Specifics of doing business in Germany
Investing in German companies and setting up a business here remains highly attractive. Germany is still the industrial and technological centre of Europe, with active development in green energy, innovative technologies, fintech and digital services. Before registering a company, it is important to understand the key legal and tax features in order to structure your activities correctly from the very beginning.
Taxation
Germany is a federal state with a multi-tier tax system. Taxes are levied at the federal, state and municipal levels, and there are several dozen different types in total. On average, the overall tax burden on corporate profits is around 30% and varies depending on the federal state and municipality.
Depending on the type of your business and annual turnover, you may be liable for trade tax (Gewerbesteuer), corporate income tax (Körperschaftsteuer), personal income tax (Einkommensteuer), VAT (Umsatzsteuer), wage tax (Lohnsteuer, if you have employees), church tax (Kirchensteuer) and many others. All of these are calculated individually in accordance with the basic rates. At the same time, some types of income are exempt from corporate income tax.
The specific set of taxes and the effective rate depend on the type of business, the chosen legal form, place of registration and volume of turnover. Optimal structuring and tax planning therefore require a thorough analysis that takes into account applicable rules and available incentives.
Licensing
Many types of commercial activity in Germany are subject to licensing and are under strict control of the regulators. This applies in particular to investment and financial services, construction, gambling, certain types of cross-border trade, hotel and transport businesses and others.
The licensing process typically requires preparation of a substantial package of documents, their translation into German, notarisation and interaction with the competent authorities. In a number of sectors, requirements on anti-money laundering (AML), personal data protection (GDPR) and other compliance standards play a crucial role. Breaches of these requirements can lead not only to fines, but also to restrictions or suspension of business activities.
Reporting obligations
All legal entities in Germany are required to prepare and disclose annual financial statements. Depending on the category and size of the company, either national accounting rules (GoB) or International Financial Reporting Standards (IFRS) apply, the latter primarily for issuers whose securities are traded on a regulated market.
Disclosure is carried out electronically via the relevant platforms: the Federal Gazette (Bundesanzeiger) and/or the Companies Register (Unternehmensregister). For financial years beginning after 31 December 2021, annual financial statements must be submitted directly to the Companies Register, as a rule via an electronic platform.
The volume of information to be published depends on the size of the company; however, violations of deadlines and disclosure requirements may result in substantial fines. It is therefore essential to fulfil all reporting obligations accurately and on time.
