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 in Germany you need to consider all costs involved and if you can afford it al 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 to 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 the 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.
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!
|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 costs||815 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 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 worth it or not.
Additional costs when running the business will be double-entry bookkeeping, accounting, inventory, which are required for both companies.
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 costs 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 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 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.
Health insurance is an obligation in Germany, you can choose either a statutory or private provider. Statutory or public health insurance costs a fixed rate per month – 14,6% of your income, not the revenue but actual profit.
Private insurance isn’t tightened to your income, rather 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.
Usually, private insurance providers set their rates independently and moreover, offer better coverage. Check out the most recommended insurance in Germany, Ottonova, it’s especially structured for business owners, expats, and freelancers.
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 a 14,6% of their gross monthly salary, 7,3% of this pays your company and 7,3 will be deducted from the salary of the employee.
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 higher than 59,400 EUR gross, you should opt for a private health insurance provider, which rate doesn’t depend on your income.
Self-employed in Germany has 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 is the best health insurance for self-employed in Germany.
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.
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.
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.
Generally a self-employed has to pay only income tax on his/her 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.
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 the CEO of the company you also will need to pay income tax to the government. You can see the rates below.
|Bracket||Taxable income||The marginal rate|
|1||up to EUR 9,408||0%|
|2||EUR 9,408 – EUR 57,051||14% rising progressively to 42,00%|
|3||EUR 57,051 – EUR 270,500||42%|
|4||from EUR 270,500||45%|
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.
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.
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%, the reduced rate of 7%.
Corporations pay VAT on 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.
Self-employed pays business taxes only if he/she has a trade business, but freelancers (Freiberufler) like layers, doctors, architects, and others are fundamentally exempt from this taxation.
However, they pay only when annual profit exceeds 24,500 EUR.
Corporations are always subject to business tax.
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 cooperation, 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 and at affordable price here.
As you can see cooperation pays more taxes that sole proprietor in Germany. And it is quite tax-heavy country.
Steps to Take When Starting a Business in Germany
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 notary: take steps I listed above in the pricelist
- Deposit the share capital.
Don’t forget about additional procedures that are necessary to run your business, such as finding and register an office, opening a bank account, and hiring a local accountant for the company.
As you probably won’t manage to do the bookkeeping yourself, unless speaking fluent Germany and have some decent knowledge in this area.
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 set up 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 EXPENSE||ESTIMATED COST|
|Incorporation Fees||Under 1.000 EUR|
|Office Space||100-1,000 EUR per employee per month|
|Inventory||17-25% of total budget|
|Marketing||0-10% of total budget|
|Website||About 40 EUR per month|
|Office Furniture and Supplies||10% of total budget|
|Utilities||About 2 EUR per square foot of total office space|
|Payroll||25-50% of total budget|
|Professional Consultants||1,000-5,000 EUR per year|
|Insurance||An average of 1,200 EUR per year|
|Taxes||Variable, but 15% corporate tax rate|
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