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    When there is an incoming tax, the just man will pay more and the unjust less on the same amount of income.

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Company Register Germany

How to Set Up a Company in Germany

The German government provides information about their companies through the office of the German Ministry of Economy and Technology. Foreigners wishing to invest in Germany can get a lot of relevant information through the Ministry's website. They are offered step-by-step procedures on how to start investing in German companies, the business planning strategies they require, and techniques that can be used in management to ensure that the business stays afloat. The website provides information in several languages including English, Turkish, French and Russian.

Starting a company in Germany is pretty straightforward. The basic procedures and formalities that are followed during the German company registration process are based on German laws and regulations. When it comes to registering a company or a business in Germany, the law does not make a distinction between locals and foreigners.

The law in Germany differentiates between limited companies, public limited companies (joint stock companies) and other forms of business partnerships. The Limited Liability Company or "Gesellschaft mit beschränkter Haftung" (GmbH) is the most common corporate structure in Germany.

If you cannot raise the required minimum nominal capital of € 25,000 for registering a GmbH, you can still register a "Unternehmergesellschaft" (UG haftungsbeschränkt). This is a sort of baby-sized GmbH, which was introduced in November 2008. This can be registered with a minimum share capital of between € 1 and € 24,999. However, the owners of such a company are required to invest back at least a quarter of all their future annual profits into the business. This is meant to boost its capital reserves until it reaches the statutory minimum amount of € 25,000.

Before registering a limited liability company in Germany, the agreement between the partners or shareholders must be recorded by a notary public. The agreement and the Company Register Germany application is managed by the notary. This is a minimum requirement before the company is entered into the German company register.

Limited liability companies in Germany are required by law to maintain adequate accounting records. Regardless of their size, these records must be framed in an orderly manner using the double entry accounting system. The electronic accounting must comply to the German GDPdU requirements. Companies must also provide annual statements including a profit and loss report, a balance sheet and explanatory notes to the company's accounts within three months of the start of a new financial year. Small companies (Unternehmergesellschaft) can provide their accounts within an extended period. These annual statements of accounts must be published and filed with the Federal Bulletin.

Limited Liability Companies and Taxation

Limited liability companies are required to pay corporate income tax plus solidarity surcharge and municipal tax.

If a company distributes a dividend, this money is liable to capital gains taxes. However, considering double taxation agreements and parent-subsidiary directives it is tax free.

If the limited liability company suffers some losses during a financial year, partners cannot offset such losses with income from other sources. This is due to the fact that, the GmbH is a separate legal entity. It is independent from its shareholders. However, these losses can be carried forward or backwards in order to reduce the tax burden.

Limited Liability Companies and Labor Relations

Foreign investors are required to observe labor contracts. These contracts should always be in writing. This is also the case for notices of contract termination. The rights of employees are stipulated by various laws such as the Federal Vacation act, which stipulates vacation benefits that must be given to employees. Employers cannot deviate from these laws.

Companies are usually supposed to pay half of their employees' pension, old-age care, unemployment and health insurance. They must also pay accident insurance, workers compensation board insurance, which is a statutory requirement. These contributions should be paid to the health insurance fund and the Employers' Liability Insurance Association.

Public Authorities

Before starting operations, companies must be registered to the local authorities. This is mostly the local Trade Office. This office will then inform the tax office immediately. The tax office will in turn send a questionnaire to the company. This is meant to acquire the necessary tax information. The questions concern information such as the company address, banking information and any other data necessary for taxation purposes. The tax office will also assess whether the company should pay any advance payments on business, corporation or income taxes. They may also assess whether the company is liable to pay VAT. A European VAT-ID number should be applied for by companies that intend to carry out cross border business. The questionnaire should be filled in and returned back within a month.

Foreigners who intend to start a company in Germany can use the English language online portal provided by the German Ministry of Economy and Technology. This website contains procedures, regulations and requirements for starting a company in Germany.

For more information contact us now!

German Payroll

Payroll can be defined as the sum financial records for all employees in a company, e.g. salary or wages, bonuses, incentives, tax or any other deductions, pension funds, provident funds, etc. Payroll can also be referred to as the remuneration paid for services provided by the employees within a certain period. Payroll is crucial for any company since it is subjected to various regulations and laws in various countries. For example, US payroll is subject to state and federal regulations and thus substantially affects the net profit of most companies. Most importantly, companies should avoid any payroll irregularities or errors and hence payroll has to be conducted accurately and with timely remittances of accurate deductions to all the employees.

Below please find a brief comparison of payroll considerations in some major countries.

US Payroll

Payroll taxes are levied in proportion of salary of employees and are expenses above the expenses of gross pay of an employee; however, US payroll and income taxes collected through deductions are held by the employer in trust for later remittance. Regularity of generation of payrolls varies from company to company and across various job designations in the same company. Common payroll frequencies may be: daily, weekly, bi-weekly, semi-monthly, monthly. Bi-monthly, quarterly, semi-annually and annually are less preferred payroll frequencies.

Net pay = gross pay - payroll tax deduction - voluntary payroll deductions

Gross pay = pay rate * (number of hours worked + overtime if any)

Payroll taxes in US include:

  • Federal income tax withholding (based on Publication 15, Employer's Tax Guide by IRS) and Federal unemployment taxes (FUTA)
  • Social security tax withholding (6.2 % up to 106,800; in case one is self-employed, one needs to pay a combined amount of 12.4 % for both employee & employer)
  • Medicare tax (1.45 % on entire salary; in case of self-employed, one needs to pay a combined amount of 2.9 % of net earnings)
  • State income tax withholding and state unemployment taxes (SUTA)
  • Various local tax withholding, e.g. county taxes, city taxes, school taxes, unemployment and state disability insurance

UK Payroll

Payroll frequencies: weekly, bi-weekly, monthly, quarterly, half-yearly and annually. There may be multiple payrolls per company, e.g. monthly casual payroll and monthly staff payroll.

Features: Support for COSR/COMP pension schemes, tax and net income calculations, unlimited payments and deductions, email payslips, reporting across pay periods (including different tax years), leave management for sickness or holiday, pay grades, spine points, employer costs across many cost centers.

Calculation types: % gross, % taxable pay, daily rate, hourly rate, etc.

Additional functions: e.g. "Reduce Pay Item", where salary gets reduced by the amount of occupational sick pay in order to avoid any overpayments; "Inherit Pay Item Units" for manufacturing companies, where pay element is automatically completed with hours from selected pay item since they also pay an hourly bonus to their employees.

Payroll systems: Attendance Driven Payment and Data Driven Payment

German Payroll

With a growing number of cross-border employees and self-employed people engaged in cross border activities, there lies a chance that expatriates may be subjected to double taxation depending on their place of residence, i.e. income tax may be charged by both the country of residence of the employee as well as the country where the employer has been working. Thus, Germany has signed double taxation agreements with around 90 nations to exempt employers from paying the tax twice so that the disincentive to foreign investment gets reduced.

Features of German payroll:

  • Payroll is based on the PAYE (Pay-As-You-Earn) system in which employers deduct the amount of tax debt from the salary or wage.
  • Foreign businesses which don't have their branch offices in Germany but send their employees to work in Germany are partially liable for German payroll (social insurance, workers compensation board) if the employee has a permanent work residence in Germany or is a permanent representative for the company.
  • An individual may need to pay about 14 to 42 % tax. A solidarity surcharge gets added (supplement on income tax 5.5 %) depending on his or her income. Church tax of around 8 to 9 % is levied on members of the Catholic as well as Protestant church. Unemployment (3 %) and retirement insurance charges (19.6 %) are also payable, but this is refundable if the employer leaves Germany after 2 years. An individual is entitled to German retirement benefits if he or she stays more than 60 months in Germany. One is also required to pay health insurance (15.5 %). Long-term care insurance (1.95 %) is also levied on taxpayers who don't have children.
  • The amounts of social insurance payments are subject to certain income thresholds.
  • Net salary = gross salary – (income tax + solidarity surcharge + church tax + social security).
  • Relevant principles laid down by the German government with regard to taxation include: Equality in taxation, lawfulness of taxation, the ability to pay principle and the welfare of state principle.

Thus, any German payroll service provider needs to have profound knowledge of the specificities of payroll regulations for employees delegated to Germany. Moreover, the data of the employees as well as the company are very confidential and sensitive; hence high data security is required. The staff of the service provider need to comply with the German Data Protection Act and the German payroll service offered needs to be compliant with German legislation. Usually, the payroll services provided are:

  • Registrations of starters or de-registrations of leavers
  • Setting up of payroll system for the company with their cost centers
  • Inclusion of pension schemes, wages details and calculation of net wages
  • Preparation of payroll reports, nominal journal, social security references and reimbursement claims for maternity or sickness
  • Production of payslips and payment documents to be sent to the banks
  • E-submission and printing of social security evidence and tax notifications
  • Production of income tax certificates annually, annual social security reports and end of year reports
  • Some additional services may be: bookkeeping, social security registration and filing, funds transfer, leave management, answering to third party queries, reviewing of travel expense reports, assistance in audits etc.

A specialized German payroll service provider manages the whole payroll processes effectively and efficiently for clients who are not so familiar with German legislation of human resources. The service provider advises regarding an individual's obligations as an employer or employee in Germany and thus makes sure that everyone is compliant with German Payroll laws.

For more information contact us now!

Each to His Own:  Tax Advising And Services for Freelancers And Independent Contractors

In your line of business you are motivated and dedicated. You are an expert in your field. You put your lifeblood at your customer’s disposal.

Tax Law is becoming increasingly complex and confusing – and economically important!

My entire team and I are at your side for all your needs: from individual vouchers to annual statements of revenue.

Bookkeeping (monthly/quarterly)

Your profile provides us with a framework for your system of accounts. This allows us to compare your data with those of your competitors.

Business Assessment

Trust our competence in controlling. Let us plan and manage together.

Advance VAT Returns

Naturally, we transmit your advance VAT returns electronically.

Annual Tax Returns

We prepare your annual tax returns in a timely manner and with great care.

Statements of Revenue

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Inbound Services

We are specialized in inbound tax, accounting, and payroll services for international clients doing business in Germany. If you want to invest in Germany or think about doing business in Germany (e.g. founding a subsidiary), we will be there for you all the way.

Our satisfied clients are from the following countries:

caCanada
frFrance
ilIsrael
itItaly
jpJapan
nlNetherlands
esSpain
gbUnited Kingdom
usUnited States

Whether you just need information about taxes in Germany (the German tax system in general or specifics like the German corporate tax rate etc.), or whether you require the full range of services from the taxation of inbound investments to corporate inbound income taxation and international business tax planning, we look forward to assisting you.

Based in Munich, we are thoroughly familiar with German accounting standards. We provide inbound accounting as well as financial reporting and we consult on related issues of German corporate compliance (regardless of whether or not we also do the accounting for you).

Finally, we provide complete German payroll administration services. Of course we also assist you with all the small details like obtaining a German VAT number or a German bank account.

Call us now at +49 89 130 120 80 to discuss your requirements, or email at: This email address is being protected from spambots. You need JavaScript enabled to view it.

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