on your own.

Health insurance

In Germany, everyone is required to have health insurance, which can be private or public. With private health insurance, rates depend on the provider and the coverage, but the public will always charge at least 14,9% of your gross income. (check out all insurance options in Germany here.)

To avoid paying too much for your coverage, read this article about the cheapest health insurance in Germany.

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.

Sole proprietor

Health insurance falls into one of the biggest expenses for a business owner. Now your employer isn’t responsible for submitting premiums, and you need to organize it yourself.

Statutory or public health insurance costs a fixed rate per month – 14,6% of your income, not the revenue but actual profit.

But private insurance isn’t tightened to your income, instead, you pay a fixed rate. Therefore, the private provider can be a better choice for a business owner, it won’t depend on your profit.

Corporations

As an owner of the corporation (GmbH, AG, GmbH & Co. KG), you of course, need to pay social contributions for all your employees, including one for health care insurance.

This will be 14,6% of their gross monthly salary, 7,3% of this pays your company, and 7,3 will be deducted from the employee’s salary.

If you are CEO of the company and, therefore an employee, the same rules apply for health insurance for you. However, if your annual salary is higher than 59,400 EUR gross, you should opt for a private health insurance provider, which rate doesn’t depend on your income.

Pension insurance

Sole proprietor

Self-employed in Germany have to pay monthly contributions to the statutory pension insurance. This costs at least 79,60 EUR and can be variable up to a maximum of EUR 1,054 EUR per month.

The amount depends on your yearly profits, for now, it’s 18,6% of it. The more you earn, the more you pay to the government in Germany.

Ottonova and Feather are two best health insurance for self-employed in Germany.

Corporations

As a business owner, you will again pay social contributions for your employees. Pension insurance is one of them and should be paid monthly.

The rate is 18,6% of the gross monthly salary, half paid by you and half by your employee.

Unemployment insurance

Sole proprietor

This insurance is voluntary but very recommended to have. The voluntary unemployment insurance currently charges 2,5% of your profits per month and covers the self-employed in case if he/she leaves the company. Therefore as an unemployed and not a business owner anymore, you will receive some benefits and support from the government.

To use this insurance, your business must be deregistered.

Corporation

For a business owner, this insurance isn’t voluntary and you need to pay it for your employees, so they are secure. However, costs are quite low – only 2,5% of the gross monthly salary, half paid by you and half by the employee.

Taxes

Generally, self-employed have to pay only income tax on their profits and VAT.

For GmbH & Co. KG: corporate income tax applies at Komplementär-GmbH, income tax applies at the limited partners, each with a solidarity surcharge. In the GmbH & Co. KG: trade tax, VAT, if applicable. Payroll taxes.

Income taxes

Sole proprietor

Every self-employed person must pay income tax on the income. The first 9,408 EUR is free from taxation, the after-tax rate is growing proportionally with the income.

However, the annual income tax return must be submitted if even income is lower. As a sole proprietor, you can manage all your taxes online by using this tool.

Corporation

As the CEO of the company, you also will need to pay income tax to the government. You can see the rates below.

BracketTaxable incomeThe marginal rate
1up to EUR 9,4080%
2EUR 9,408 – EUR 57,05114% rising progressively to 42,00%
3EUR 57,051 – EUR 270,50042%
4from EUR 270,50045%

Check out how much you will pay your employees in Germany on the salary tool Gehald.de, there you can see exact numbers and so calculate it in your budget.

Corporate taxes

Self-employed/sole proprietors don’t have to pay corporate taxes. They don’t have to register at the Commercial Registry, and therefore don’t have to become a member of or contribute to the Chamber of Commerce.

In Germany, companies pay corporate tax based on their net income over the course of one business year. The rate is 15%. Only profits are subject to taxation.

In addition to this, self-employed/sole proprietors don’t need to prepare annual financial statements for taxation purposes or pay a trade tax. They should do a simple profit-and-loss assessment instead. This is another benefit of choosing this type of legal structure.

VAT

Source: getsorted.de

Sole proprietor

In addition to income tax, self-employed persons must also pay sales tax, unless they fall under the small business regulation, in which a total turnover of no more than 17,500 EUR is generated.

VAT is paid on sold services and products, and returns can be received when buying other services and products. The normal rate is 19%, whereas the reduced rate is 7%.

Corporation

Corporations pay VAT in the same way as a sole proprietor does.

Taxes on dividends

These taxes apply only to corporations. Any time shareholders receive payment from the company, they will be taxed at 25%.

Business tax (Gewerbesteuer)

Business tax is paid on the yearly profits of the company. Rate varies between 5% and 17% depending on the location of your business because each state in Germany has its own rate.

Sole proprietor

Self-employed pay business taxes only if they have a trade business, but freelancers (Freiberufler) like layers, doctors, architects, and others are fundamentally exempt from this taxation.

However, they pay only when the annual profit exceeds 24,500 EUR. As a sole proprietor, you can manage all your taxes online by using this tool.

Corporation

Corporations are always subject to business tax.

Summary

As a sole proprietor, you will pay income tax that rate depends on your income and business tax between 5% and 17% if annual profit exceeds 24,500 EUR. With turnover above 17,500 EUR per year, you fall into the VAT category with a tax rate of 19%.

As a corporation, you pay income taxes if you are CEO, corporate tax of 15%, VAT of 19%, tax on divides to your shareholders 25%, and business tax between 5% and 17%, depending on your location.

You can submit your tax declaration in Germany online here

As you can see cooperation pays more taxes that sole proprietor in Germany. And it is quite tax-heavy country.

Get your taxes sorted in Germany!

Source: getsorted.de

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 have a 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.

Thousands of freelancers and business owners already happily use Sorted, read reviews here

Finance Your Business in Germany

If you need money to finance your business in Germany you can apply for one of the easy to get loans, such as Auxmoney. They provide money for different categories of people including self-employed and of course employees.

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.

Moreover, you don’t need to provide a reason why you need a loan. Auxmoney is rated as 4,8 out of 5 in service and offerings. So go ahead and borrow some money if you don’t have enough of the personal saving to make a leap in your business!

Steps to Take When Starting a Business in Germany

It’s 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:

  1. 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.
  2. Choose a company name: the name of the new legal entity needs to be unique and can be checked for availability.
  3. Execute the formation with notary: take steps I listed above in the pricelist
  4. Deposit the share capital.

Don’t forget about additional procedures necessary to run your business, such as finding and registering an office, opening a bank account, and hiring a local accountant for the company.

You probably won’t manage to do the bookkeeping yourself, unless you speak fluent Germany and have some decent knowledge in this area.

Do you probably think how long it takes to set up a company in Germany? It takes about two weeks for the company registration procedure to be completed.

For all those procedures, you will need a banking account, get an easy online setup with this German bank at zero costs!

What About Other Business Costs?

There is definitely much more to costs you will need to consider when setting up a proper (not online) business in Germany.

If you are a typical business and not the online one, you can expect other costs when setting up and running your small business:

STARTUP EXPENSEESTIMATED COST
Equipment10,000-125,000 EUR
Incorporation FeesUnder 1.000 EUR
Office Space100-1,000 EUR per employee per month
Inventory17-25% of total budget
Marketing0-10% of total budget
WebsiteAbout 40 EUR per month
Office Furniture and Supplies10% of total budget
UtilitiesAbout 2 EUR per square foot of total office space
Payroll25-50% of total budget
Professional Consultants1,000-5,000 EUR per year
InsuranceAn average of 1,200 EUR per year
TaxesVariable, but 15% corporate tax rate
TravelVariable
ShippingVariable

Recommended products and services in Germany:

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