Complete Guide for a Foreign Company to do Business in Germany

About Germany

Germany is a federal parliamentary republic located in the central part of Northern Europe. It is strategically located and shares borders with Denmark, Poland, Czech Republic, Switzerland, Austria, France, Luxembourg, Belgium and Netherlands.

Germany is having the largest economy in Europe. Moreover, it has a social market economy, meaning it embraces the spirit of free enterprise but at the same time imposes controls and other measures to establish fair competition within the country. The economy of the country is driven majorly by the manufacturing sector. In addition, many technology-driven companies in the service sector also contribute to the economy. Moreover, Germany is also one of the largest exporters in the world.

Germany ranks 20^th in the World Bank’s, Ease of Doing Business Report 2019 and 25th in the Index of Economic Freedom. This is a testament to the country’s forward-thinking approach to business, protection of intellectual property rights, sound business regulatory environment and openness to global commerce.

This article covers everything you need to know about doing business in Germany, right from understanding the country’s tax and legal compliances to knowing about the types of business entities that can be formed.

Doing Business in Germany

Germany has the largest population in entire Europe and therefore enjoys the largest consumer market in the European Union. It enjoys good trade relations with other countries in the world including Singapore, Middle East and India. The process of incorporating a company in Germany can be tedious hence it is advisable to take help from professionals who can guide you to smoothly incorporate a company in Germany.

Types of Business Entities for Incorporation in Germany 

You can incorporate the following types of business entities in Germany:

• Limited Liability Company (having suffix GMBH)
• Regular Partnership (having suffix OHG)
• Limited Partnership (having suffix KG)
• Stock Company (having suffix AG)

Depending on the type of entity that you choose to incorporate, the rules and regulations vary. Every type has its own advantages and disadvantages. Therefore, one must analyse all the conditions before incorporating a business entity in Germany. 

Benefits of Registering a Company in Germany

Some of the advantages of registering a company in Germany include:

• World-class infrastructure
• Protective government regulation
• Innovative nation
• Advanced technology
• Educated and skilled labour force and human capital

Tax Registration and Filing in Germany 

Business entities such as limited liability companies and stock corporations having a place of management in Germany have to pay corporate income tax on the worldwide income unless otherwise mentioned in tax treaties. Some of the important things to consider in relation to taxation in Germany are:

• The tax year is the calendar year.
• The due date of filing the annual tax returns is 31 May of the year following the tax year.
• The due dates of prepayments of trade tax are 15 February, 15 May, 15 August and 15 November.
• The due dates of corporate income tax are 10 March, 10 June, 10 September and 10 December.
• The German group of companies are required to consolidate their taxes as per the German tax law.

Tax Structure

Germany’s Double Taxation Treaties

Germany has double taxation treaties with over 90 countries including Singapore, India and Middle East nations like the United Arab Emirates, Dubai, Iran among others.

If you are a company in Germany and looking for company formation in Dubai or company formation in Singapore, you may get in touch with IMC Group.

Legal and Compliance Requirements in Germany

All incorporated entities in Germany are required to comply with the below-mentioned laws:

• All incorporated entities have to prepare their financial statements including balance sheet and profit and loss statement towards the end of the financial year.
• Although there are no foreign exchange controls, payment transfers exceeding € 12,500 from or to Germany must be reported.
• Reporting must be done for any participation in direct investment from or to Germany, equal to or exceeding 10%.
• While carrying € 10,000 in cash and crossing a non-EU border, it is mandatory to fill customs form.
• Based on the size of the entity, the disclosure requirements by the German Commercial Code vary.

Company Secretarial Compliance in Germany

Before starting a business in Germany, you need to register your business with the German commercial registry.

Other requirements include:

• All companies in Germany are required to have a registered office of their own.
• It is mandatory for large companies to submit their financial statements including balance sheet, profit and loss statement, notes and management report, along with audit certificate to the German commercial registry and publish the same in the German Federal Gazette.
• It is mandatory for small companies to submit their balance sheet and notes to the German commercial registry and publish the same in the German Federal Gazette.
• Medium-sized companies have to only file their financial statements at the German commercial registry and publish the same in the German Federal Gazette.

Accounting Services

The accounting requirements in Germany are prescribed by the German Commercial Code and the German General Tax Code. It is mandatory for all the companies to prepare proper books and accounting records in accordance with the German regulations.

Auditing Services

As per the German law, medium-sized and large companies have to get their annual financial statements audited. Companies can either opt to use International Financial Reporting Standards (IFRS) or German Generally Accepted Accounting Principles (GAAP) for accounting. However, those companies whose securities trade in a regulated market have to prepare consolidated financial statement using IFRS, based on the provisions of the EU International Accounting Standards (IAS) Regulation.