Formation of a limited liability company (GmbH) in Germany

We have summarized the establishment of a limited liability company (GmbH) in Germany, the types of taxes that need to be paid, and the associated costs.

The GmbH is the most widespread type of company in Germany, which reachedover one million in 2023 and continues to increase every day. GmbHis a favorable for foreign investors as it limits the liabilities oft he stakeholdersto he capital they have invested and protect them from personal liabilities forthe company´s debts.. Below, we have provided a general overview of the stepsto establish a GmbH, the types of taxes to be paid, and the associated costs

Founding a GmbH

1)      Draftthe Articles of Association: Prepare a written document that includes essentialcompany details such as the company name, registered office, business purpose,and share capital structure.

2)      Notarial authentication: The drafted company articles of association must be notarizedby a notary.

3)      CapitalDeposit: Deposit the required minimum share capital of €25,000 into thecompany's bank account.

4)      BusinessRegistration: Register your company with the local trade office (Gewerbeamt).

5)      Entryinto the Commercial Register: Officially register your company in theCommercial Register at the competent local court (Amtsgericht).

6)      TaxRegistration: Apply for a tax identification number (Steuernummer) from thelocal tax authorities.

7)      ObtainingBusiness Establishment Permit: Apply to the relevant municipality to obtain abusiness establishment permit and register your place of business.

8)      Chamber of Commerce Registration: Register the company with the relevant chamber of commerce and pay the membership fee.

The taxes involved in GmbH formation

When setting up a GmbH (limited liability company) in Germany,it is important to take the following tax aspects into consideration.

1)      ValueAdded Tax (VAT): The GmbH is generally liable for VAT and is required to chargeVAT on its services. However, it possible to opt for the small businessregulation if its turnover in the previous year did not exceed €22,000 and isexpected to remain below €50,000 in the current year.

2)      CorporateIncome Tax: The GmbH is liable for corporate income tax as a legal entity. Thecurrent corporate income tax rate is 15%. Additionally, there is the solidaritysurcharge and, depending on the situation, the church tax may also apply.

3)      TradeTax: The GmbH is subject to trade tax, which is imposed by the localmunicipality. The specific trade tax rate varies from one municipality toanother, typically ranging between 14% and 17% of the trade profit.

4)      PayrollTax and Social Security: If the GmbH employs staff, it is important to withholdand pay payroll taxes and social security contributions. To ensure fullcompliance with tax obligations, it is advisable to seek guidance from a taxadvisor.

Establishing a GmbH(limited liability company) in Germany involves various costs. Here are some ofthe main expenses to consider during GmbH formation:

1)      NotaryFees: The Articles of Association needs to be notarized, which incurs notaryfees. The exact amount of these fees depends on the share capital and otherfactors, ranging from several hundreds to thousands of euros.

2)      CourtFees: Registering the GmbH in the Commercial Register requires payment of courtfees. The amount of these fees depends on the share capital and can amount to afew hundred euros.

3)      TaxConsulting Fees: It is advisable to engage a tax advisor to assist with the taxaspects of GmbH formation. The costs for tax consulting services vary dependingon the scope of assistance required and the tax advisor's rates.

4)      BusinessRegistration: There may be fees associated with registering the business withthe local trade office (Gewerbeamt), which can vary depending on themunicipality.

5)      OtherCosts: Additional expenses may include creating a business plan, registeringtrademarks, renting or purchasing office space, as well as costs related toaccounting and payroll services.

If you are considering establishing a GmbH in Germany and require expert guidance, our company provides professional consultations regarding GmbH formation. We offer tailored advice based on yours specific needs.