How to Start Your Own Business in Germany
Last updated: 09 May 2020 / by Sam Williams
Every 20 minutes, a new company is founded in Berlin. A startling statistic but one that shows just how vital the self-employed market is in Germany. Although Berlin is a real hotspot for new businesses, it is a trend that is being repeated all over the country.
The German economy is renowned for its reliance on small and medium-sized businesses, the Mittelstand. The Mittelstand plays a vital role and is a sector that is especially welcoming to those from overseas.
Sound appealing? But before you dive right in, there are just a few things that you should know. Germans appreciate rules, structure and good order in all they do, so there are strict guidelines you will need to observe for self-employment.
Here are the essentials that you need to know to start your own business in Germany.
Who Can Start a Business in Germany?
Even if you have a burning idea that you cannot wait to launch, you’ll still need to go through all the red tape. Before you do anything else, you must complete all the typical steps to become registered in the country.
This means getting an appointment at your local bürgeramt to complete the Anmeldung , which you will need to repeat each time you move. Anmeldung provides you with your tax ID (steueridentifikationsnummer) and your certificate of registration (anmeldungbestätigung).
Having the tax ID and certificate of registration will enable you to open a bank account more easily. You may not need a business account; it depends on the bank. Some banks will close personal accounts if they spot business transactions; other banks are happy to allow it.
Working in Germany
Completing the anmeldung and opening a bank account are important steps on your way to starting a business. However, you also need to ensure that you are legally able to work in Germany. If you want to run a business, you’ll need to have the correct status, just like applying for a job.
If you have arrived in Germany and are a Swiss, EU or EEA citizen, then you will not need a separate permit. You automatically have the right to live and work in Germany for as long as you want. Those rights include setting up your own business.
If you are a citizen of another country, you must have permission to work in Germany, and specifically to be self-employed. If your current visa includes the phrase “Selbständige Tätigkeit gestattet” (self-employed activity permitted), you have everything you need to get started.
You will need to apply for a “freelance visa” if you do not have a working visa, or your current visa does not contain that specific permission. Also, if the business you intend on starting will become your primary source of income, you may need a new visa. This is because a work visa only allows you to earn your main income from the source stated. If this is about to change, your existing work visa will not be valid for your self-employment.
Aufenthaltserlaubnis für selbständige Tätigkeit is the name of the German freelance visa. It is technically a type of residence visa, but most people just call it a freelance visa. It can sit alongside existing visas that may be in place, such as a student visa.
When you apply for a visa in Germany, there are certain criteria you will need to fulfill, such as having health insurance and being able to support yourself financially. Applying for a freelance visa has additional requirements that relate directly to your intention to set up a business.
You must be able to demonstrate that your business will contribute to the German economy and that there is a need for the services you are going to provide. This means having a business plan ready and have some proof that there is a demand for your business.
The precise requirements will depend on whether you are going to be self-employed or freelance. Many countries use these terms interchangeably but that is not the case in Germany. German law differentiates between freelancers and the self-employed, and different rules apply to each.
German visa officials will be looking for evidence that the business is viable and valuable. Depending on whether you are self-employed or a freelancer, you will be asked for certain documents to prove this.
Certain documents are necessary for both, such as:
- Your bank statement (Kontoauszug). This proves you are self-sufficient and can support yourself while setting up your business. German bank statements are preferable, but foreign bank statements are usually acceptable. Savings of €3000-5000 are the desired benchmark.
- Signed letters of recommendation relating to the self-employment you intend to start. These can be from past clients, professors or employers.
- Your German CV and covering letter
- A portfolio of your work. This must be in printed form and not digital
- Proof of education. If you have qualifications which are recognized in Germany, this will enhance your application. You can apply to have your qualifications recognized in Germany. This will provide you with a certificate you can show to visa officials and prospective clients.
- Professional permit (if applicable). Some professions, such as lawyers or doctors, require permits to practice.
- Profit and loss statement (Ertragsvorschau). It is advisable to use the official format, rather than your own version. Include taxes, VAT and health insurance but not rent. This will show how your business will be contributing to the economy.
- Capital budget (Finanzierungsplan). This explains how you will finance your work and the liquid assets you have available.
- Two letters of intent to hire, or more. Signed contracts will carry more weight than letters of intent.
- If you are above 45 years of age, proof of an adequate pension plan. By the time you are 67 years old, the pension plan will need to either provide a monthly income of €1131.52 for 12 years or have a minimum value of €162,939. Some countries outside the EU are exempt from this requirement (USA, Turkey, Philippines, Sri Lanka, Dominican Republic, Japan, Iran and Indonesia).
If you plan on being self-employed, you will need to be able to show all the following in your visa application:
- Your business will benefit the German economy
- You have enough working capital via either savings or loans to fund your business
- There is either cultural or economic interest in your idea, and there is regional demand
This last point is vital. If you cannot prove that your clients will be in Germany, your application is likely to be unsuccessful. The application process includes an interview, and that is when you will need to supply the details.
The better prepared you are, the more likely you are to succeed. Visa officials will consider how feasible your business is, your contribution to research and innovation, whether you will have any impact on employment in the area and how much capital is needed to succeed.
Alongside the requirements that both freelancers and self-employed workers have to supply, the following will be useful:
- Business plan. This is a summary that shows how you will grow your business and how it will satisfy a need in the regional economy
- Company profile – names of managing directors, turnover forecast, total equity, function, and so on
- Capital requirement plan – a breakdown of all the expenses you’ll have
- Business concept – your target market, specific industry, forecasts and sales strategy
The visa official may not check all these documents, and you may not need them all. However, it is a good idea to take them if you can because they may be the deciding factor in receiving approval.
The requirements for freelancers are slightly easier, and in some cases, different rules apply:
Language teachers and artists living in Berlin can get a special type of artist freelance visa, which is granted immediately.
This is not available in the rest of Germany. To qualify, you need to prove you will have a regular income. This can be from a variety of sources such as bank transfers from family or your savings. A letter from a guarantor is also acceptable proof.
- If you studied in Germany and want to set up a business that is related to your area of study, you do not need to prove there is cultural or economic interest.
You are more likely, as a freelancer, to receive instant approval. (Do not forget to take your passport to the appointment as this is where the sticker needs to go!)
Unlike a self-employed person, there is not a long list of extra requirements you will need to supply to the visa official. They will be concerned about whether you are a freelancer or whether you will be in “disguised employment” (Scheinselbstständigkeit). This is an illegal structure where employers use workers who are registered as freelancers and treat them as employees.
The problem with disguised employment is that the state will miss out on certain contributions. Therefore some employers may try to manipulate job applicants into working for them on a freelance basis. There is no single strict definition of what constitutes disguised employment.
Many factors are considered, but only working for one client is viewed as a red flag. When you make your visa application, it will be necessary to show that you have multiple clients. If you only have one client to show, your application is likely to be refused outright.
Even if you do not need to obtain a visa, you need to ensure you don’t fall into the disguised employment trap while working in Germany. There can be hefty financial consequences if the tax office considers you to be guilty of this, and you may have to pay several years of missing contributions.
Structuring your Business
The structure of your business will determine what obligations you have. Under German law, there are many different types of business structure and each has benefits.
German law is very clear about the definition of freelancers and self-employed workers. You can read more about it in this guide, together with the types of business structures available.
The title of freelancer (Freiberufler) is restricted to certain professions, typically those who are artistic or require a degree. Examples include artist, writer, doctor and lawyer. You cannot choose whether to define yourself as a freelancer or a self-employed worker; the law will do it for you.
There are many subtypes of freelance structures, plus even more structures for self-employed businesses. You may find it useful to seek professional advice to see which structure has the greatest financial benefit.
Starting Up in Business
Much of the documentation that you will need, such as business plans and professional permits, will already have been prepared for your visa application. If you did not need to apply for a visa, you would need to prepare your documentation now. This leaves you with the practical steps to get registered and open for work.
Freelancers have far fewer steps to take to be able to get up and running. All freelancers must obtain a steuernummer, a tax number, from the local tax office (finanzamt). This is in addition to the tax ID, which is issued during the Anmeldung appointment.
Freelancers working as sole traders will not need to complete any more paperwork to start working.
If you are a freelancer and have opted for a more complex business structure, such as a PartG or a PartG mbB, you will need to draw up and finalize your contract. You will need expert advice from legal and accounting professionals (unless this is your field of expertise). If you are in a partnership, you will need to list it in the Partnership Register (Partnerschaftsregister).
German law does not place any further requirements on freelancers, but for self-employed businesses, it is a different matter.
Like freelancers, your business structure will determine the precise contractual work you need to do to be able to open. However, some business structures also have additional legal requirements.
If your business is producing, manufacturing or selling items, you will be classed as a trader (gewerbetreibende). If you earn below a certain threshold, you could be classed as a small trader (kleingewerbetreibende).
Both types of traders will need to obtain a trade permit (gewerbeschein) from the local trade office (gewerbeamt). You will also need to sign up to join the Chamber of Commerce (Industrie-und Handelskammer – IHK) and pay an annual subscription.
An important note: a trade license (gewebeschein) is not the same as the type of license that professionals such as doctors and lawyers will need to obtain. This is a Berufserlaubnis and follows a different process, depending on the industry and the German state.
Once you have registered and obtained your license, small traders don’t need to do anymore, but you may want to voluntarily register for VAT and choose to be listed in the Trade Register (Handelsregister). Your accountant or tax advisor can let you know if this would be beneficial for your business.
If you are a regular trader, you must register for VAT and list your business in the Handelsregister.
Read more – our Business (Corporate) Tax Guide.
If you are a craft worker or have a skilled trade, you will have to list your business in the Register of Qualified Craftsmen (Handwerksrolle). This is a legal requirement before starting to trade. The definition of skilled trade is fairly broad in Germany but includes:
- Personal care and health
- Building and finishing
Woodwork, metalwork and electrical work
- Clothing, leather and textiles
- Paper, glass and ceramic work
Some of these trades require specific qualifications to be allowed to trade. You can view the most up to date list here. You cannot list your business in the Handwerksrolle without the necessary qualifications. You can apply for recognition of foreign qualifications to gain permission to trade in Germany.
Help When You Need It
Germany has always been very keen to encourage entrepreneurs in the country, even those who have arrived from overseas. You can get help with your business from your local Point of Single Contact (Einheitlicher Ansprechpartner – EA). Every state in Germany provides this to help new businesses get on their feet.
If you have a tax advisor or an accountant, you may not need this assistance. However, it could be a more economical way to access expertise, especially if you do not need the services of a tax advisor for your daily business.