WHAT KIND OF COMPANY FOR YOUR BUSINESS IN GERMANY?
Foreign investors who wishes to start a business in Germany may establish German operations as partnerships ,companies or branches of the parent entity. It is also possible to establish an inofficial presence through a liaison or contact office or, for that matter, by merely employing an individual to live and work in Germany as a direct employee of the main company.
When you set up a business, you have to choose what kind of company to set up. There are several considerations to take into account:
- Initial share-capital, the number of shareholders,
- Whether there are any partners,
- The responsibilities of the management,
- The tax regime for the management, etc.
- Level of limitation of liability
Entrepreneurs can choose between a variety of legal forms for conducting business in Germany. There is no specific investment legislation in Germany, nor is a minimum percentage of German shareholdings required for foreign entrepreneurs.
FORMS OF CORPORATION IN GERMANY
| Legal/Establishment Form | Minimum Number of Partners | Minimum Share Capital | Legal Liability |
|---|---|---|---|
| Limited Liability Company Gesellschaft mit beschränkter Haftung (with the suffix GmbH) | One partner | EUR 25.000 | Liability limited to share capital |
| Limited Liability Entrepreneurial Company Unternehmergesellschaft (“Mini GmbH” with the suffix UG) | One partner | EUR 1,00 | Liability limited to share capital |
| Joint Stock Company Aktiengesellschaft (with the suffix (AG) | One partner | EUR 50.000 | Liability limited to share capital |
| Partnership Limited by Share Kommanditgesellschaft auf Aktien (with the suffix KGaA) | Two partners: general partner and limited shareholder | EUR 50.000 | General partner: personal unlimited liability Limited shareholder: limited share liability |
FORMS OF PARTNERSHIP
The main feature of a partnership is the personal commitment of the partners to their working efforts to the partnership. In contrast to corporations, partnerships are not independent legal entities but associations of people. In partnerships, the individual partners responsible for the liabilities of the company (including private assets) act for the company. Limitations of liability for individual partners are only possible to a limited extent.
| Legal/Establishment Form | Minimum Number of Partners | Minimum Share Capital | Legal Liability |
|---|---|---|---|
| Civil Law Partnership Gesellschaft bürgerlichen Rechts (with the suffix GbR) | Two partners | Not required | Personal unlimited liability |
| General Commercial Partnership Offene Handelsgesellschaft (with the suffix oHG) | Two partners | Not required | Personal unlimited liability |
| Limited Partnership Kommanditgesellschaft (with the suffix KG) | Two partners: general partner and limited partner | Not required | General partner: personal unlimited liability Limited partner: limited share liability |
| Limited Partnership with a Limited Liability Company as a General Partner GmbH & Co. KG | Two partners: general partner (GmbH) and limited partner (the general partner is typically the limited partner of the KG) | Not required | General partner (GmbH): personal unlimited liability Limited partner: limited share liability |
Value Added Tax – VAT
The VAT tax rate in Germany is most likely 19% with reduced rate of 7 percent applies to daily items like certain consumer goods and everyday services (such as food, newspapers, local public transport, and hotel stays).
Corporate Income Tax in Germany
The aggregate German corporate tax rate is around 29.58%. it is calculated on the basis of the official corporate income tax rate being 15%, the solidarity surcharge being 0.825% (5.5% of the corporate income tax), and the local trade tax, which varies between 7% and 17.15%
Current Tax rates are:
| Corporation Tax | 15% |
|---|---|
| Solidarity Surcharge | 5.5% |
| Municipal Trade Tax | 7% – 17.5% |
| Withholding Tax | 25% on dividends / Up to 25% on interest |
| Sales Tax/VAT | 19% |