Germany is a leading destination for foreign investors due to its strong economy, central location, and transparent legal system.
However, setting up a GmbH (limited liability company) involves navigating several legal and tax requirements that international founders must understand.
This article outlines the key points foreign companies should consider before establishing a GmbH in Germany.
1. Legal Requirements for Setting Up a GmbH
a) Share Capital
- Minimum capital: EUR 25,000
- At least EUR 12,500 must be paid in prior to registration
- Contributions can be made in cash or, under certain conditions, in kind
b) Articles of Association
The articles of association must be notarized and include:
- Company name and registered office
- Purpose of the business
- Share capital and shareholder contributions
- Management structure
c) Managing Directors
At least one managing director (Geschäftsführer) must be appointed.
Foreign nationals can act as managing directors but must be capable of fulfilling their obligations under German law.
d) Registration
The GmbH must be registered with the Commercial Register (Handelsregister) to obtain full legal status.
2. Tax Considerations
a) Corporate Income Tax
The GmbH is subject to corporate income tax (Körperschaftsteuer) at a rate of 15% plus a solidarity surcharge (5.5% on the tax amount).
b) Trade Tax
Additionally, trade tax (Gewerbesteuer) applies, with local rates varying between 7% and 17%.
c) Value-Added Tax (VAT)
Businesses must register for VAT if their taxable turnover exceeds certain thresholds.
The standard VAT rate in Germany is 19% (reduced rate: 7%).
d) Withholding Taxes
Dividends distributed to foreign shareholders may be subject to withholding tax, typically 25% (plus solidarity surcharge), but double taxation treaties may reduce the rate.
3. Accounting and Reporting Obligations
- Annual financial statements must be prepared in accordance with German GAAP (HGB).
- GmbHs must file tax returns and comply with strict documentation requirements.
- Non-compliance can result in penalties, fines, and reputational damage.
4. Importance of Professional Advice
German corporate, tax, and accounting rules are complex and subject to frequent changes.
Professional advice ensures compliance, minimizes tax risks, and supports the company’s success in the German market.
How WW+KN Can Help
WW+KN, a Baker Tilly Company, is a multidisciplinary advisory firm with strong international connections.
We have extensive experience in advising foreign companies and investors on setting up and managing GmbHs in Germany.
In close cooperation with our legal colleagues at Baker Tilly, we provide a full-service approach covering legal, tax, and accounting requirements — ensuring your company’s successful establishment and operation.
For individual advice on establishing a company in Germany, please contact us at info@wwkn.de.
