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:

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.

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.

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.

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.

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)