Setting up a new business in Germany

Decided to go for a sole trader GbR rather than the potentially more complicated and expensive GMBH.

Unexpected aggro was the bank who could not get their heads around wanting a bank account in the company trading name rather than just the personal name. Totally legal here but they only agreed when our German accountant wrote them a rude letter and we threatened to complain to head office etc.

Plenty of predictably silly paperwork to get registered including dumb questions like "How much profit are you going to make in your 1st year" etc. Finally on 8th December we got the Umsatzsteur-Identifikationsnummer after leaning on people a bit. Actually the process wasn't that bad but the twist is...

I had a meeting last night with a nice lady who is going to be our bookeeper because clearly my German and understanding of the system will be insufficient. Turns out that we are already "late" on our financial returns!!!

A new company must report MONTHLY for the first 18 months. Furthermore the report must be made within 10 days of the month end. Incredible!

Also - she tells me that company taxation starts at 55% but gets closer to 70% in reality when all added together. And we already know about the costs of employing someone over here.

I cannot imagine for a moment why the economy could be struggling?

"GbR"? That's a partnership (Gesellschaft) - usually more than one person or legal entity involved. GmbH is probably not worth it in the early stages, but worth considering later. Firstly it gives you kudos among (German) customers, and secondly protects you from creditors if you go bust... if your GbR goes down the tubes owing money they'll have you down to the underpants and beyond... You may find all sorts of tax liabillities in later years which trip up and break GBRs who are not prepared for them. The GmbH is not MUCH more expensive to setup, although you do need to post an initial bond of security, so do need the capital.


Banks are really not up on this one, although the rules relaxing names on accounts are quite new. Your accountant was totally correct. Now try to reclaim his fee from your bank

It's not a difficult form to complete - the questions are general and obvious, and your answers should be equally so (tell them you'll make a loss).


New rule too (since last year). It's not a monthly company report - it's a VAT return. It's easy. Three lines. a) how much turnover and the VAT you have recovered (inputs), b)how much VAT paid on outgoings (outputs), c) a-b =your refund/payment. This is to your advantage - in the first months your expenses usually exceed your income, so you get money back instead of keeping it in the Bank of Taxman. As from this month these VAT returns can only be submitted by Internet, which for some is a bit of a bind. if your German is weak.
Your advisor is correct in that you must submit within 10 days of the end of the month, but you can get a rolling one-month extension if you pre-pay 1/11th of your expected annual tax payment upfront (which you get back at the end of the year)


Correct if you are earning millions in profits, but not for standard small companies, especially GbRs- You profits are normally distributed 100% and simply taxed as private income, like an employed person (so reallistically 25-40%), plus a few % to the local council in company council tax. GmbH profits, however would be taxed more heavilly... 25% corporation tax on any profits (after salaries)


Not so much the level of taxation, but the administration of it and the horrendously complicated web of forms and organisation wanting (but not necessarilly deserving) money... 4-6 weeks after your GbR registration hits the various authorities wait for the mountain of additional forms to arrive... Watch out for the Genossenschafts... you'll get at least 3 of them on your back...

If you are dealing with UK companies you may want to register for UK VAT as a foreign company - it could be to your financial advantage. This is remakable fun too, even if you do speak the (English!) lingo. Try it, it makes even the German system seem easy...

YL6

Not sure if it helps your situation but, you can set up your business in the UK, then trade in the EU.
Law was changed very recently.(apparently the German govt wern't too pleased but the E.U. forced it through.)
Companies house registration (£15) a couple of forms and you're away.
I'm not sure whether the english LTD holds the same kudos as the GMBH but its a option.

Pete

Yup - I am learning fast!

Yup - the wife and myself although crazily they only wanted/needed her name on the bank account and some paperwork (weird it was) - I am some kinda ghost partner or something.

I am aware that GMBH is same gig as limited in the UK and therefore safer, although I am not dabbling in a theoretically "dodgy" kinda business. Whilst I have put more then €25,000 Euros into the Gbr to set it up, and this would have been enough for a GMBH - it is the lack of flexibility to take the capital back in future I didn't like!

And for me the Gbr is a stop gap until September when I can switch to UK Ltd (I have a contractual issue that stops me at present).


I did and I will :-)

Been doing VAT returns for years in the UK so whilst the final form is only 3 lines...you still gotta add up all your inputs and sales to get the figure! Whether you do this by computer or hand you still have work to get the numbers and 10 days is not much time. Like what if you go on holiday!!!??? As you know in the UK it is once every 3 months (or once a year if you prefer on smaller companies) and you get 30 days to produce the numbers.


. Its buttons - I would rather only do the return once a quarter thanks very much :-)


. Agreed that if I do make a profit I will be in better tax position as Gbr than GMBH.

I reckon the plan must be to spend 3 years reinvesting all profits in growth and building the company, then as soon as it looks like it can make a profit nip off somewhere cheaper :-)

Quick question:

I will be selling to end-users (they cannot reclaim VAT) over the Internet. My prices are xyz + 16% VAT. So in theory for an IDENTICAL product I am a tiny wee touch cheaper for the end-user than a UK company selling at xyz +17.5% VAT?

p.s. My target markets are probably more outside Germany than within - so a GMBH might almost be a disadvantage for me on the "kudos" angle.

If your target markets are outside of Germany and you are distance selling via the internet, you MAY have a problem. According to new EU rules you are required to be registered in, and charge the VAT valid for the country of delivery, so if you sell to UK customers then 17.5% UK VAT will apply. The Germans won't care too much (especially if you pay them their 16%), but the UK chaps will if you sell heavilly into their market, as you are depriving them of their 17.5%, to which you may be liable up to 7 years after the fact...They won't care that you already colelcted 16% for the Germans...

Be careful - make sure you have professional advice (which mine is not!)...

YL6

Thanks YL6. Kinda makes sense to me but boy what a headache! Two of my largest target markets are outside the EU (so zero rated) and of course also hoping to make sales within Germany...so perhaps only 10-15% of sales will be to the UK.

Hmmmmmmm...so logically speaking in theory I would/should volunteer to be registered for every EU country that I might sell to? And do a separate VAT return for each country? Wow

Or do you think that the VAT limits for each country would apply? In which case it could work to my advantage...

On that basis my "exports" to the UK would be non-liable for UK VAT until they hit the £55,000 per annum level, and surely therefore also non-liable for German VAT. Now that would be excellent news! I guess it would almost work like having a separate UK company?

(although I think that you can only zero rate "exports" within the EU if you have the VAT number for the counter-party - which in my case of course would not exist cos they are end-users).

Off to "google" some more information.

OK. Answer is here:

http://www.newrules.org/retail/EUtax.html

Situation 2: A supplier in nation A sells a product to a private individual or organization in nation B that does not have a VAT registration number. If the value of the supplier's sales in country B exceeds a certain pre-determined limit (usually 100,000 Euro a year) that supplier must register with the VAT authorities in state B, charge local VAT and file returns there.

So for people like "Amazon" this is an issue. Apparently if you compare identical products at Amazon Germany and Amazon UK they charge the local rate.

So until such time as my exports to any of the 15 individual EU countries exceeds the €100,000 limit I just process as though the customer was in Germany.

Well - thats one less thing to worry about I guess!

I would believe that to be the case.

This is a real rats nest. Each country interprets the EU VAT directives differently, then the local tax office within the country might interpret the interpretation. I've seen situations where the Germans believe a supply is taxable to a certain foreign country, and the foreign country tax office believe it's taxable there too, so both demand tax, and have little interest in the opinion of the other or the potential double taxation that applies (which is strictly against EU guidelines). Both demand the tax and you have to appeal to two authorities. That's an expensive and time consuming business.

If you do sign up for VAT registration in the individual companies imagine the effort required, not once, but monthly, and that's even if you speak each language. Turnover limits might apply, but in some countries (e.g. the Netherlands) the turnover limit for registration is €0.00

I asked the Germans last year for a ruling prior to (a special incidence of) trading internationally, giving them concrete examples of the trade anticipated. Letters between ourselves, our accountants and the tax authorities abounded, with a result that they said they would not rule, but would analyse our own interpretation after the fact. 6 months later following a VAT reclaim for in excess of €30,000 we got the dreaded VAT inspection (no big surprise when you ask for that much back). Two weeks of a VAT inspector going through the books, babysat by our accountant. The end result? - yes we had made some mistakes. They actually owed us another €110 on top of the money we'd already claimed... But they didn't refund the €6000 in accountant fees to prove we were right...

YL6

An interesting site - thank you for that. However, it is American (so check it!). It would certainly be worth checking/confirming the country limits too.

If (as I hope for you) it is true, then it's certainly to your advantage trading from Germany where the VAT rate is one of the lowest in the EU

Also €100,000 is not that much in sales. On a 20% gross margin, (which is probably only 10-12% in your pocket after expenses), you'd still need to trade over €300,000 a year to make an income to to barely live on... You'd have to spread this widely outside of Germany to avoid the VAT trap.

YL6

Yet more on this sexy subject:

http://www.e-bdo.com/BDOinT/webcont.nsf/ee...rochure02_b.pdf

Last column on Page 10 has the threshold limits for distance selling. Doesnt look like anything I need to worry about. Thresholds are all over the place but not an issue at this stage in the game!! UK is £70,000 but figures might be out of date possibly.

Well the figure is by the looks of it different to each country but as you say £70,000 is less than £6,000 per month - which I guess I could bust within 12 months. (I used to do £20,000 per month online in the UK when I had the same business before). Messy.

Fortunately I dont operate on the margins you quoted!

When will so called "leaders" learn that you do NOT build a house out of saplings! This thread (if not exagerated) is an abomination of the human spirit. Waging a brutal assult like this against the few motivated inspired people in your community (or country) will wipe out their potential contributions guaranteeing eternal mediocrity at best!

I expect that when I get to Germany I will see swings in the playground tied to trees only 2 meters high...

Yeah - you would hardly believe that this thread is about me just trying to sell a few bras and knickers!

Hi Guys,

Sorry to bring this subject up again, but I need a little advice here

I'm planning on setting up an internet based company that sells mountain biking GPS trails, i.e. Non tangible goods, I'm seeing a tax consultant on Wednesday about that anyway.

My point is thought that I'm not currently interesting in selling tangible goods, so therefore I'm not really interested in where I base the company, so I thought that it would be better to create the company in the UK, I reckon I can do this easily by going to http://www.uk-plc.net/ or equivalent.. The problem is that the bank in this case http://www.natwest.com/smallbusiness/servi...urrentaccounts/ require me to be resident in the UK, does anyone know a way around this, I'd rather not register the company to my Mom and Dad's address..

Anyone have any experience registering a company in Gibraltar or the Bahamas?

Cheers,

Allan.

Why do you need a bank in the UK, or why do you need to use NatWest?

There's no reason why you should not register a limited company in UK, but trade from, and bank in Germany. It's a bit complicated (you neeed to submit annual returns to UK Companies House, and a tax return/accounts to the German taxman, but perfectly ok and legal...

YL6

Hi Al
how will setting up in the bahamas get you around the issue of being resident in the UK for your bank ?
The only help I can be is that you can set up your business in the UK, you can register the business at your accountants address (if you employ a UK accountant)

You can then operate anywhere in the EEC using your UK P.L.C.

Its very expensive to set up the German equivalent and the German authorities are not happy about the fact that business can operate using a UK limited company.

I must admit, its far to easy to go into business in the UK (probably a legacy from Mrs Thatcher years) a few standard forms and £15 fee and you're away

Ask me if you need help on software - I have a developer licence for the e-commerce stuff I use and it is designed out-the-box to sell downloadable software etc online...I assume yours will be PDF files etc.


Offshore e-commerce! That is a fun subject and you can read more on this here:
http://www.offshore-e-com.com/

VAT will not be an issue either way because you will I assume be below any VAT turnover thresholds I suspect anyway. In later years when your turnover gets higher you can consider the issues further. But plenty to read on the website above.

UK banks - yeah they are a right pain in the butt with regards to private accounts and also business accounts. There is no legal reason you cannot live abroad as a Director but they just cannot be bothered with the extra paperwork and checks.

Solutions:

1. Register to your parents at the start and then immediately change the addresses as soon as bank account is set up.

2. Buy a Ltd company WITH bank account. You can see these in Exchange & Mart.

3. Try http://www.anbusiness.com Abbey business banking. They will take an overseas Director, but may still insist on having UK address for company.

4. Use an accommodation/secretarial address in the UK for the registered company. I use my UK accountant for this.


My only experience is via Trust Funds in Jersey. But be aware that even if you register the company on the moon it will technically be liable for tax in Germany. This is because the Director or "Shadow Director" is based in Germany - that is you. If the effective controller of the company is based in Germany then it pays tax here. However sounds like the company will be small enough to probably fly under the radar if you wish.

Thanks guys, as you can tell I have loads of reading to do on this...

Will defo set up the business in the UK, as for the bank I've already requested meetings with DB and HVB both of them have said they will get back to me but one week later neither have, I just can't be doing with the crappy service I am expected to put up with here, hence the UK bank account...

I'll give you an update as soon as I work out what I am doing .. That could take a while...

Al.

hello,

Is your nice lady an accountant or a bookkeeper and how much does she charge? We have an accountant but at the beginning of starting a business we do not want to pay that much. Have you any hints for someone who has never filled in a VAT return in their life (in UK, Germany or anywhere)?

"nice lady"???
You already have an accountant but want another one?

No, Just would like to know if anyone knows of a Book keeper that is cheaper than my accountant, what a fair rate is, or alternatively if its easy to do my own VAT returns , my german is not that hot so any help in english would be great.

Thank You for any feed back.

The monthly/quarterly VAT return is easy. If your business is fairly simply and you keep an accurate and up-to-date log of your inputs and outputs (for a simple business an Excel spreadsheet is more than enough), then all you need to do is to transfer your inputs and corresponding VAT to one line on the form and the VAT paid on your outputs to another. One less the other is your VAT reclaim or payment due. The numbers themselves are little more than a summation off the spreadsheet.

Since January 1st, as VAT returns can now only be submitted electronically, the hardest part may be installing/using the necessary Elster software (in German)

YL6

cheers v much. have found the form but there are 67 lines on it! i guess most of them don"t apply most of the time. you couldn"t point me in the right direction for the 3 lines i need could you - i am guessing line 67 is the bottom line (inputs-outputs). cheers

Humm... this is pretty basic stuff, but (ohne gewähr!):

On the 2005 form for Bavaria (download here) the relevant lines are:

Line 27: Enter your net turnover for the month in the first column, and the MwSt you have levied (should be 16% of your turnover) in the second column

Assuming you have no further inputs then simply enter the "Steuer" sub-total in line 43 to carry over to Page 2

On Page 2 (Line 45) enter this same carry-over

Line 53 summarises the total tax you have collected

On Line 55 you enter the MwSt amount (only!) you have paid to suppliers, etc., ("Outputs").

Line 62 summarises the total MwSt you have paid out

On line 67 you show the calculated difference between line 53 and line 62 (i.e. input MwSt less output MwSt). If you paid more MwSt out than you invoiced then this is a negative number and optionally can be entered in red. If this is negative then this sum will be paid back to you, otherwise this is the amount you have to pay the taxman (which if you are making a profit will always be the case!)

The above assumes you only ever charge 16% VAT on all your invoices. If you are in a business using other rates (e.g. taxi, food, books) then there are other columns to complete, also if you do any business (sales or purchases) from other EU countries or outside the EU

Finally this is really an academic discussion, as, as I said before these forms are no longer completed by hand, but MUST now be completed and submitted electronically.

YL6

Thank you very much for your help, as you said it might be basic stuff, but if you have never done it before and in German it's quite hard, I know the form is not used and must be done through the Program I have installed but it's nice to have a read on real paper, so thanks also for the PDF.

When anyone with poor Geman like me, needs help it's cool that there are people like yoursellf to help out Cheers again...

But like I said - "ohne Gewähr". This is important stuff, and you need to get it right, or there can be financial and legal conseqences. Better to pay a professional to walk you through it the first once or twice. After that it's like riding a bike

YL6

@Red38 - I do have a German Accountant but also a qualified local lady that just acts as "book keeper" for all the reasons above. As I am forced to do a VAT return monthly then it suits to have someone local to fit into that short 10 day window at the month end.

September I am gonna probably shut down the Gbr and just run my UK Ltd 'cos will be much cheaper and easier to manage (I cannot do this for other reasons until September).

p.s. but I am out in the sticks so probably my lady would not be any help.

all interesting stuff

Not quite about setting up a company in DE but does anyone know much about this services directive that the EU chucked out last week? To be specific - I have a personal company based in Sweden from which I billed for translating and such services (i.e. no products were sold) when I was in Sweden. Can I use this to bill someone in Germany for e.g. translating (i.e. a service) or does it fall foul of this lack of permission to trade services within the whole EU? Or is the services directive only related to services that require specific qualifications (e.g. legal services)?

Yes you can (bill from Sweden) so long as the amount of business you do in Germany is limited, and only a minority of your total turnover. If the German authorities suspect you are doing "majority" or "substantial" business here, then they may request you register, or at least submit business statements to them for taxable consideration...

YL6

I'm not sure if this belongs here or in a new topic, but I'll start here, just the mods have the possible thrill of doing a split instead of a merge.

I have a private bank account that I get my customers to pay into. It has worked beautifully the last 8 years of freelancing, but I've recently run into a few problems. First, last year the bank cut my overdraft, in an attempt to get me to switch to a business account. Now, a couple of my customers addressed the transfer to my company's name, rather than to my personal name. The first time this happened, the bank called me to ask about it and I said "Yes, that's my company name, put it through". They didn't want to do it, they said I had to open a business account for that. I insisted that I was allowed to be paid into my account by whomever and they grumbled, but let it through. This latest time, from a different customer, it bounced back.

This is going to be a growing problem, as I have more customers I don't work directly for, so they know the company name, not my own. What should I do? Should I contact them and tell them to make sure to address it with my personal name, or should I look into getting a business account? If the latter option, are there any recommendations for this, or is it the same as what I'll find for private bank accounts?

I'm not sure what kind of freelancing you do, but presumably you send an invoice with your bank details on it. So you should just need to write your own name as the 'Kontoinhaber'; most people will just copy that information.

I think you'll find in the long term it's better to have a second account for your business to keep personal and business finances separate. It's easier to control and to see your costs and income more accurately too. Simply transfer money from business to personal account as you need it or have funds available. It's clear that if you run your company with a different name to that shown on the account then the bank will have problems (legally too). If you ever get an inspection from the Finanzamt you may have to open your bank account statements to them, and this is certainly easier to do if a statement refers to business transactions only, rather than having to spend time seperating the entries...

The downside is that the bank is sure to want you to open a business account, and this is equally sure to be more expensive to run than a private account, but once they see you managing your business professionally and the money running through it, they should be more flexible in the future about overdrafts, loans, etc...

YL6

Business accounts generally have much higher fees - personal accounts can be free if a fixed sum is going in every month.

I still have two separate accounts though - the second is registered as personal as well at the same bank and all transfers are made to my name not a business name. Almost any bank will try to change a suspected business account to a business account though.