Start-up Germany

Start-up Germany is an English-language knowledge sharing space for start-up entrepreneurs based in (or affiliated with) Germany. About the Author Simon Lange is a Berlin-based start-up entrepreneur. He is the current COO of iversity and has previously served as a researcher and analyst in the political advisory and science and research consulting industries in Germany and the United States.

[startupgermany-blog]

Starting Your Company in Germany - How to Make it Happen

If your first-hand experience in Germany goes beyond the infamous beer tasting cruise down the Rhine River you have probably learned it by now: getting things done in this country is complicated. German bureaucrats are not exactly known for extending a warm welcome to newcomers from abroad, let alone being helpful when it comes to filling out those dreadful forms asking you to consent to a Statusfeststellungsverfahren or other 30-letter words.

Granted, starting a company won’t be as easy as ordering Currywurst down at the train station, but it shouldn’t require small business entrepreneurs to spend loads of money on tax professionals and lawyers, or bugging their German friends to help them understand the difference between Vermögensvergleich and Einnahmenüberschussrechnung (because believe us, they won’t know).

We feel your pain and we are here to help.

Depending on the size and legal form of your future company, starting a business in Germany can require a considerable number of initial registrations with various public agencies. However, if you just touched down in the Deutschland you are most likely interested in what you need to do to start your own small business asap (btw, the following guides apply to freelancers/contractors alike). Here’s how to register such an Einzelunternehmen (sole proprietorship):

First, you need to register in the city you live in. To do so, you will need to present the following documents to your local Bürgerbüro (citizen office):

(1) A rental contract (e.g. a sublet contract from your roommate)

(2) A valid photo ID (i.e. your passport)

(3) The completed Anmeldung form (see below for an English language guide)

Once registered, you will need to register with the Finanzamt (tax authorities) and the Gewerbeamt (trade licensing office) (see English language guides below). Depending on the type of business you are planning to start, you may only need to register with the Finanzamt (for now), for example if you are simply looking to start your own French language teaching service you will not need to show up at the Gewerbeamt.

Since there is no way around your local Finanzamt we suggest that you report to them first by mailing the completed Fragebogen zur steuerlichen Erfassung form. Sad but true, the below guide is the first ever comprehensive English language guide to filling out this 8-page tax monster. The guide will help you determine whether an additional registration with the Gewerbeamt is necessary. If so, you will need to show up once again in person and present the following documents

(1) A valid photo ID (i.e. your passport)

(2) Your Meldebescheinigung (proof of registration in Germany)

(3) The completed Gewerbeanmeldung form (business registration) (see English language guide below)

Summing up: in order to start your own small business/work as a self-employed entrepreneur (which also includes doing contract/freelance work for another company) in Germany you will need to:

(1) Show up to the Bürgerbüro in person

(2) Send a letter to the Finanzamt, and potentially

(3) Show up at the Gewerbeamt in person

Both the Bürgerbüro and the Gewerbeamt typically issue all relevant forms on the spot. The Finanzamt takes about two to three weeks to send your Steuernummer (German tax ID) in the mail. This number will have to go on your invoices (see previous post).

You have probably noticed that we omitted one very important step: obtaining a work visa for self-employed entrepreneurs – arguably the most challenging steps of them all. Neither did we address the additional administrative burden associated with starting a company other than an Einzelunternehmen, e.g. the popular GmbH.

You are right. We definitely owe you another post. So be sure to check back for updates.

Here are your guides for today:

Anmeldung form for registration with the citizen office (German)

Anmeldung form for registration with the citizen office (English)

Steuerliche Erfassung form for tax authorities (German)

Steuerliche Erfassung form for tax authorities (English guide)

Gewerbeanmeldung form for trade licensing office (Deutsch)

Gewerbeanmeldung form for trade licensing office (English guide)

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Show me the Money! - How to Invoice in Germany

It’s an everyday occurrence in pretty much every company: You pay people and you ask people to pay you for your products and services. No matter who pays who, in Germany, monetary transactions always create a paper trail, usually in form of a proper Rechnung (invoice).

Especially for contractors, say your average software developer, the whole matter should be straight-forward:

She wants her money so she needs to make sure that she includes all the necessary information in her Rechnung in order to get paid asap.  

In real life, things look quite different. Empirical evidence shows that when not provided with a template, 80 to 90 percent of rookie contractors are unable to issue a proper Rechnung, largely owing to the moderately complex requirements posed by German tax laws. So does this mean that you as an entrepreneur should provide your contractors with a catch-all Rechnung template? No. Believe us, you don’t want to sit there and explain the tax auditor that there are real people behind all of these identical looking Rechnungen.

Do yourself a favor and do not accept any Rechnung - be it from a contractor or any other provider of services and goods - which does not include all (!) of the following information.

Proper name and postal address of legal entity issuing the Rechnung (Rechnungssteller). This can be a company, a private person, etc.

Proper name and postal address of legal entity receiving the Rechnung (Rechnungsempfänger). If you operate as a GmbH, the Rechnung needs to be addressed to the GmbH, if you operate as an Einzelunternehmen, the Rechnung needs to be addressed to you

Invoice number (Rechnungsnummer). Needs to follow a continuous pattern which usually includes the year in which in the Rechnung was issued (e.g. 2011-011 for the eleventh Rechnung issued in the year 2011)

Title line (Rechnungsüberschrift). This is optional. A simple “Rechnung” is enough

Date of issuance (Rechnungsdatum). Date on which the invoice was created and issued

Billing period (Leistungszeitraum). For services only. The billing period refers to the time frame during which the service was provided. For goods, the time of delivery (Lieferungszeitpunkt) should be included

Type of goods/services provided (Leistung). Specify what the recipient of the Rechnung has to pay you for. Be specific. Contractors may name the respective deliverables outlined in their contract. Ideally in German (ask a colleague or Google Translate for help)

Remuneration for each good/service item (Betrag).  Include amount in Euros (or another currency if applicable). Contractors should also include all reimbursement claims referring to the Rechnung’s billing period (e.g. upfront expenses for travel, etc.). Heads up, entrepreneurs: Do not reimburse before you receive the original receipts/Rechnungen included in your contractors’ Rechnungen

Subtotal (Zwischensumme). Sum of above remunerations (and reimbursements), excluding value added tax (VAT)

VAT (Mehrwertsteuer (MwSt)). If applicable. VAT is not needed if the issuer of the Rechnung is a contractor who makes less than EUR 17,500 in the year in which the Rechnung is issued (see Kleinunternehmer-Regelung below for details)

Grand total (Gesamtsumme). Subtotal + MwSt

Time for Payment  (Zahlungsziel). Period in which the Rechnung needs to be paid. Usually 10 to 14 business days

Small Business Rule (Kleinunternehmer-Regelung). In Germany, business owners (this includes contractors) who make less than EUR 17,500 between 1 January and 31 December of a given year are considered Kleinunternehmer (small business owners). Kleinunternehmer can opt out of the required forwarding of VAT to their local Finanzamt (tax authority) and hence do not need to include VAT in their Rechnungen. If the issuer of a Rechnung does not include VAT she or he needs to include the so-called Kleinunternehmerklausel, which essentially means copying and pasting the following sentence at the bottom of the Rechnung: "Gemäß §19 UStG (Kleinunternehmer-Regelung) ist auf dieser Rechnung keine Umsatzsteuer ausgewiesen"

Bank information. In Germany, Rechnungen are most commonly paid by bank transfer. Complete bank information include the full name of the account holder (Kontoinhaber), the account number (Kontonummer), the bank’s routing number (Bankleitzahl) and the name of the bank (Geldinstitut). For international bank accounts, the international bank account number (IBAN) and BIC/Swift codes are needed. If you as an entrepreneur regularly receive Rechnungen with non-EU bank accounts, consider using PayPal for payment processing

German Tax ID (Steuernummer). This is an absolute must for all legal entities who reside/have their business registered in Germany. Contractors coming from abroad need to first register with their local citizen office (Bürgeramt) and the tax authorities (Finanzamt). Next week’s post will feature detailed English-language guides on how to do this

Signature. Although opinions differ on the necessity on this, you can’t go wrong with signing your Rechnung

  Confused? We understand.

Check out a mock Rechnung here.

[startupgermany-blog]

Heads up, Entrepreneurs: Deluxe Spam Coming Your Way!

As digital natives or, say, people who use the computer for more than watching funny cat videos on YouTube, our senses have been trained to detect spam messages instantly. Be it emails, social media platforms or fake system alert messages – by spending a good part of our day online we are largely capable of detecting spam by using U.S. Supreme Court Justice Potter Stewart`s infamous approach to detecting porn: You know it when you see it.

While seeing electronic spam may be a piece of cake for you, building your start-up company in Germany (or anywhere for that matter) will expose you to a new type of spam attacks: highly personalized postal mail spam. No, we are not talking about the type of colorful collateral which you, “Dear valued customer”/”Current resident”/etc., have been receiving on a daily basis ever since you hit puberty. We are talking about the skillful manipulation of official letters from the chamber of commerce (Handelskammer), courts, patent offices and the like. Let’s get right into a recent case.

Frontline Experience: iversity GmbH

Below, we have posted one of many such letters we have received after filing for the registration of iversity in the German Trade Register (Handelsregister), with the trademark offices, etc. The featured example came as a response to iversity`s application for an EU trademark which was filed with the Office for Harmonization in the Internal Market (OHIM). The letter reached us about one month after the initial application.

Take a closer look at the sender. That`s right! OHMI, or the Office for International Registration in London. Now, even if you have filled out the initial application for an EU trademark yourself, one month later you may not remember that you sent your material to the OHIM in Alicante, Spain, and not to the OHMI in London – especially since the whole application process is online. However, a second look at the phone number (+46 is the country code for Sweden) and where the letter was stamped (Stockholm) should definitely make you question the authenticity of the London-based OHMI.

As you can see in our second scan, the sender spend quite some time researching when iversity applied for a trademark, which class, and the application number. These information are public but not easily found. By running the extra mile these deluxe spammers produce spam which at times succeeds to slip through the internal workings of a business, no matter how lean the organizational structures. Paying attention to details and double checking online, or with experts, can save you a lot of money, as evidenced by our example.

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So Many Forms so Little Time: Choosing the Company Form that is Right for You

by David Polacek

The first thing to think about before diving into the depths of German bureaucracy is the legal form of your venture. Thinking about a start-up already narrows down the alternatives, but let's take a look at what Germany has to offer to eager entrepreneurs like yourself. (Heads up: the following part will feature a number of those infamous 20-letter German words. So please, bear with me.) Aside from sole proprietorships (Einzelunternehmen) there are two categories of company forms in Germany: partnerships (Personengesellschaft) and corporations (Kapitalgesellschaft). Partnerships are fairly easy to set up, require no initial capital and the reporting requirements are a piece of cake (in comparison to other company forms...). In terms of taxation, partnerships are transparent, meaning that the partnership itself does not pay tax on its profit, only the partners do. You were waiting for the "but" and here it comes: Partnerships require most partners to take on unlimited liability, meaning that they will have reach deep into their pockets if the you-know-what hits the fan. Corporations, the second major company form, are entities on their own, thus preventing the aforementioned recourse to the shareholders' private capital by creditors (once registered in the German Trade Register (Handelsregister). Since nothing in life is free, this privilege needs to be payed for by either raising a certain amount of capital upfront (oftentimes around EUR 25,000) or by reserving 25% of all profits until this capital is raised. Germans love official seals so, naturally, the foundation of any corporation needs to be notarized, which is also a cost factor. Also, corporations have hefty reporting requirements. Taxes are levied on the level of the corporation as well as on the level of the shareholders upon dividend payouts. Thinking about a start-up (especially in the online space) narrows down your options quite a bit. The single most preferred company form among start-ups is the GmbH (Gesellschaft mit beschränkter Haftung), a medium-scale corporation with limited liability. If your savings are enough to get hammered at MELT! Festival but you fall short of meeting the minimum founding capital of a GmbH (EUR 25,000), you may want to consider incorporating an Unternehmergesellschaft (UG), also known as "Mini-" or "Ein-Euro-GmbH". The UG is the German response to foreign limiteds. Similar to say a UK-based limited, the German UG can be founded with less capital than the usual EUR 25,000 for a proper GmbH. If UG is the way to go, the ultimate objective should be to eventually raise the full EUR 25,000 so that the UG can be converted into a GmbH. Until then, the UG has to reserve 25% of its profits. Interested in learning more? More information on UGs can be found here. A general overview of company forms in Germany can be found here.

Frontline Experience: iversity GmbH

The iversity GmbH was incepted in 2008 as a sole proprietorship (Einzelunternehmen). The procedure was fairly straightforward: iversity's founder Jonas Liepmann paid a visit to his local administrative office for citizens (Bürgeramt), just to walk out ten minutes later with iversity officially founded. The subsequent growth of the iversity platform and a successful funding round with the BFB Frühphasenfonds Brandenburg and bmp media investors were the main drivers behind the change of the company form into a GmbH. In mid-2011, iversity was reorganized into a GmbH in order to benefit from a larger corporate scope as well as for the obvious advantages of limited liability. iversity was aided greatly by its investors in establishing the GmbH.

[startupgermany-blog]

Welcome, fellow entrepreneurs!

You have followed CNN’s Laurie Segall on her trip to discover the Berlin start-up scene, you have felt both excitement and Fremdschämen when watching Berlin’s 30 second start-up pitches on the Wall Street Journal blog, and now you find yourself in Germany, willing to turn your entrepreneurial vision into a kick-ass start-up.

Your mind is full of ideas and you are determined to make something happen, you may even have assembled a team already. However, you have no clue how to jump the organizational and bureaucratic hurdles ahead of you – or what these hurdles are in the first place.

No worries, we got you covered. The idea of this blog is to serve as a knowledge sharing space designed to help young and eager entrepreneurs run their companies while avoiding to be crushed by the sizable administrative burden imposed by, well, Germany being Germany. Only a handful of companies employ enough strategic foresight to hire a chief administrator, oftentimes for financial reasons. As a result, small problems gradually turn into big problems which eventually require lengthy and expensive solutions which can jeopardize the very existence of a once promising start-up. To draw your attention to both the large and the less obvious roadblocks, the information on this blog is derived from meticulous research as well as first-hand experience. While by no means a substitute for professional (legal) advice, reading this blog can increase your awareness of the oftentimes neglected aspects of starting up and running a company in Germany. Topics include:

•  How to start? (choosing a company form, renting a place ect.) •  What kind of licenses do you really need? Where/how to obtain them? •  How to fill out all these German forms? •  How to tab the right networks? •  How to raise funds? •  How to keep your overhead expenses under control? •  How to keep track of your cashflow? •  How to hire employees/contractors? How to manage them? •  How to attract foreign talent? How to obtain a work visa? •  How to make your team work together effectively?