Guide to starting a business in Germany as a foreigner
- International business
Starting a business in Germany is a promising, yet tiring endeavour, especially as a foreigner. The process of starting a business in Germany depends on your nationality as well as the type of business you want to start. This article gives foreigners inside and outside the EU a brief overview of what is needed to have a successful start in Germany.
Why Germany?
Located in the centre of Europe with a highly-trained labour force and a strong economy, Germany remains one of the prime targets when it comes to foreign direct investment (FDI) inside the European Union. A GDP of 4,5 trillion USD, the largest population in Europe and easy access to the entire European market contribute to this fact.
Further, Germany’s SMEs (Mittelstand) count as the backbone of the German economy and offer a great network to newly established businesses. To make your start as smooth as possible, we strongly recommend getting in touch with a local CPA (certified public accountant), so that you can focus on things that matter without being overwhelmed by bureaucratic hurdles.
The following sections provide you with an overview on starting a business in Germany as a foreign business owner.
Starting a business in the Germany as an EU and EFTA citizen
The easiest way to start a business in Germany as a foreigner is when you belong to the EU or EFTA member states. The labour mobility and freedom of trade applies within the EU member states as well as the EEA countries and Switzerland. This means that If you wish to move to a member country, you don’t need a residence permit and can easily set up your business.
In Germany, there are basically two ways of setting up a business: You can either be self-employed (Gewerbetreibender) or become a freelancer (Freiberufler). The choice is not up to you, but mainly depends on the profession you are choosing.
While freelancers need to register with the tax office (Finanzamt), self-employed entrepreneurs need to contact the local trade office (Gewerbeamt). Both options require a permanent address in Germany.
Summary: 3 steps of starting a business in Germany as EU/EFTA citizen:
- Get an address in Germany, register at the local Bürgeramt.
- Get a residence permit to become self-employed.
- Get a trade licence (Gewerbeanmeldung) from the local trade office.
Starting a business in Germany as a foreigner
The first step for starting a business in Germany of nationals from a non-EU and non-EFTA country is to apply for a residence permit at the respective foreign mission in their country to pursue a self-employed commercial activity in Germany.
After having arrived in Germany, make sure to register at your local municipality (Bürgeramt) and open a German bank account afterwards.
Under certain conditions, you are also able to engage in a self-employed activity when you already live in Germany, even if your residence permit was granted for another purpose.
Which company types exist in Germany?
Before setting up a company in Germany, make sure to inform yourself about the different business structures to find the best solution for your business. In Germany, the most common structures are as follows:
- Limited liability company (GmbH or Gesellschaft mit begrenzter Haftung): The GmbH is liable for any debts, rather than you as an individual.
- Joint-stock company (AG or Aktiengesellschaft): A business entity whose shares can be bought and sold.
- Civil-law partnership (GbR or Gesellschaft bürgerlichen Rechts): An association of individuals or enterprises united to achieve a joint contractual purpose.
- Limited partnership (KG or Kommanditgesellschaft): A form of partnership in which there are both general partners and limited partners. The general partners have unlimited liability, while the liability of the limited partners is limited to their contribution.
What else to consider?
Every new start is difficult. This is even more true when it comes to setting up a business in a foreign country. While the German bureaucracy might be intimidating at first sight, the market opportunities outweigh the hurdles in the long-run. We strongly advise you to have a backup plan and to keep cash reserves in case of unforeseen circumstances.
For instance, opening a business account takes a considerable amount of time until you can fully use your account. Further, if you plan to conduct foreign transactions with a German business account, be prepared to pay hefty fees and long processing times due to the SWIFT network.
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