Starting a Business in Germany

Starting a Business in Germany

Every year, over 2 million new businesses are registered in Germany, spanning a vast range of different specialties. From cake designers to wedding planners, and from castle restoration specialists to avant-garde galleries, German entrepreneurs cover plenty of ground. And if you're thinking about joining them, nothing should stop you.

So let's try to demystify company formation in Germany for non-residents, and help you launch a business that leads to lasting prosperity anywhere in the country.

Entrepreneurs in Germany

All about the German entrepreneurship

In recent years, Germany has developed a thriving start-up scene, but it hasn't always been seen as the number one place to do business -  even in the European region. As recently as 2006, the worldwide Global Entrepreneurship Monitor reported that Germany doesn't have "a real entrepreneurial mentality", finding low start-up rates relative to population size.

However, things have changed. Helped along by the government's "Digital Agenda 2020", the eCommerce and IT sectors have started to play a much more important role. Berlin has become a haven for innovative software companies, web designers, and marketers. Munich's high-tech economy has embraced AI and new manufacturing techniques, while Frankfurt attracts finance entrepreneurs in huge numbers.

Is it easy to start a business in Germany?

The rise of online business has created a new class of entrepreneurs. Highly skilled, generally under 40 years of age, and based in Germany's larger cities, these business owners are driving employment growth, and have become a key focus for government support.

At the same time, it's become easier to start a German business. Bureaucracy has been simplified, employment laws have been changed to accommodate flexible working, and subsidies have been created for young start-up owners. Foundations have also begun to fund research for innovative projects, and venture capital is thriving like never before. So it's a good time to start a business.

How to start a business in Germany

Vital information about your first steps

The process of creating a small business in Germany begins by opening a German bank account, obtaining the right visa, and gaining a residency permit. A trip to the tax office (Finanzamt) follows, where you can register as a freelancer (Freiberufler) or a tradesman (Gewerbetreibender). Most people will need to obtain a trade license (Gewerbeschein), before submitting a business registration to the tax office. After informing their health insurance provider, entrepreneurs can get started.

Regulations will be a major factor in almost all cases. For instance, German law is very strict regarding accountancy, hygiene, worker safety, and working hours. For instance, when setting up a food business in Germany, you'll need to complete certain safety courses, and ensure that your facilities are up to national standards. 

How much does it cost to start a business in Germany?

The amount varies, depending on how much money needs to be invested, but the actual administrative burden isn't too heavy. Generally, there is a €400 company registration cost in Germany, and to create a GmbH, investors will need to subscribe €25,000 in seed capital. But creating a "mini-GmbH" is much cheaper, requiring an initial investment of just €1 (see below for more about this type of business).

Can foreigners start a company in Germany?

Foreign entrepreneurs are always welcome to create ventures in Germany, but if you are wondering how to open a business in Germany as a foreigner there are a few special considerations to bear in mind. Check out the list of requirements below and tick off the various documents that are needed, but there are general issues as well.

Fitting into German culture is vital when planning how to set up a business in Germany as a foreigner. So, learn German, get to know German literature and music, spend some time embedding yourself in the community that will serve as your company's home, and - if you can - set aside time to travel.

Requirements

What will you need to start a business in Germany?

When creating a business in Germany, the exact steps will vary depending on what kind of business you are starting, but the process is usually similar in all cases. As we outlined above, the series of key milestones would be something like this.

  • Obtain a Business Visa: This entitles you to a stay of 6 months while you plan your business and complete the necessary paperwork. It requires proof of financial support, short-term health insurance, information about where you will be staying, and - if applicable - an invitation letter from a prospective business partner.
  • Secure a trade license: Entrepreneurs will next have to attend a Finanzamt in the city of their choice, where they can register as a tradesman and receive their trade license. This specifies the area of work your company will deal with and comes with a €20 fee.
  • Complete your business registration: Next, you will need to register your business (also with the Finanzamt). This will require a current passport, a German tax ID number, a valid visa, a functioning bank account, and a residence permit. After that, you should receive a VAT number and tax number - key identifiers of your new German business.
  • Inform health insurance: Finally, business owners will need to inform their German health insurance provider that they are going solo, as this may affect their payment structure.

The rise of expat-preneurs

Or internationals who own a business in a foreign country

The growth of German start-up culture hasn't just been produced by German youth. The energy behind Berlin and Munich's dynamism is actually an international phenomenon, with so-called expat-preneurs making a vital contribution.

The term expat-preneurs has become a buzzword in high-tech urban clusters across Germany (with a particularly large community in Dusseldorf), and it's even sparked academic interest. Basically, the term refers to highly mobile, cosmopolitan business owners for whom international borders are less relevant than access to markets and skills.

The German startup scene

Where to be in Germany as an entrepreneur?

One of the great success stories of the German economy has been its ability to tap into this globalized community of nomadic innovators, and no city has been as instrumental in this story as the capital, Berlin.

Berlin has long been a nexus for youth culture, with its electronic dance and street art scenes famed across the world. And that youthful energy has filtered into business as well. Berlin now attracts 40% of Germany's startup capital, rivaling London in the European rankings. Every 20 minutes, a new startup emerges in what has been christened "Silicon Allee".

How do I register a company in Berlin?

If you're seeking a hospitable place to begin, Berlin is the best place to head, and business registration should be relatively straight-forward. The process is almost exactly the same as anywhere else in Germany, but founders can take advantage of dense business networks and social services that other cities lack.

Choosing a district to base yourself matters. Access to airports could help some internationally-oriented companies, while others will prefer closeness to cultural attractions in areas like Neukölln. Enrolling in networking groups like Techstars or Tech Open Air is also a great idea.

Useful vocabulary

Basic German words to start your own business

Knowing key vocab is an excellent route into German work culture, and there are some terms that everyone should know. We've already introduced a few, such as Finanzamt (tax office) and Gewerbeschein (trade license), but other terms will also crop up.

For example, the German for businessman and woman is Geschäftsmann and Geschäftsfrau respectively. You may need to schedule a Telefonkonferenz (conference call) or two, before your company is entered into the Handelsregister (commercial register). And when running your company, you'll probably need to deal with Angestellter (part time workers) and the Gewerbesteuer (local business tax).

What does GmbH mean?

Above all, most entrepreneurs will encounter the acronym GmbH. This stands for Gesellschaft mit beschränkter Haftung which is essentially equivalent to a limited liability company.

GmbH's require founders to contribute €25,000 in capital, or to build up their capital from €1 to the required amount (so-called Mini-GmbH's). The creation of a GmbH must be notarized officially, which occurs when the registration process has been completed.

The cost of setting up a GmbH in Germany will (eventually) be €25,000, plus a registration fee of €400, and any additional costs for notary services.

10 Tips for Doing Business in Germany

Our advice when starting an entrepreneurial journey

Hopefully, by now you're ready to start planning your German business adventure, but before you put pen to paper or contact the consulate to obtain a visa, let's offer some business tips in Germany that will make the process as smooth as possible.

1. Take your time

Firstly, don't hurry or assume that your venture can be up and running in a few days. For one thing, the visa can take six months to obtain, and registration can also take a few months from beginning to end. And when working with partners or investors, expect them to take a long-term perspective, building gradually. That's the standard approach in Germany, where stability is as important as rapid revenue growth.

2. Keep it formal

When attending meetings with officials or potential partners, formality matters. Germans tend to respond well to smartness and a moderate, clear way of speaking. Business etiquette in Germany also tends to foreground evidence and documents - so have well-written reports ready to present. And allow attendees to think for themselves. Don't be pushy or hurried.

3. Share your ideas

While German meetings are usually formal, there's plenty of scope to share your ideas. In fact, information sharing is encouraged, in order to reach the correct decisions. Don't be fooled by the stiffness of some cultural norms in Germany. Most corporations are flexible on the inside, and appreciate creative thinking - if it's presented well, and in keeping with general etiquette.

4. Separate your business life and private life

This is very important, and an area where German differs from some other business cultures. Small talk happens, but in German workplaces it's not normal for co-workers to discuss their personal lives. The German approach to work divides the personal and the private, so stick to professional matters.

5. Learn German

While expat-preneur culture has grown and cities like Berlin are outward-facing, almost all entrepreneurs will benefit hugely from mastering fluent German. Sometimes, specific jargon will crop up that doesn't translate easily into other languages, and many contacts will prefer to discourse in German. And - if nothing else - speaking German gives an excellent impression to the people you meet.

6. Don't be offended

It's not uncommon for foreigners to be taken aback at their first German meetings. Business communication in Germany can be very direct and blunt when discussing opinions about ideas and projects, more so than in other business cultures. So be prepared to feel a little offended - and remember that attendees are most likely speaking for your benefit. You'll soon realize that speaking your mind clearly has some major business advantages.

7. Stick to the schedule

While the German reputation for efficiency is something of a stereotype, it's definitely a theme in start-up culture, especially when dealing with officials and investors. As a rule, anticipate being held to strict deadlines, and be sure to meet those deadlines as regularly as possible. Germans hate to be let down unnecessarily (just like any business partners, really). So organize your time effectively, and master scheduling like never before.

8. Don't be late

Similarly, German business contacts won't appreciate lateness, even for networking events in social environments. Punctuality is one of the signs used by German professionals to gauge how serious people are, and it's always advisable to make a good impression with accurate timekeeping. And if you are waylaid, always have a clear explanation. It's never good enough to just leave the apartment 10 minutes before a meeting.

9. Respect personal space

Personal space is an area where business cultures vary dramatically. Some see shaking hands and embracing as key greetings or signs of agreement. Others, less so. Germany falls into the latter bracket, and most Germans will prefer to physically keep their distance. So set aside some space in meetings, and keep direct contact to a minimum - even if it is meant affectionately.

10. Obtain health insurance

Finally, and very importantly, health insurance is a core aspect of German business life (and life in general). If you are applying for a Business Visa or permanent residency, you'll need to take out health insurance in Germany. There should be affordable plans, with special packages for different age groups and situations (such as those with families). Expatrio can help you find an insurance that delivers coverage and great value. 

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