10 Things to do when starting a German Business

If you have read our previous postings “Guide for doing Business in Germany“, “Establish a German Limited Company (GmbH): FAQ and Checklist“, “Taxation for UK Expats or Freelancers in Germany” and “Open a Business Bank Account in Germany?” you already have a pretty good idea how to go about starting your own German business. With this posting we provide ten – personal and probably subjectively biased – practical tips how to get a head start:

#1: Choose the right company format

Most businesses in Germany are run as either a GmbH (similar to a limited company, but not identical) or as a partnership (OHG or KG). The first question you must ask yourself is: Can I risk being personally liable in terms of clients or do I need a limited liability company? Unless you already run an established UK Limited Company that is opening a branch office in Germany and can show some impressive numbers in the form of balance sheets, you should avoid operating as a foreign limited company in Germany because it can often be seen as dubious and people are likely to be suspicious. Germans are used to their good old GmbH and it will create a much more professional impression if you use that company format instead of a foreign limited or even the German “Unternehmergesellschaft” (so called “mini-GmbH”). The reason is that a GmbH requires a minimum capital requirement of 25,000 Euros, at least half of which must be paid in at the time of formation. So if someone uses another company format the typical initial reaction by potential business partners might be: “Aha, another shady business that was not even able to come up with 12,500 Euros in cash to start up a GmbH!”

#2: Get registered

Not only does the law require your business to be registered with the tax office, the commercial register and the chamber of commerce, but your customers – especially in B2B – will also check whether you are. If you do not show up in www.unternehmensregister.de you will not be perceived as a credible and trustworthy business.

#3: Get a German language website

Yes, Germans (claim to) speak English. And many actually do. But if you want to sell them something, talk to them in German. Otherwise they will be afraid that they can’t get their point across if anything goes wrong.

#4: Get an Imprint

A what? Well, a legally correct imprint on your (hopefully German) website. German law requires you to list many company details on a commercial website. If you do not obey those requirements, you will probably still be contacted. However, not by a customer but by your competitor’s lawyers who will demand that you pay thousands of Euros for breach of fair competition laws. After all, it is Germany and they take their legal affairs rather seriously.

#5: Get a real German business address

Your customers will want you to be within the country. If they get the impression that there are no staff or offices in Germany, they will shy away from ordering. If you reassure the customer that the place of jurisdiction will be in Germany in case of a dispute, this can make a big difference. So avoid creating the impression of an obvious “Briefkastenfirma” (mere postbox company). Your office does not necessarily have to be in an expensive city or downtown area. Smaller or midsized cities offer better tax rates and sometimes even business start-up subsidies.

#6: Hire (at least) a German representative

During the formation and set up period of your business, you should seriously consider hiring an experienced German professional to act as a director or an authorised representative. This will make your life so much easier vis-à-vis the commercial register, courts, banks and the inland revenue. Once the company is set up, has opened a business bank account, has obtained its tax and VAT ID numbers and is officially registered, that representative can step down and you can take it from there. At least as long as you …

#7: Appoint a good Tax Consultant

They say that 70 percent of all tax literature in the world is published in Germany. The problem is: that’s probably true. If you try to fill in every form that is required yourself, you will most probably go insane and will definitely have no time left for running your business. Try to find a bilingual tax consultant who ideally also knows a little bit about international tax law. The costs are usually much lower than in the UK.

#8: Financial planning

Cash is the lifeblood of business – much more so than profits – so it is therefore essential to have a cash flow forecast for your business. You should have at least 3 to 6 months of reliable visibility of your company’s cash flow. For your German business you should make sure to get the advice of (or even hire) an experienced financial expert. There are dozens of (potential) costs that you, or your UK personnel, may not think of: corporate tax advance payments, local license tax, social security deductions, fees for mandatory commercial chamber memberships and many more specifically German issues. Make sure unexpected costs won’t get you into trouble.

#9: Build a professional network

The British are well liked in Germany. So get out there and make friends. News about the Royal Baby will always be appreciated! The local IHK (Chamber of Commerce) and its regular seminars and information events may be a good start to meet other entrepreneurs but also tax advisers, lawyers, accountants and specialist consultants. You may well get the occasional tip or advice for free.

#10: Think about an exit

Why should you think about an exit strategy before you have even started your business? Well, because this puts your focus on the essentials: What is generating value? Why would someone else be willing to pay for what you have built up? What do you have that others don’t have (or can easily build themselves)? This is a great intellectual experiment for any start up business.

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If the business – at least for the startup period – shall be run from outside of Germany it may be a good idea to use the services of a German trustee or escrow agent. More information is available on the website of the service provider Friendly Germans (UK) Limited, a company that has specialised in supporting British entretreneurs to start or expand their business in Germany. Particularly valuable may be the downloads:

For legal support contact Bernhard Schmeilzl, LL.M. (Leicester) at +49 941 785 30 53