Germany is by far the largest economy in Europe and currently the fourth largest in the world. The German economy accounts for more than one-fifth of the European Union’s GDP. Germany is Europe’s most stable economy. Germany is the largest consumer market in the European Union with a population of 80.6 million and a location in the centre of Europe. Here are some facts that illustrate why Germany is a place where good investment creates value and why it can be a chance for your company to do business in Germany.

  • A very good central position in Europe for distribution to all EU-member countries.
  • Largest market in Europe; Germany has one of the largest digital buyer populations in the world.
  • High productivity which is expected to improve further as current investment priorities target productivity-related issues.
  • A highly skilled labour force and moderate costs. Strong academic and non-academic education. A well-balanced system with a focus on specialized skills.
  • Quality engineering and top manufacturing location.
  • A nation of cutting-edge technology and innovation with technology and knowledge intensive industries.
  • Germany is Europe‘s start-up centre.
  • Most highly developed infrastructure in Europe.
  • Germany offers favourable tax conditions for foreign investors.
  • German medium-sized-companies: There are thousands of firms which are hidden champions in their business field.
  • Germany’s large export-oriented industry is stable. Prominent industries include the automotive industry, the mechanical engineering and the chemical Industry. Furthermore, the insurance industry is also important, especially with its large reinsurers.
  • Germany is ready for next generation industries.
  • The Euro is – after the U.S. Dollar – the second most important currency in the world.


The most important forms of business organisations in Germany are:
Read more
Typical for small and medium-sized companies    
Private limited company Gesellschaft mit beschränkter Haftung GmbH
Small-sized version of the GmbH Unternehmergesellschaft (haftungsbeschränkt) UG (haftungsbeschränkt).
Limited partnership with a GmbH as general partner GmbH & Co. KG GmbH & Co. KG
Sole proprietor / Sole trader Einzelunternehmer  
Civil-law partnership Gesellschaft bürgerlichen Rechts GbR
General partnership Offene Handelsgesellschaft oHG
Limited partnership Kommanditgesellschaft KG
Branch (registered) - permanent establishment Niederlassung - Betriebstätte,  
Typical for large companies companies    
Public limited company Aktiengesellschaft AG
Private Limited Company (Gesellschaft mit beschränkter Haftung – GmbH) Read more

The most common way of doing business in Germany is through a GmbH. The GmbH is a privately held company with a corporate structure and full legal personality in Germany. A GmbH is comparable to the Limited Company (Ltd.) in the United Kingdom. GmbHs are owned by shareholders (individuals or other legal entities) and run by managers. The liability of the company is restricted to its corporate property, whereas the liability of the shareholders for the company’s liabilities is restricted to their subscribed share capital. The GmbH must be registered at the Commercial Register (Handelsregister) and meet regulatory requirements detailed below.

To set up a private limited company (GmbH) you need

  • a minimum share capital of EUR 25,000
  • at least one shareholder (minimum number)
  • statutes which include the name of the company and the address
  • registration at the Commercial Register (Handelsregister)
  • registration for tax purposes
  • incorporation notarized by a notary public
Small-sized Limited-liability Company (UG (haftungsbeschränkt)) Read more

As a response to the success of the British limited company (Ltd.) in Germany, a specific small-sized version of the GmbH (limited entrepreneurial company - commonly referred to as ‘1-Euro-GmbH’) has been introduced in Germany, for which a share capital of less than EUR 25,000 can be chosen, the minimum amount theoretically being EUR 1. The UG is not a separate legal form, but a GmbH with a minimum capital of less than EUR 25,000 where cash subscription is required.

Partnership Read more

Partnerships are very common in Germany. From the legal aspect, partnerships have a dual nature: with regard to most civil-law aspects, they are treated as if they were separate legal entities; from the point of view of income tax, however, they are transparent, i.e. the partnership as such is not a tax subject, but the partners themselves are taxed at their individual income or corporation tax rate on their share of the partnership income. For the purposes of trade tax (Gewerbesteuer), however, partnerships are treated as separate taxable entities. Different forms of partnerships exist in Germany. Partnerships can be classified into general and limited partnerships and general and trading partnerships (Personenhandelsgesellschaften)

To set up a partnership you need

  • two or more partners
  • the name and address of the partnership
  • the object of the partnership
  • the partnership agreement - either in writing or notarized
  • registration at the Commercial Register (Handelsregister) in the case of a trading partnership (Personenhandelsgesellschaft)
General Partnerships Read more

A civil-law partnership (Gesellschaft bürgerlichen Rechts – GbR) and a commercial trading partnership (offene Handelsgesellschaft – OHG) are partnerships without any limitation of liability on the part of their partners. These are jointly and separately liable for all liabilities incurred by the partnership. If not otherwise arranged in the partnership agreement, they also manage and represent the partnership jointly. For commercial purposes, the OHG is the preferable legal form; for example – unlike the GbR – it may act under its registered legal name and enjoys more public trust because of its registration.


Limited Partnership (Kommanditgesellschaft - KG) Read more

A limited partnership (Kommanditgesellschaft) consists of at least two partners, one being the general partner (Komplementär) and the other the limited partner (Kommanditist). The general partner has unlimited personal liability (like a partner of an OHG), whereas the limited partner is only liable up to his statutorily agreed contribution to the partnership capital as registered in the Commercial Register. A Kommanditgesellschaft must be registered in the Commercial Register, and its entry must state the amount of capital for which the limited partner is liable.

Limited Partnership with a GmbH as General Partner (GmbH & Co. KG) Read more

It is very common in Germany to install a GmbH (a limited-liability company in itself) as the sole general partner and thereby combine the advantages of ultimate limitation of liability with the flexibility and tax nature of a partnership. This legal form is referred to as 'GmbH & Co. KG'. In this case the general partner's liability is limited to the GmbH's assets. Therefore, a GmbH & Co. KG is a common form for businesses in Germany and could be attractive for foreign investors as well.

Public Limited Company (Aktiengesellschaft – AG) Read more

The AG is a publicly held company comparable to the Public Limited Company (plc) in the United Kingdom. An AG is characterised by a dual system of corporate governance: an executive board (Vorstand), appointed by a non-executive, separate supervisory board (Aufsichtsrat), the main role of which is to monitor the executive board. The shares of the AG may be publicly traded on a stock exchange. Members may be individuals or companies. Liability for a member is restricted to the equity capital subscribed by that member.

To set up a Public limited company (AG) you need

  • a minimum share capital of EUR 50,000
  • at least one shareholder
  • statutes which include the name of the company and the address
  • registration at the Commercial Register (Handelsregister)
  • registration for tax purposes
  • Articles of Incorporation or Association notarized by a notary public


Generally, there are no restrictions on foreigners wishing to do business in Germany, nor are there any ownership restrictions for foreigners.

Business Regulations Read more

In order to start a business in Germany, a trading certificate (Gewerbeschein) is needed, which is issued by the local Trade Supervisory Office. After having issued the trade certificate, the Trade Supervisory Office will inform the local tax office, which will send a questionnaire to the business in order to register it for tax purposes.

Germany provides rules e.g. on fair trade, general terms and conditions for trade, competition law, merger control as well as standard matters such as the content of business letters and faxes. Special requirements also apply to e-mail. There are strict regulations concerning money laundering.

Banking System Read more

The German banking system includes retail banks, cooperative banks, public-sector institutions such as the savings banks (Sparkassen) and the regional, state-owned Landesbanken. All of them offer banking services to private persons and businesses. One of the public-sector institutions is the KfW Mittelstandsbank, which has the statutory duty to assist the formation of new businesses and grant investment loans to small and medium-sized businesses.

Accounting Regulations Read more

In Germany, there are different accounting regulations. With some exceptions, every business is obliged to keep accounting records and prepare financial statements (balance sheets and profit and loss accounts or income statements) for a period not exceeding twelve months.

The Commercial Code requires all but the smallest businesses to keep an orderly set of books. All limited companies, as well as partnerships and sole traders that are registered in the Commercial Register voluntarily, have to keep accounts. Entrepreneurs who operate independently on a trade, sole proprietorships, corporations and non-traders must keep accounts if the profit exceeds EUR 60,000 or the turnover exceeds EUR 600,000.

The books must correspond to a generally accepted standard of record-keeping, they must provide a complete record of all transactions and must be supported by a complete set of vouchers and other documentation. They have to be kept in EUR and must be written in a living language. If they are not in German, the tax authorities have the right to demand a translation.

The following types of legal form do not have to keep accounts:

  • Freelancers
  • Non-traders (in trade with simply structured, manageable and transparent business relationships, as well as small businesses)
  • Sole traders whose net turnover does not exceed EUR 600,000 or whose net income does not exceed EUR 60,000 in two consecutive fiscal years
  • Farmers and foresters who are not considered as merchants who have to keep accounts

Obligations as to the preparation of financial statements within a certain time frame, audit and disclosure depend on the size of the company.

Size Classifications Read more

Company sizes are defined by the following criteria: turnover, balance-sheet total and average number of employees, at least two of which must not be exceeded to fall within the relevant category.

  Micro-entity Small Medium
Balance-Sheet Total EUR 350,000 EUR 6,000,000 EUR 20,000,000
Turnover EUR 700,000 EUR 12,000,000 EUR 40,000,000
Average Number of Employees 10 50 250

Large: A large company is one that exceeds two of the criteria for medium-sized companies mentioned above. Companies seeking to sell bonds on the free market or already doing so and listed companies (capital market-oriented companies) are considered large.

The classification of a company from one category to another will change only if the size characteristics justify this in two consecutive years.

Form and Content of Annual Reports Read more

The basic German financial statements are a balance sheet and a profit and loss account. The notes thereto are the subject of an ‘appendix’ (Anhang).

The directors’ report (the so-called ‘business report’ or Lagebericht) should discuss the business situation of the company and also specifically mention major risks and opportunities, a description of the internal control system, the future outlook for the company, any important subsequent events, anticipated development of the company’s business and any branches it maintains.

Obligations for the Preparation of Financial Statements Read more

The German Commercial Code (Handelsgesetzbuch – HGB) contains additional requirements for the audit and disclosure of financial statements of all limited companies and of commercial partnerships in which no natural person ultimately carries unlimited liability, such as the GmbH & Co. KG.

  Small Medium Large
Preparation of financial statements 6 months after the fiscal year-end 3 months after the fiscal year-end 3 months after the fiscal year-end
Audit requirement No Yes Yes
Approval of annual accounts Within 11 months of the fiscal year-end Within 8 months of the fiscal year-end Within 8 months of the fiscal year-end
Disclosure of financial statements Balance sheet (no income statement) within 12 months of the fiscal year-end Within 12 months of the fiscal year-end Within 12 months of the fiscal year-end
Disclosure of notes to the financial statements Yes, simplified Yes Yes
Disclosure of directors’ report No Yes Yes

Micro-entities are considered as small companies. In addition, they may use simplified rules such as simplified balance-sheet and income statement classifications, and they do not need to openly disclose their annual financial statements.

Audit Requirements for Financial Statements Read more

There are statutory requirements for the following companies to have their financial statements audited:

  • listed companies
  • medium to large limited liability companies and
  • partnerships in which no natural person ultimately carries unlimited liability (for example: GmbH & Co KG)
Grants and Subsidies Read more

In Germany, a number of subsidies are available for businesses. There are not only subsidies from the state, but also from the European Union, for example for agriculture or for structurally weak regions.

Federal and state investment incentives, including investment grants, labour-related and R&D incentives, public loans and public guarantees are available for domestic and foreign investors alike. Different incentives can be combined. In general, foreign and German investors have to meet the same criteria for eligibility.

The Federal Ministry of Economic Affairs and Energy (Bundesministerium für Wirtschaft und Energie – BMWi) offers investment grants intended to improve business conditions in certain regions in Germany. These grants are approved by the EU Commission.

Labour-related incentives are offered by over 700 local offices of the Federal Employment Agency (Bundesagentur für Arbeit) for programmes that focus on recruitment support and pre-employment training.

R&D incentives are provided by the European Union, the German Government and the German state governments in the form of R&D grants, public loans, and special partnership programmes.

Loans Read more

The KfW Banking Group and development banks of the individual Federal States offer attractive interest rates, especially for small and medium-sized enterprises (SMEs). The KfW offers a number of loan programmes for investment projects. The Entrepreneur Loan (Unternehmerkredit) is the most important one.

In addition to the KfW, each German state has its own development bank financing projects within the respective state. They offer own loan programmes, especially targeted at start-ups and growing companies.

At the European level, the European Investment Bank (EIB) finances investment projects in cooperation with private banks. The EIB provides loans below general market conditions, offers long-term repayment periods, and is a host of other favorable conditions. It specializes in large investment projects.

Link to Information on Incentives Read more

The Germany Trade & Invest, Germany’s federal economic development agency, provides information on incentives:

MAIN TAXES Read more

The most important taxes are

  • corporate income tax (Körperschaftsteuer)
  • personal income tax (Einkommensteuer)
  • trade tax (Gewerbesteuer)
  • value added tax (Umsatzsteuer)

Furthermore: Inheritance and gift tax (Erbschaft- und Schenkungsteuer), property tax (Grundsteuer), land transfer tax (Grunderwerbsteuer) and excise duties.

Business Profits Read more

German business profits are subject to two taxes: trade tax (with exceptions for certain businesses) and income or corporation tax. There is also a surcharge on the income or corporation tax, the so-called ‘solidarity surcharge’, of 5.5% of the income or corporation tax amount.

A limited company’s profit is subject to corporation tax. Partnerships are treated as transparent for income tax purposes, i.e. each partner is taxed in Germany on that partner’s share of the partnership income. Partnerships pay trade tax in their own right but then allocate the taxable income for income or corporation tax purposes to their partners in profit-sharing ratio. The partners are then subject to corporation or income tax on their profit shares as their own trading income. Profits earned by individuals are subject to income tax. For the most important types of taxes (corporate income, personal income and trade tax), the tax collection is organized via advance payments and then an additional payment or refund takes place after the annual tax return is assessed. The quarterly prepayment rate is one-fourth of the tax of the previous year.

Residence and Income Calculation Read more

A corporation is considered tax resident in Germany if its registered office or place of management is in Germany. Resident corporations are taxed on their worldwide income. Nonresident companies are taxed on certain German-source income, such as income from a German permanent establishment. Income is based on the net profit or loss derived for accounting purposes and adjusted as required for tax purposes. Double tax agreements (DTA) may restrict these taxation rights. Germany has a broad income tax agreement network, with most treaties following the OECD model treaty.

Losses of up to EUR 1 million may be carried back one year for corporate tax and income tax. Losses not carried back can be carried forward indefinitely. The full utilization of a loss carried forward is restricted to EUR 1 million each year for corporate tax, income tax and trade tax. If the taxable income of a certain year exceeds EUR 1 million, only 60 % of the exceeding amount may be offset against losses carried forward. The remaining 40 % is taxed at the regular rates (so called ‘minimum taxation’).

Trade Tax (Gewerbesteuer): 14-17 % (typical rate in main cities) Read more

All businesses (with the exception of certain types of businesses such as self-employed professionals) are subject to trade tax regardless of their legal form. The taxable income for trade tax is calculated on the same lines as for corporation tax. However, there are important differences, particularly in the area of interest and other financing costs. The tax office allocates taxable income over the various local tax authorities where the company has business establishments, generally in proportion to the total wages paid to the employees in each. The tax rate is determined by the municipality.

Trade tax rates of smaller towns and country districts are usually lower than those of larger towns. The average tax rate for trade tax is around 14 %. Partnerships have an annual tax-free allowance for trade tax purposes of EUR 24,500.

Corporation Tax (Körperschaftsteuer): 15% Read more

The corporate income tax for legal entities (e.g. limited liability companies, associations, cooperatives) is 15 % of the taxable income, plus a solidarity surcharge of 5.5 % which results in a combined rate of 15.825 %.

Value Added Tax – VAT (Umsatzsteuer):
  • Standard rate 19%
  • Reduced rate 7%
Read more

Value Added Tax (VAT) is levied in Germany under the harmonised EU system. VAT is a tax which is ultimately levied on consumer expenditure, as businesses registered for VAT must charge VAT on their sales but can recover VAT that they have paid themselves.

The standard rate is 19 %, and there is a reduced rate of 7 % for basic items like certain food, books, newspapers, antiques, live animals, hotel accommodation and others. The VAT levied on the sales by a business is shown on the customer invoice and is therefore passed on to each customer. A number of specific services, including especially banking services and insurance premiums, are exempt from VAT.

Small entrepreneurs resident in Germany are exempt from VAT if their total turnover (excluding certain exempt supplies) has not exceeded EUR 17,500.00 in the previous year and is expected not to exceed EUR 50,000.00 in the current year. They may opt to be taxed under the normal rules.

Sales outside the EU are likely to have no VAT charged as VAT is a tax that essentially operates across Europe. Sales across European borders are subject to complex place of supply rules but VAT will be charged in either the member state of the seller or the buyer.

Income Tax (Einkommensteuer) Read more

German income tax is levied at rates rising on a sliding scale.

Rate scale  
Taxable income in euros Taxe rate
EUR 0–9,000 (basic allowance) 0
EUR 9,901–13,996 Sliding scale 14% - under 24%
EUR 13,997–54,949 Sliding scale 24 % - under 42%
EUR 54,950–260,532 42% less EUR 8,621.75
EUR 260,533 and over 45% less EUR 16,437.70

In addition to the income tax rate there is a solidarity surcharge of 5.5 % on the tax amount and a church tax of 8 % or 9 % (depending on the Federal State where the taxpayer lives) on the amount of income tax/wage tax/withholding tax, the latter applicable to resident members of certain officially recognized German churches.

A 25 % final withholding tax (Abgeltungssteuer) applies to income from private capital investments (e.g. interest or dividends received, or income from the disposal of bonds or of shares from a minor shareholding).

The main sources of taxable income are business income (e.g. the partner’s share of the partnership income, the income of sole traders from their business), income from employment and from self-employment, savings and capital investment income, rental income, agricultural and forestry income and certain types of capital gains and other income.

Withholding Tax (Kapitalertragsteuer) Read more

The domestic rate of dividend withholding tax is 26.375 % (25 % plus 5.5 % solidarity surcharge) if a German subsidiary company distributes profits to its corporate foreign parent company. This withholding tax (Kapitalertragsteuer) can be credited against the company’s corporate income tax liability. Almost all the German tax treaties (double taxation agreements – DTA) reduce this withholding tax to 5 %, 10 % or 15 % on dividends paid to foreign corporate shareholders with at least a 25 % holding in the German company.

Within the EU, dividend payments between a corporate domestic subsidiary company and a corporate foreign parent company are tax-free over and above a 10 % stake which has been held for more than one year.

Profits distributed to private shareholders are subject to a final withholding tax (Abgeltungssteuer) of 25 % plus 5.5 % solidarity surcharge. The application of a DTA may lead to a lower withholding tax if the private shareholder resides in another country.

Tax Declaration Read more

Every taxpayer has to submit annual tax declarations to the responsible tax office (Finanzamt) electronically. The tax office at the location where the company has its (German) head office is responsible. The tax declarations for taxable periods starting before 1 January 2018 have to be submitted by 31 May of the following year. For taxable periods starting after 31 December 2017, the tax declarations have to be submitted by 31 July of the following year. If the tax declaration is prepared by a professional tax advisor, it has to be submitted by 31 December of the following year if the taxable period started before 1 January 2018, and by 28 February of the second following year if the taxable period started after 31 December 2017.

Social Security / National Insurance Read more

The German social security system is broken down into four main and a number of minor elements. The main components are retirement insurance, unemployment insurance, invalidity insurance, and health insurance.

The liability is shared more or less equally between employers and employees.

Main components of social security Contribution rates Annual income ceilings Mandatory insurance Limilimit
Retirement insurance 18.7 % (rate EE/ER 9.3 %) EUR 78,000(West)
EUR 69,600(East)
Unemployment insurance 3.0 % (rate EE/ER 1.5%) EUR 78,000(West)
EUR 69,600(East)
Health insurance 14.6 % (rate EE/ER 7.3 %) EUR 53,100 EUR 59,400
Invalidity insurance 2.55%1 (rate EE/ER 1.275%) EUR 53,100 EUR 59,400

1) Increase by 0.25 % for the childless (from age 23); borne entirely by EE.

With certain specific exceptions, the retirement insurance and the unemployment insurance are compulsory; the health and invalidity insurance are voluntary for those with annual earnings of more than EUR 57,600. However, those opting out must take out private health insurance. They are also generally unable to rejoin the state scheme later, unless their regular monthly earnings fall below the opt-out level while they are still under 55.

This Guide cannot answer every specific question you may have, so please feel free to turn to your German network partner.

The material contained in this information/guide reflects the position on January 1, 2018.