How to found a GmbH in Germany: A comprehensive guide for expats

Are you an expat considering setting up a limited liability company for your business venture in Germany? This comprehensive guide by GmbH Tax Services aims to provide all the information you need to navigate the process of founding a GmbH and highlight key legal requirements and the roles of various officials involved in the company formation process.

What are the requirements for founding a GmbH in Germany?

At least one shareholder (private individual or legal entity) must establish a GmbH. The nationality and residence of the shareholder(s) and the managing director(s) are irrelevant. However, the GmbH must have a German business address and a local representative.

Understanding GmbH and Mini-GmbH/UG

You may have come across the terms GmbH and Mini-GmbH or UG, and are unsure what the difference between the two is. 

In a nutshell: A GmbH is a limited liability company, while a Mini-GmbH or UG (Unternehmergesellschaft) is a simplified version of a GmbH with a lower minimum share capital (at least 1 euro). Both offer liability protection, but a Mini-GmbH must use a quarter of its annual profits to reach the share capital of a GmbH (25.000 euros) and show this in its annual financial statements.

What is the minimum share capital required to start a GmbH in Germany?

The minimum share capital for a GmbH is 25.000 euros, with each share having a minimum nominal value of 1 euro. At least 50 percent of the cash contribution must be paid up before the business can be registered.

What are the steps to founding a GmbH in Germany?

You need to follow these steps to found a private limited liability company in Germany:

• Choose a company name that meets the formal criteria and does not infringe on any existing trademarks
• Choose between standardised or customised articles of association that define the rights and obligations of the shareholders and the managing director (you might want to consult with an attorney or notary for this)
• Make an appointment with a notary
• Open a business bank account
• Register with the trade office, the tax office, the chamber of commerce, and the transparency register
• Set up a bookkeeping and payroll system

The different officials' roles

A few different officials are involved with founding a GmbH in Germany. Here’s an overview of what they all do:

What is the role of a notary in founding a GmbH in Germany?

The German notary must certify the company contract, which is required to form a GmbH. The notary also notarises the appointment of the CEO and the formation resolution, while also ensuring that the company is registered in the Companies Register.

Generally, the notary costs are about 1.500 euros.

What is the role of the commercial register court?

The commercial register is a German companies register kept by the local registry courts that stores entries about all merchants.

What is the role of the local trade office in founding a GmbH in Germany?

Every GmbH must register with the local Gewerbeamt (trade licencing office). From our experience, this costs somewhere between 15 euros to 60 euros.

What is the role of the tax office?

Tax authorities are responsible for the tax registration of the GmbH. They will issue a tax number and VAT identification number for the GmbH.

Business location and the impact on corporate tax

In Germany, all corporations - including GmbHs and AGs - are subject to corporate tax and municipal trade tax. 

What are the corporate tax rates in Germany?

The corporate tax rate is 15 percent. In addition, there is a solidarity surcharge of 5,5 percent of the tax, making the effective rate 15,825 percent. This rate is competitive compared to other countries in the EU or worldwide. However, limited liability companies in Germany must also pay a municipal trade tax.

What is the municipal trade tax in Germany?

The municipal trade tax is a corporate tax levied by municipalities at a minimum rate of 7 percent and a maximum of 21 percent. The trade tax rate in Germany is 3,5 percent multiplied by the municipality's trade tax rate (what is known as the Hebesatz). The tax is calculated on profit.

Why it matters where you locate your business operations

The overall effective tax rate of your GmbH ranges from 22,825 percent to 36,825 percent, depending on the business location.

Tip: Before founding your company in Germany, look at the municipalities in your area, as the tax rates can vary quite a bit! In Munich, the Hebesatz is 490 percent, while in the suburbs Grünwald and Gräfelfing, the rate is 240 percent and 250 percent - resulting in a total effective tax rate of 24,22 percent and 24,58 percent, compared to the 32,98 percent you’d pay in Munich.

For Berlin (410 percent), it might be worth considering Schönefeld (240 percent) as an alternative location for your limited liability entrepreneurial company.

Legal Requirements for managing directors

Managing directors of a GmbH must be individuals and can be of any nationality. Nevertheless, they have legal duties and obligations, and noncompliance can result in personal liability.

Foreign companies and investors in a GmbH are subject to the same legal requirements as domestic investors but may face additional regulations.

Role of tax advisors

A tax advisor can help with tax implications, preparing tax returns, planning, compliance issues, and setting up bookkeeping and payroll systems. However, it's important to note that tax planning can only have its full effect before any transactions are made. A tax advisor will also guide you through the startup process so you have more time to focus on your business.

GmbH Tax Advisor is Germany's go-to tax advisor for English-speaking owners of limited liability companies (GmbH). They take the hassle out of German tax law, making it simple and convenient for their clients. Use their corporate tax calculator to check the business tax rates in your area or visit their website to see their full range of services.