Setting up UK Ltd. company for business in Germany

Can anyone help?

I am looking for anyone living in Germany who has either already set up or owns a UK Ltd. Company (as opposed to a German GmbH) for the purpose of their business operations in Germany. It’s obviously cheaper and simpler than setting up a GmbH, but what are the risks involved and why aren’t there more people out there doing it? I went to Companies House in London and got their information pack…but that’s all I’ve got to work with.

The reason for all this is that a former business associate and friend asked me if I was interested in setting up a Ltd. with him but I’d like to talk to others first who already run Ltd companies in Germany before doing something that I’ll regret later.

If you cannot help, perhaps you know of someone else who can. ANY HELP APPRECIATED.

Thanks in advance.

René Frotscher

I've not done it myself, but I know people who have done it. It'd definately cheaper at the outset, but it's onerous and expensive in the long-term, as you have to submit accounts to two authorities - the German Fianzamt and Companies House, both who have different requirements for format and submission. They essentially needed to pay accountants in both countries to support them, and who understood the rules in both companies. One company, selling consumer products in Germany found their customers were very suspicious of the structure - a UK company with German registered address selling into the German market, and often went elsewhere to a GmbH they could trust. And of course an German GmbH has a minimum legal liability of €30,000, whereas a UK Limited company can be as little as £100

YL6

One of the TT advertisers, Huntcrest Services Ltd., are doing exactly what you ask. They're painters and decorators. It's a UK registered Ltd. company, but they are based full time in Munich. They got their company "off the shelf" from Companies House. So maybe ask them, see if they have time to share some info with you.

EDIT: I just thought. Hmmm, maybe they're not a Ltd., they might be a Plc. instead. Need to check.

As someone who's lived in Germany for a while, I would be hesitant to use the services of a UK Ltd or Plc rather than a GmbH. I have full recourse in my home with a GmbH and I know they're liable for at least €25K in damages. Additionally, all actions I might need to take against them would be done in "my courts" and in "my language". For that matter I'd be more likely to trust a GBR than a foreign entity because again, as a consumer I have much greater liability protection. And Germans do see things this way.

As YL6 pointed out, you'd need accounting and pay taxes and fees in both countries. What reason do you have for setting up a UK Ltd or Plc in Germany rather than going through with a GmbH? The €25K deposit? Talk to a business lawyer -- there are some loopholes with that, especially with more than one primary person in the company. The GmbH designation carries a lot of weight and value in Germany.

woof.

The reason most people might go for a UK limited company is that you can pick up a dormant ("off the shelf") company for £100-250, whereas in Germany you need to start a GmbH from scratch with all the palaver, time and cost it implies (typical cost for all the effort is €5000-6000 and 2-3 months). Unfortunately. as said before, operating a company with dual accounting responibilities in Germany and UK can become remarkably onerous...

YL6

I have a UK Ltd, and a Gbr.

New companies over here must report for VAT purposes EVERY month for the 1st 18 months, and within 10 days of the month end...so don't you dare book a holiday early on in any month! I use a bookkeeper to keep on top of this commitment (yet do my own UK returns).

GMBh you are committed to the €25,000 of paid up share capital, but can get away I believe with €12,500 in cash (although always legally committed to the full €25,000 if things go pop). But of course the company can spend the €25,000 so it's not dead money.

I have a Gbr for specific contractual reasons, but am told by the accountant here that lots of Germans go for UK Ltd companies these days because it is so much easier. The German authorities grumble about it of course but must accept European law.

Not quite true. You do need to submit a return every month until the end of your first financial year (after that it depends on your turnover), but you can get a months extension on the submission (extending it to 5 weeks after the end of the month) if you pre-pay an estimated 1/11th of your estimated net annual VAT, which is then recovered in your 12th monthly return.

The UK return is that much easier because you speak the language, I presume.

A UK limited company registered or trading in Germany still has to complete a German VAT return if it is providing services here, so it's difficult to get around...

YL6

Thanks for all your valuable help. I need time to go over all the information and will get in touch with any questions.

bad doggie the liability thing is a red herring... the equity requirement means that at some point capital was paid in, but if the company is insolvent then your claim ends up with the insolvenzverwalter same as in the UK

since the shareholders are not liable for anything beyond what they paid in at the start and may or may not have pissed up against the wall in the mean time. bottom line is if there is no cash in the bank, it makes diddly squat difference if the theoretical equity "haftung" is EUR 25k, EUR 25m or one turkish lira

a GbR is nicer in that way: full personal recourse to the gesellschafter. or a GmbH & Co where you can go after the Complementär (although since most people are not *that* stupid, usually the Complementär is a GmbH so you are back to square 1)

These guys also help you set up a british style LTD. company. I am also thinking about it at the moment. The people here have raised some very important issues that you should consider before making the decision.

I have a side question. What do you need to do to obtain a "custom clearance number or status" in Germany. I would like to start importing goods from US and China mainly and I need some sort of a custom clearance. Is it possible to obtain that with a GbR.

Cheers,
xargy

Jordigo's points are all good (as usual) - the Complementaer is ALWAYS a GmbH - giving, in effect, a kind of LLP type way of working (a KG is a different matter). Downside of course with GmbH & Co. KGs is that you still need your 12.5k in cash to put in a bank account somewhere...

Registering a Limited Company is an absolute doddle though - though I've no practical experience of running a Ltd in Germany - I've only dealt with Zweigniederlassungen of Ltd/PLCs in the UK.

I'm curious as to the start-up costs of a GmbH - how do you arrive at €5-6k YL6? A notary's fees, IIRC, should be about 1.5k or less.

Chatting to a local mate of mine who is setting up a Gmbh for the first time 'cos he is going self-employed with another guy. (computer contractor)

He is borrowing (with the usual have-my-house guarantees etc) and getting loans from the bank at 2.5% rather than the more normal 6% plus - via a government backed cheap loan scheme which sounds pretty good to me.

However in addition to the monthly VAT reporting he must also do a budget forecast for the bank and present figures EVERY month to them. Some might say this makes for good financial discipline - but he is budgetting €400 a month for someone to do the numbers, and when he has a few more staff will need a full-time bean counter he thinks. (initially they are 4 people).

I despise paperwork personally!!!

If you wish to do business here in germany, then it is better to have a GmbH rather than LTD from England because people here will not trust a LTD. From experience, Germans view the GmbH as somewhat safe, secure, and trustworthy. For one they know that you will need much capital to open a GmbH so they will not think you can just leave without notice. GbR is also viewed as highly as GmbH but it is a good start. You may not be able to make big business with a GbR but you can at least work as a contractor. The one major disadvantage of GbR is the personal liability. If something goes wrong you and your parent will have to pay out of your own pockets, whereas the GmbH has the safety that whatever is in the company can be paid out as damages.

Other thing with a limited is that it can complicate legal paperwork - a director in Germany (of a GmbH or AG), is usually able to sign for the company on his own and bind it by his sole act - this is all recorded in the Commercial Register. In the UK a director has no such authority unless granted by Power of Attorney - otherwise two officers of the company are required to sign a company deed...unless there's a seal...but the German's think seals are found in the zoo...or of course you're a sole director...but in either case you'll probably need a notary to certify the facts...and where would you find one capable of doing that? <hint>
EDIT: oh, and Huntcrest Services Ltd is indeed a Ltd company, registeed to an address in Swansea.

Maybe a tad on the high side, but it depends how careful you want to be. It's not just the notary fees - there's a lawyer to draw up the contract in the first place and a Steuerberater to help with business planning along with start-up submissions to the authorities such as the Finanzamzt. For Lawyer, Notary and Accountant reckon on maybe €1.5k each. Court and newspaper announcement fees come on top of all that...

YL6

OK - got ya. You can of course buy 'off the shelf' in Germany too - essentially a share transfer and a name change deed, and then re-appointing the directors. Not sure what the benefits are of doing that, but plenty of people do do it.

Everyone is saying that if you have a UK Ltd company for business in Germany you need to file your taxes in Germany as well as in the UK.

I understand this if you are selling goods or services in Germany or doing any business in Germany.

What I dont understand is why you would have to do this if the company was operating solely from the UK. Targetting international customers from the UK, with a UK business adddress, with a UK business bank account etc. The only connection with Germany would be mail being forwarded to the German address of the company owner. I know you are allowed to set up a UK Ltd if you are not a UK resident as long as you have a suitable UK address but do not see why you would have to file the companies finances in Germany also. Can anyone clarify any reason for having to do this?

I realise that if a German resident started taking a salary from the company then things would be different, but until then it is unclear to me.

I spoke to my accountant about this but he was not sure so I need to find another one (he was only an income tax advisor).

Thanks.

Sounds like 90% of your operation will be UK based...however...and this is the crucial aspect for tax purposes - it is down to where the "controller" of the business is domiciled. This also avoids anyone saying "I dont own the shares they are in my Trust fund" or " I am not a Director". It is down to where the company is ultimately controlled.

Otherwise we could all live in Germany, controlling overseas companies and not paying tax here etc. e.g. Corporation tax in Latvia is just 15%.

Clearly you can "fly under the wire" for a bit, but depends how straight you wanna be.

A few facts about English LTD and Deutsche GmbH.

1. Germans trust the GmbH system but actually doesnt give any more protection than a LTD.

2. Germans THINK that a GmbH is safe.

3. There are just as many crooks running GmbH as there are LTD companies.

4. Just as many GmbH go bankrupt as LTD for their own benefit.

5. LTD companies are not yet as accepted here as GmbH but this WILL given time change.

6. Start up costs for a LTD are up to € 5000 cheaper and the "Stammkapital" obviously € 12,500 to € 25,000 cheaper.

6. It does cost more to run a LTD per annum than a GmbH because of the Tax retuns to Companies House ans you still get collared for Corporation Tax here in Germany. (Körperschaft Steuer). which is 25% + 5% Gewerbesteuer.

7. ...and last but not least, if a company has no money whether it be LTD or GmbH it has no money, full stop. You can hang all your titles and court orders all over your dining room walls but it still wont pay your overdraft off.

8. LTD is here to stay and will become a standard.

9. A company trading soley from the shores of the UK should not run into any difficulties with the german tax authorities, seek better professional advice.

Having set up a UK LTD and registered at the Handles registar the next easy step is to open the bank account.

A simple Giro konto, no credit facilities not credit cards. NOT SO SIMPLE!

Having trolled through most of the banks and been shown the door without even the chance to discuss the business does anybody have similar experiences / stories to tell?

I suppose LTD vs GmbH is dependant on how complicated your business is. We are a specific technology producing company. We did have a Ltd. company but closed it and formed a GmbH, with the full 25K Stammkapital. This infusion of money shows that you are serious. Putting your own money into your business shows that you are serious and believable. We asked our German housebank about getting a business account for the Ltd. and although we weren't refused outright - they were not going to be helpful about it and in the end I think they would have baulked at the idea. We also need investment capital and need to apply for cheap KfW finance - they are not going to consider lending money to a company that is a Ltd. So in order to be taken seriously and get the necessary finance we formed a GmbH. After the initial set up of the GmbH for the early phase we plan to change soon to a GmbH & co. KG, which will accommodate our investors.

Similar experience. Most banks refused outright. Hypovereinsbank were better and do offer a business account for Ltd companies. However they require a HUGE amount of paprework including five years of audited accounts, birth certificates and passports of all directors etc etc. In the end, the sheer volume of the documentation required (which all ad to be translated into German) meant that our finance director in the end decided that we could not do this.

In the end, what I have had to do is open a second personal account with Hypovereinsbank and all the office expenses and income for staff is channeled through that account. This is okay for the time being as I am not likely to run away with the money. However, when I hire my replacement and head back to Blighty I will need to find a less cumbersome and dodgy solution. Any ideas?

(Incidentally, I unerstand that this problem is not specifically a German one but has to d with tightening international security against money laundering - a GmbH trying to do the same in the UK would have similar problems)

Perhaps run it all from a UK account in €uros.

Funnily enough I am just going up this route at the moment. I have an established UK Ltd. company, just getting it registered here (certified translations etc done). My fallback plan is to continue just using the UK account, but will let you know how I get on with my local Sparkasse shortly!

we did look at that but the transaction costs for paying the sundry weekly supplier invoices would have dramatically hit our bottom line even with one of the offshore euro accounts. It is checaper to make monthly block transfers from the IUK to my second HPV account and pay the bills from that.Very frustrating.

Have to say when HPV merged with Unicredito I was paraying that they would then do the same with a UK bank as that could have made it all considerably easier.

o and Sparkasse wouldn't even let me open a personal account let alone a business one since my company operates here without a Handelsregisternummer

I had similar experiences at first with the banks but then I went back to my UK bank HSBC and told them the problem and they sorted out the rest from there, all UK banking Institutions have partner banks for example HSBC/ Dresdner. After my bank sorting out all the necessary paperwork and recommedations all I had to do was ring up Frankfurt to arrange an appointment here in Munich. It then took me one hour and a copy of my passport to open the account.

thanks for that mr k. I'll look into it

Unfortunatly we did not yet get so far as to even discuss finance, so really the question of status / financial exposure has not come into the sharp exits we have been offered from the various banks premises so far.

The objection appears to be limited to the LIMITED if you all excuse the pun. It is an EU ruling that LTD is recognized but in a country as big as DE only 30000 LTDs are registered, which may lead to questions.

My first post seems related to this topic so I have added here rather than start fresh.

I currently have a UK Ltd company and have been successfully trading in UK (outside of IR35) for the last seven years. However, I may be in line for a contract position in Munich end Jan 2007. The ‘governance’ of my UK Ltd company remains in UK, as three of the four family directors remain UK based. I will however be in GE for more than 183 days and therefore subject to GE Tax and National Insurance.

I would like to talk to someone who has any similar experiences to discuss the following:

1. Continuing to trade as a UK Ltd company, with my salary paid from UK whilst I remain resident in GE. How would any dividend I received from my UK Ltd company be dealt with? In UK there is a ‘preferential’ rate of 10% if your income is below the £33.3K basic rate tax limit.

2. Mothballing my UK Ltd company and servicing the contract via an ‘umbrella GE company’.

Your thoughts gratefully received.

Which office deals with registering a UK ltd?