A Guide to Starting a Business in Germany
Recently, Germany has emerged as one of the most flourishing startup destinations across the world. However, this was not always the case. In fact, 2006’s Global Entrepreneurship Monitor’s report stated that Germany lacked an entrepreneurial mentality, reflected by the poor rate of startups in comparison to its population size.
Since then, however, much has changed for the better. The German government’s ‘Digital Agenda’ has allowed IT and e-commerce sectors to become much more prominent. Berlin, in particular, has turned into a hub for marketers, web designers, and software companies. The high-tech economy in Munich has welcomed unique manufacturing techniques such as AI, while Frankfurt has been drawing numerous finance entrepreneurs.
In this blog, we will be answering some essential questions about starting a business in Germany.
1) How easy or hard is it to start a German business?
This era of online businesses has developed a new entrepreneur class. This class consists of immensely skilled, young workers who are based in some of the largest German cities, and are responsible for propelling employment growth. For this reason, the German government is offering strong support to these contemporary entrepreneurs.
Simultaneously, it has become easier than ever to initiate a German business. The reasons for this include the simplification of bureaucracy, integration of flexible working, and attractive subsidies for young entrepreneurs. In addition, foundations are funding research into innovative projects, while venture capital is enjoying an unparalleled rise. So, all in all, there has never been a better time to turn to Germany for your new business.
2) What is the process of starting a German business?
Some of the very first things that you need to do to start your German business are:
- Open a bank account in the country.
- Obtain the correct visa.
- Gain residency permits.
Next, you will be required to visit the Finanzamt (tax office), and get yourself registered as one of the following:
- Freiberufler (freelancer).
- Gewerbetreibender (tradesman).
Normally, people are required to obtain trade licenses prior to submitting business registrations. Once you have talked to your health insurance provider, you can start with your business activities.
Regulation plays a key role in pretty much every case. For example, laws in Germany are particularly rigid in areas such as worker safety, hygiene, working hours, and accountancy. So, if you are, say, going with a food venture in the country, you must pass some mandatory safety courses. You will also need to ensure that you are adhering to the national standards in terms of all facilities.
3) What is the cost of starting a German business?
This number, naturally, will vary, depending upon the amount that you need to invest. However, the good news is that the administrative burdens are fairly light. Usually, you will have to pay €400 to get your business registered in Germany. For GmbH creation, an entrepreneur will need to put in around €25,000 as seed capital. However, many entrepreneurs go for ‘mini-GmbHs’, since they are considerably cheaper, needing a mere €1 as investment.
4) Can a foreigner start a German company?
Germany welcomes every foreign entrepreneur to initiate ventures. However, there are certain considerations that you need to pay attention to – these requirements will be discussed in the next subsection.
In addition, you need to acclimatize yourself to German culture in order to ensure business success. This means that you need to learn the German language, familiarize yourself with the country’s social and popular norms, and put in the time and effort required to blend in with the German community.
While the precise steps might vary a bit depending on your specific business, the process is generally similar in most cases:
This visa lets you stay in the country for a period of six months, allowing you to plan the business and execute all required formalities. Obtaining this visa will require you to show evidence of financial backing, health insurance, and lodging information. In some cases, you might also need to show an invitation made by a potential business partner.
Like we mentioned earlier, entrepreneurs will need to visit the tax office of the city where they plan to initiate the business. The tax office will execute the registration process and provide you with a trading license. Your trading license will cover your primary business activities, and will require a fee of €20.
The third step is to get your business registered – once again, through the tax office. You will need to show your current passport, along with a tax identification number, valid visa, bank account details, and your residential permit. Once all these documents have been verified, you will be given your VAT and tax numbers, which the government will use to identify your business.
The final step is letting your health-insurance provider know your decision of going solo, since this might have an impact on the structure of payment.
The key things to remember before and while starting a business in Germany is not to rush anything, learn the German language and culture, and get health insurance. Like we mentioned, Germany has become a highly promising business destination over the last decade or so, which means that there are greaterchances for your success, especially with this guide to help you through the initial process.