Tips for starting a business in Germany
If you are setting up a business in Germany, here's a guide on market opportunities and how to navigate German regulations for foreigners starting a business in Germany.
Plenty of English speakers have taken their chances starting a business in Germany, ranging from relatively small companies such as English-language schools, Irish pubs and English-language bookshops, to bigger investments in the high-tech sector. Certain nationals can also apply for a German work permit for the purpose of setting up a business.
German opportunities for the ambitious
With German law making no distinction between Germans and foreigners in the establishment of companies and no restrictions on the repatriation of profits, nothing stands in the way of ambitious expatriate entrepreneurs with a little capital. However, nationals from outside the EU/EEA/Switzerland may need a visa or work permit in order to legally reside and work in Germany. Read more about German visas and permits, and getting a German work permit.
The basics of German company law have many similarities to those in English-speaking countries. It distinguishes between limited liability companies (equivalent to a British limited company), joint stock companies (equivalent of a British Public Limited Company), and various forms of partnerships. It is normally advisable to have a lawyer help you decide which is the most suitable for your needs and go through the necessary official rigmarole.
Jumping the hurdles
Before starting the race through bureaucratic hurdles, it is recommendable that you evaluate your business’s chances and risks and to prepare a business-plan. This business-plan is mandatory when talking to banks or applying for benefits at German authorities.
The kind of business and financial strength in most cases determines the form of company for your business.
Whatever form of company you choose, you will need to tackle a number of bureaucratic hurdles. The first important steps are to contact a financial or tax advisor. They will know if it is necessary to hire a notary and how to register the business at the local court (amtsgericht). Shortly after this, the chamber of commerce should contact you, having received your details from the commercial register.
The next step is to organise two sets of tax registration, one for commercial tax at the so-called Gewerbesteueramt and one at the local tax office (finanzamt). After this it is possible to obtain a certificate of registration (gewerbeanmeldeschein) and to commence business.
Expat entrepreneurs in Germany
And how do expatriate founders of companies deal with this system? Paul Gurner runs St. George's Bookshop (Wörther Strasse 27 in Prenzlauer Berg), one of the best places in Berlin for second-hand English-language books. He says that bureaucracy was one of the biggest obstacles they faced when they set up the company around seven years ago.
Getting hold of permits to open a business was a problem, as was taking on staff. "Employing non-Germans can be tricky. You have to show that you aren't taking a job away from a German," he says. "You have to inform the job centre about the vacancy and they send people round – even if you have someone lined up."
Gurner, who has started several companies in England, thinks that it is more straightforward to set up one there than in Germany. That did not put him off, though, despite the language barrier when he first started.
And what advice would he give for starting a business in Germany? "Do lots of preparation beforehand. It took us six months," he says, "and use a tax consultant."
Expatriate business start-ups in Germany are of course vulnerable to cash flow problems, with some clients slow to pay up and banks not always keen to extend overdrafts for developing firms. Gurner says it is vital to be patient and not expect to make a lot of money at the start, but as he observes, "that's true everywhere."
A guide to German company forms: GmbH The most common form of company is the limited liability company, mostly known by the acronym GmbH, which corresponds to a British Limited Company (Ltd.). Share capital must be at least EUR 25,000.
Since 2008, entrepreneurs have been able to start a so called Mini-GmbH (unternehmergesellschaft haftungsbeschränkt). This form of company was developed especially for start-ups, as the bureaucratic efforts are simplified and the minimum share capital is reduced to EUR 1.00.
Another expatriate entrepreneur is Alan Twigg from Sheffield, who came to Germany as a lorry driver 15 years ago.
He is now involved in three businesses here, including a translation agency and an online audiobook firm (www.playtime-books.com) from his base in Neuenburg in northern Germany.
He does not find Germany very open towards freelance work and business start-ups. "I think British people are more entrepreneurial," he says, and is glad that he deals only with freelancers and so avoids the "nightmare" complications of German labour law.
Nevertheless Twigg still thinks that Germany is a great place to start a business. "The opportunities in Germany are massive. It is an untapped giant."
Optimism seems to be spreading at last. That is the impression that Martin Brune, tax advisor in Duisburg, has. During the last financial crisis more and more expats decided to start their own business – and are now on a successful way to increase this business. There are still many possibilities to niche a market if one has a good idea and the skills and courage to start a business in Germany.
- www.bccg.de: British Chamber of Commerce in Germany
- www.agbc.de: American-German Business Club
- www.existenzgruender.de: The German government's business start-up portal (in English).
James Kennaway / Martin Brune / Expatica
Updated from an original article by James Kennaway in June 2011 by Tax advisor Martin Brune. Martin Brune is listed on Expatica's A-Z listing under Tax category.
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