Setting Up and Doing Business in Germany With a GmbH

Setting up a GmbH

The minimum capital of a GmbH is 25.000,00 Euro. A quarter of the nominal capital but at least 12.500,00 EUR has to be paid in at the time when the company is founded and before the application for the entry in the commercial registry is filed. If the GmbH has only one partner who shall also act as director he will have to provide a security for the outstanding residual amount.

In November 2008 a new sort of baby-sized GmbH was introduced. It is called Unternehmergesellschaft (haftungsbeschraenkt) or UG (haftungsbeschraenkt) and may operate at the start with a share capital between 1,00 and 24.999 Euro. However, the partners of such business company with limited liability are obliged to invest one quarter of the future annual profits of the company in into its capital reserves until the statutory minimum share capital of 25.000 Euro is reached.

The company agreement is subject to a notarial recording. The notary manages for the partners also the application for the registration of the company in the Commercial Register. However, the a notarial recording if the partners choose a standard set of clauses provided by law for their articles of association. This set stipulates only the minimum which is necessary for the company’s entry in the registry.

Costs for the establishment of a GmbH then depend on the nominal capital. For a GmbH holding the minimum capital of 25.000 Euro; the costs are:

– 168 Euro; of the notarial drafts of the company charter,
– 168 Euro; for the notarial recording of the first general meeting (actually not needed),
– 42 Euro; for the entry in the register, publication in the gazette
– 100 Euro; publication in the gazette

The notarial establishment of any company charter also requires the involvement a sworn translator unless the founders waive this requirement. The waiver is only accepted by the civil notary if he is assured that the founders gain proper knowledge of the company charter in another way.

Conduct of the GmbH

The start of a business must be reported to the local office of trade and industry. It will inform the tax office immediately and they will send a questionnaire to the owner of the business in order to acquire data which are necessary for taxation purposes. The questions refer from general information such as the type of business, its address, banking data and so on to data which are particularly important for the taxation, e.g. if the business is liable to VAT due to its size or whether the tax office will have to assess advance payments on the income, corporation and business taxes. If cross border business is planned the business owner can apply for a trade ID. The questionnaire has to be filled in and sent back to the tax office within a month.

GmbHs have to maintain an adequate and orderly accounting in the shape of a double entry book keeping irrespective of their size. They will also have to produce annual statements consisting at least of a balance sheet, the explanatory notes to the accounts and a profit-and-loss report within three months as of the beginning of a new accounting year. For small GmbHs this period is extended to six months. The annual statements have to be published by furnishing them to the Commercial Register.

Managing directors (Geschaeftsfuehrer, GF) act as statutory representatives of the GmbH. As such, they are exposed to various liabilities in particular if the business of the GmbH is not thrivng. In general, any damage caused through deliberate acts contrary to public policy can incur a personal liabilty of the GF eg. by the placement of orders at a time when the GmbH is already overindebted and is not able to pay the rendered work later on. In connection with the overindebtedness of a GmbH the criminal delay by the managing director in filing a bankruptcy petition is practically very relevant. Such petition is to be filed without undue delay upon the occurrence of either an overindebtedness or an illiquidity of the GmbH (after three weeks at the latest). However, if no plausible solution to save the business is on hand there is no cause in deferring the filing until the end of this three-week-deadline. Any financial obligation incurred after illiquidity or indebtedness may cause a personal liability of the GF against the contractors of the GmbH. Furthermore, the failure to pay wage withholding tax or social security contributions for the employees often may cause respective claims. Therefore, any GF is well advised to shorten the staff`s salaries or wages if necessary in order to keep enough cash to meet the statutory obligations. Otherwise, even a prison sentence for the GF may be imminent.

Business Income Taxation and Taxation of the Partners

The German government offers a variety of tax advantages as well as funding supports to starting businesses.

The GmbH is liable to corporate income tax including the solidarity surcharge and to business income tax. The corporation tax rate at present is 15 %. Losses incurred by the GmbH in one fiscal year can be carried further or backwards which may reduce the profits that serve as a basis for the assessment of the corporation taxes in earlier or later tax assessment periods.

In addition to the corporation tax the profits of the GmbH are subject to the municipal business tax at a rate that is made of result of the municipal rate as fixed by the municipality multiplied with 3,5 %. As the tax rates differ considerably from town to town the business tax constitutes a decision factor on the location of the company.

Dividends paid out to the shareholders as well as profits arising of the sale of share are liable to capital gains taxes at a rate of 25 % plus solidarity surcharge and – if applicable – church tax. Upon a respective application, the tax rate can be reduced for taxpayers with low income. Partners holding at least 25 % of the nominal capital or partners who hold at least 1 % and work for the GmbH can also opt for a taxation pursuant a partial income procedure (Teileinkuenfteverfahren). Here, 60 % of the dividends received or the sales profits are subject to income taxation. the other 40 % of the proceeds are income tax free. For corporations holding interests in a GmbH only 5 % of the dividends and sales profits received are subject to taxation. Foreign shareholders/ partners have to observe the taxation rules as stipulated in the double taxation agreements between Germany and their respective home country.

Labour Relations

A foreign employer will have to observe that labour contracts had better concluded in writing. This also applies to notices of termination of a work contract. Employees benefit from several rights which cannot be deviated from by mutual agreement to their disadvantage, e.g. in regard to the vacation which are stipulated in the Federal Vacation Act.

Employers are required to pay half of their workers’ health, unemployment, pension and old-age care insurance. They also have to pay for the statutory accident insurance. Moreover, they are responsible that the employers’ and the employees’ shares of the insurance contributions are paid to the Employers` Liability Insurance Association and health insurance fund in charge for the collections.

Further Information for Founders of New Businesses and Foreign Investors

The German Ministry of Economy and Technology offers an English language online service for foreigners wishing to start a business in Germany. This step-by-step portal lists start-up procedures, business planning strategies and management techniques to ensure the company is successful. State aid can also be applied for, although previous employment in the country is required for at least a year to be eligible for assistance in general.

Foreign nationals seeking to start-up a business the German Federal Ministry of Economy provides a website in English, French, Turkish and Russian with further information (URL: existenzgruender.de)

For foreign investors the “Invest in Germany GmbH” – a government agency – provides among others a thorough investment guide and comprehensive information about the German industries (URL: gtai.com)

Essentials to Land a Good Job When Relocating to Germany

Germany is home to 82 million people. This makes it the largest European Union nation in terms of population. When speaking of the number of immigrants coming from other nations, it ranks third worldwide. With these figures, why would you decide of relocating to Germany?

The answer is simply because the country has a flourishing economy. While it is the largest in terms of population, it also has the largest economy in Europe. The country acts both as an innovator and beneficiary of globalization making it a successful economy all over the world. Among a list of sectors that every foreigner or local would desire to fit in are those in the services sector, automobile industry and chemical production. Since the competition is stiff, you need to prepare yourselves when landing a job before relocating to Germany.

How to apply for work when relocating to Germany

If you are looking for work when relocating to Germany, you must consider some essential tips. This includes general conditions on applying for work, making your CV’s and application letters and preparing for the interview proper. Below is a detailed explanation on each part.

1. Applying for work. Formalities are needed when applying for work in Germany. Employers will consider your work experiences together with your activities at the moment. Do not hesitate to indicate the salary you expect from the company.

2. Curriculum Vitae preparation. Strict guidelines are followed when writing CV’s. Everything must be in chronological order. Place your photographs on the upper right hand corner of the CV. State gaps between employment and unemployment periods.

3. Application letter. Your application letter must be directly addressed to the person who will interview you. The typewritten name and position of the addressee should be the first thing seen on your application letter. Discuss the scope of the last position you previously had. Take note that German application letters follow the conservative letter format.

4. Interview proper. You should take note that German rules may differ from what you have been used to. Never ask for a position in the company or sit until the interviewer allows you. Never be late for any appointment set by the interviewer or else you may just lose an opportunity. Never speak ill about your previous employers. Always ask questions when necessary.

Understanding management culture when moving to Germany is also important

Apart from tips on how to seek employment, you must also look into the workplace culture or environment when moving to Germany. There is a different hierarchy of management in this country. Expect that it might be stricter than your previous workplace. Germans are known to work on exact details and not on assumptions. If you are already part of the team, you should have that attitude as well.

Time is also very essential to Germans the way it is essential to Americans. Therefore, you may never have a problem with punctuality. Meetings are held in an orderly manner and follow a schedule.

Once you have understood the working environment, relocating to Germany will rather be easier than you expected. This part is as essential as other parts of the move like looking for international movers to help you with the job. Looking for work and settling all other financial issues are your responsibilities while the transferring of your valuables is a job left in the hands of moving companies.

The War-Ravaged Germany

The Aquarius Sports Resort Hotel in Marawila, a sleepy western coastal town of Sri Lanka is always a fascinating place to me.

The beach-end restaurant of the resort facing the scenic Indian Ocean will become at times a forum for various international issues.

I had a good discussion with Marita Kantar at the beach-end restaurant of the Aquarius Hotel. The sun had started to go further and further towards the deep-end of the Indian Ocean’s horizon. The evening sunlight shone on Marita’s face as she was seated facing the ocean directly and I asked her whether she would like to seat opposite the ocean at the rectangular table. She smiled and opted to stay where she was enjoying the glorious sunset in the Indian Ocean.

While I was talking to her on various issues, I asked her how she felt about the massacre of Jews by Adolf Hitler. She said, “They are only the victims for a person who was mad and power-hungry.” She further continued, “He managed to brain-wash many for his unjustified cruelty on Jews and others in the Germany and neighbouring nations.” She burst out at one point by saying that the act of one lunatic had the effect of giving a bad image of them.

I placated her saying the act of one megalomaniac does not necessarily tarnish all Germans. I told her not only in Germany even in other countries by the act of some of the reckless leaders, their nation and people have become untouchables or villains for other communities and nationalities.

In our recent past, we have seen many like them. Saddam Hussein in Iraq for his marginalization of Kurds and Shi’ite Muslims and some of the leaders from then Yugoslavia for their violation of Bosnian Muslims and Croatians are too the perpetrators of crimes against humanity in their own way. Some of the culprits had been prosecuted by the International Criminal Court for War-Crimes, but others escaped. Still there are many war criminals around the world at large.

I told her, “These culprits are either hiding or not punished yet or still the law is not strong enough or its enforcement is too weak”.

As Marita was a Diploma student and doing her field of studies in managing social science, I asked about the unification of Germany which created a lot of unemployment problems in Germany and some Germans in the former West German part are uncomfortable about it. I knew as she is from the former East German part, she might feel uncomfortable at my question. Her eyes had gone really blurred over my question and answered with a sobbing emotion, “the Germans won’t like them to be seen as East Germans and West Germans.”

She further went on that she had been all over the Germany and saw minor changes in their dialects and couldn’t identify any major differences.

What she said is correct. Even East Germany is only a creation after the Second World War when the major allied forces divided Germany into two parts. East Germany had been left out with the communist USSR and their puppet East German administration. But when the cold war came to an end and the demise of the Berlin wall in 1989, the new united Germany had made East Germany part of the existing federal system in other parts of the Germany as a new territory. The capital of the new unified Germany was shifted from the then West German capital Bonn to the then East German capital Berlin.