A Guide To Setting Up A GmbH In Germany

Setting up a company in Germany can come up with a lot of challenges. There are usually three types of corporations you can set up:

GmbH—Gesellschaft mit beschränkter Haftung also known as “company with limited liability”

AG—Aktiengesellschaft also known as “public limited company”

UG—Unternehmergesellschaft haftungsbeschänkt also knownas a “mini-GmbH”

Out of these three, the most popular is a GmbH. Setting up a GmbH in Germany limits your liability. In case anything at all goes wrong, the responsibility lies in your company and not with you personally. When you own a GmbH or in other words a limited company, the liability rest with your corporation. Your private life does not get subjected to any liabilities of the company. It can be as big or as small as you like. You could be a massive conglomerate or a one-man show, without any support staff. There are some exceptions to this limiting in liability, mainly having to do with taxes and social security taxes. You may be liable for these despite everything.

If this sounds like a good option to you, here is a step by step guide for you to set up your business:

Step 1 - Find A Notary

In Germany, the contract related to setting up a GmbH will not be valid until a notary signs. So, to start such a corporation you would need to find a notary.

Step 2 - Have Money In Your Bank Account

In order to be a GmbH, there is an initial amount of €25,000 you need in the bank. In the start, you need at least half of it that is €12,500. You can use this money for your business but it has to be there.

Step 3 - Come Up With A Proof Of Deposit In Front Of A Notary

Once you have the notary and have the money deposited, all you need to do is show the notary the bank statement which is a proof that you have transferred the money to your account. Once you show this, he will register your business with the trade register.

How Taxes Work With A GmbH

Your VAT would stay the same irrespective of whether you’re a GmbH or sole proprietor. But that is the only similarity between the two. Taxes involved in a GmbH are much more complicated and have a lot of formalities. So you should hire a tax consultant for yourself as it is not easy to do GmbH taxes yourself. German fiscal authorities are pretty strict and everything needs to be at “arm’s length”. Therefore, if you are not careful about this, you could get yourself in a mess you did not mean to create.

For example, if you are the director of your company you would need an employment contract which also stipulates your salary. In case you ever change your salary, you would need to officially make an amendment to the existing contract. But as it is your GmbH, you might have a lot of other business to take care of and you probably would not set aside the time for such a small formality. But, if you do not get it done, the government would simply say, “Hey, looks like that contract isn’t valid,” and that could lead to a lot of fun things like double taxation and much more and you surely do not want to get involved in that.So in other words, “With great power comes great responsibility.”

Finally, the tax rate for GmbH companies varies, but at the corporate level, there are two types of taxes, a GmbH must pay:

Corporate Tax which takes around 15%

The Trade tax which is also around 15%

If there are shareholders involved there may be another tax you might have to pay, but that does not apply to every company.