Running a UK limited (Ltd.) company from Germany

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Could anyone give a rough estimate of the annual [accounting] costs for the below:

 

1) Running a UK Ltd company operating from Germany (I guess as a branch office). I just need the costs for the German acounting side (excluding VAT, so just the other tax formalities).

 

or

 

2) Setting up a 'one man' Gmbh in germany.

 

Just ball park estimates, please. I already have a UK Ltd company, operation from the UK and have no problems doing all the accounting and tax returns in UK, but would really like to operate from germany. Thanks in advance.

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Could anyone give a rough estimate of the annual [accounting] costs for the below:

1) Running a UK Ltd company operating from Germany (I guess as a branch office). I just need the costs for the German acounting side (excluding VAT, so just the other tax formalities).

or

2) Setting up a 'one man' Gmbh in germany.

No.

 

It depends on (among other things)

 

  • Startup and investment costs
  • The business the company is in
  • The turnover
  • The profit
  • The location (state and city)
  • Who/how the accounting is done (external/internal)
  • The division of national/international business

 

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Hi YL6,

 

I understand the tax paid is based on all the above, but I'm just interested in the costs paid to an accountant to do the annual tax return and other formalities. The business would be small initially, with turnover approx. €40k (i hope!!).

 

I need to decide whether to go UK Ltd or Gmbh route. Will take proper advice (and report back here), but you can't get better than first hand experience.

 

When you started your business in Germany, which legal form (Ltd or Gmbh) did you take and which would you take if you could do it again?

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I think you will find the annual "running costs" of a Gmbh or a Ltd will be pretty much the same assuming you are using an accountant locally here in Germany. On that small turnover you can probably prepare a lot of the information yourself for the accountant.

 

Much more important therefore is the "status" of the company for your purposes. UK Ltd companies are not well known and not well trusted by people and companies in Germany - because they are so cheap to set up and shut down they are the #1 choice for the dodgier elements.

 

So if the REPUTATION of you company amongst a largely GERMAN client base is important then choose a Gmbh. If you don't care so much then go UK Ltd as it is cheaper and generally less demanding.

 

I use a UK Ltd, and it works just fine for me over here.

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Hi YL6,

 

I understand the tax paid is based on all the above, but I'm just interested in the costs paid to an accountant to do the annual tax return and other formalities. The business would be small initially, with turnover approx. €40k (i hope!!).

 

I need to decide whether to go UK Ltd or Gmbh route. Will take proper advice (and report back here), but you can't get better than first hand experience.

 

When you started your business in Germany, which legal form (Ltd or Gmbh) did you take and which would you take if you could do it again?

Take a piece of string and measure it.

A GOOD accountant who can speak comfortably to you in English and is conversant with international business law is going to cost you around €150/hour for his own services, but clearly much less if he delegates to an underling. How many hours they will need depends heavily on your requirements (see above) Forming a GmbH requires €25,000 capital (although in practice you only need to provide €12,500 in hard cash) and has legal and notarial costs in startup and registration fees (reckon on around €2000-3000). Once formed there are very different tax considerations within a GmbH for dealing with profit and loss.

You seem to be plucking the "GmbH" form out of thin air. Have you thought WHY you even want or need a GmbH, rather than one of the many other company forms?

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I was reading about the new 'mini-GmbH' which was introduced in November 2008.

 

Although from the bits of information I have been able to piece together the only advantage is that you require less start-up capital: €1

Registration would be about €150 but you would still have the legal and notarial costs.

 

At least 25% of the profits must be retained in the company until you have €25,000 capital.

Then you have the option to switch from a 'mini-GmbH' to 'GmbH'.

 

I understand that is was mainly introduced to discourage Germans opening up UK limited companies and then operating in Germany.

Maybe others know more or just too early to say if it offers any benefit at all.

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Maybe others know more or just too early to say if it offers any benefit at all.

Well it sounds like it offers you the "route" to a Gmbh without the initial commitment of cash. Sounds neat if you want, or need, a Gmbh so that you appear more secure and German etc locally. I suspect in honesty my German customers would prefer that I was a Gmbh.

 

However...

 

Sounds like the official term is "Unternehmergesellschaft" or UG, so I assume you must call your new company something like:

 

XYZ UG

 

Rather than:

 

XYZ Gmbh

 

or

 

XYZ Ltd

 

That sucks to me 'cos you are identifying yourself immediately as a tiny bucket shop by being labelled "UG". At least with a Ltd its is vague as to whether your are the working from your bedroom or a massive operation.

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The mini-GmbH is definitely a quick and initially cheaper way to get into the GmbH business, if it's a suitable or necessary business-form for the company you are creating. The downside is clearly that loss of 25% profits in your formative years and the fact that you need to accumulate the full €25,000 capital rather than the €12,500 for forming a standard GmbH (although you are still personally liable for the full €25k). Given that you can immediately spend the €12.5k initial formation investment, and that most companies have capital start-up costs in any case, I'm not sure the mini-GmbH offers a major advantage.

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Done bits and bobs for Germany for years so investigated Mini-GmbHs just now as I'd never heard of them - not quite so advantageous afterall:

 

 

"Mini-GmbH"

The Mini-GmbH is not a new legal form of company, but a GmbH which has a minimum capital of less than EUR 25,000 and where cash subscription is required. This means that it is possible to set up a company with limited liability in Germany with capital of only EUR 1.

 

In order to compensate the initial absence of capital the company has to retain a quarter of its annual profit until it has the accumulated the minimum shareholder capital of an ordinary GmbH (EUR 25,000). The accumulated capital can then be converted into share capital and the Mini-GmbH altered into a standard GmbH.

 

Establishment costs will be reduced to a total of around EUR 300 - due to the low share capital and the model articles of association.

 

Except for the abovementioned specific provisions the Mini-GmbH – by terms of law- is generally subject to the same duties and rights as the standard GmbH.

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The downside is clearly that loss of 25% profits in your formative years

C'mon YL6, you know better than to write stuff like that here :-)

 

YL6 meant the conversion of 25% profits into paid-up share capital. Nobody is "losing" any money.

 

I am also guessing, without even looking, that once this 25% of profits has been converted it is ALSO immediately spendable in the same fashion as a regular GMBH. No way

can those funds be frozen. So it will work the same as a Gmbh, just don't have to cough up the €12,500 immediately.

 

Plus you can always take earnings to limit the conversion of profits into paid up share capital.

 

Only bit that sucks to me is being called an UG.

 

p.s. I have been here 5 years, and whilst the system is slowly leaking into my bones, I still prefer a Ltd to a Gmbh. If the shit ever hits the fan, (which ultimately is the REAL purpose of being Ltd), I would prefer to be running from a Ltd company than from a Gmbh. Not my intention, but I have been in the wars in the past. Basically the UK authorities are a bunch of softies, whereas I can see the Germans chasing your arse to the firey side of hell and back for €10.

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I know what you mean, but you know what I mean too.

Most startup companies need every penny of profit the earn in the early years to survive to the next, so only having 75% actually available to keep the business running could be limiting. As JE also points out I'm sure potential customers will be equally wary of the UG form as it limits overall liability to the start-up capital which can be as low as €1 in year one - longer if the formative years run at a loss - this means suppliers will surely be looking for up-front payments prior to delivery, and potential customers may be wary of offering larger or risk-sharing contracts.

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Most startup companies need every penny of profit the earn in the early years to survive to the next, so only having 75% actually available to keep the business running could be limiting.

Hmmmmmmmmm. I kinda know what you mean, but actually follow this through logically. Profit is ONLY just that - profit - after all the other expenses have been paid including whatever you choose to pay yourself as a Director.

 

So just getting your startup company TO profit is generally the issue in the early years. It's the cashflow that is really the issue 'cos without cash you die. Not the profits at all.

 

Putting 25% of profits into paid up share capital is ONLY actually an issue if you think that the company is going to perform WORSE in the future years, and not better. Once it is in profit, and it stays in profit it is NOT an issue.

 

Furthemore converting the retained profits into paid up share capital makes no difference to the cashflow, as it is still there to be drawn upon.

 

Think what a company NORMALLY does with profits:

 

1. Leaves them on the balance sheet as shareholder funds.

 

2. Pays them as a dividend to shareholders.

 

I don't see the new system causing any hardship on the above. It might be that they are FORCING you to keep 25% in the company BEFORE you are allowed to pay a shareholder dividend, but in your "tight cashflow" scenario of a new company, it cannot afford to take the funds out anyway!!!

 

Basically in the real world, I cannot see any disadvantage. Ya need to think it through!

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Hi all,

 

I'll soon be moving to Germany and will be in a very similar situation to OhFFS from the first post :

 

 

  • Sole director for a UK Ltd company.
  • Working over the internet for companies in the UK, invoicing them in £ from the UK company and paid into my UK Bank Accounts.
  • All accounting, registered address and other ltd company stuff will be in the UK.
  • I'll be a non-resident in the UK (I'm not planning on being back in the UK much during the year) and therefore liable for German taxation.

 

 

Now, from what I can tell from all the posts I've found on this and other sites my situation is as follows :

 

  • I'll still have to pay UK corporation tax as the income is arising in the UK.
  • As i'm controlling the company from Germany, i'm liable to their version of corporation tax. Although due to double taxation agreements I only pay one of them (I think the lower of the two, can anyone clarify this one?)
  • All of my personal tax liability is German based, income tax, national insurance etc although I pay myself mostly in Directors Dividends (the tax on these being part of the corporation tax above) so this will be minimal and I'll have to sort that out with an accountant in Germany.
  • Any personal income will be money transfered from my UK personal bank account to my German personal bank account so this would either be part of a German capital gains tax or the income above? Or neither as i've already paid the tax with the company?

Basically, aslong as my worldwide income is taxed somewhere and i've got the right double taxation agreements setup I shouldn't have any problems? I'm not interested in doing it all under the radar with the (possibly small) chance of being caught out and fined.

 

If anyone can give me some pointers or tips it would be much appreciated, also if anyone has a recommendation of accountants in Berlin who deal with this kind of issue regularly?

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Been there, done that, bought the T-shirt.

 

It's easier than it sounds. Doesn't matter if you have a UK bank account (we have), and UK registered company (we have that), and clients in the UK (we have that) and a UK accountant as well (we have that).

 

You are performing the work and actually generating the income here in Germany - doesn't matter where your clients are based or how they pay you.

 

The company in your scenario is 100% taxable here in Germany. You just submit a copy of your accounts to Companies House in the UK and on there it says 100% tax paid in Germany. End of chat. Obviously you also submit a version over here in €uros (for the taxmen!!).

 

If for arguments sake you WANTED to pay corporation tax in the UK, you would need to prove that you had the equivalent of a PERMANENT ESTABLISHMENT in the UK (e.g. office, staff etc) and also

that the INCOME was 100% being generated in the UK. You could have a split % for work that is being apportioned to the UK operation and a % that is the German operation...but basically you don't

have a UK operation - so one set of figures!!!

 

I spent thousands looking into this 'cos it was preferable a few years ago to be paying corporation tax in the UK (cheaper), but actually not much in it these days. So don't sweat over it - just pay yourself as an employee or in dividends in Germany and then any profits for the company are also taxed in Germany. Dead easy - none of that double taxation bollox basically.

 

They dropped the small company corporation tax rates here to around 25% last year, and are increasing in the UK slowly from 19% to 22% (in 2010) so nothing in it. You don't actually have any choice where you pay, but nice to know you are not being screwed more over here :-)

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As a rule of thumb I would say that someone who cant come up with 12.500 EUR shouldnt deal with a GmbH anyway.

 

GmbH and Ltd are both about limited liability towards creditors. This might be the authorities (if your business gets into trouble tax debts are often the first thing that you stop paying), but more often this are your employees and other companies. The protection of this liability limitation is often overestimated. As the CEO and shareholder of a GmbH you are supposed to know business and tax laws and act accordingly. If you fail, you are personally liable and the whole protective function of a Gmbh is gone. If you take money out of the companies accounts (as many smaller business owners do), you owe the money to the company and over time this can add up to a rather large sum. If the company then goes bust, the liquidator will force you to pay it back. Supposedly this is more or less the same for a Ltd in the UK or a GmbH in germany. I read that the laws for the liability of a Ltd CEO are actually even more rigorous.

 

But maybe british courts are working slower... ;)

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As a rule of thumb I would say that someone who cant come up with 12.500 EUR shouldnt deal with a GmbH anyway.

Wassat mean? It's words but I don't understand the meaning. (not being sarcastic for a change).

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Sorry.

Someone who wants to start a GmbH or Mini-GmbH should consider this:

12.500 EUR (the amount you need to start a GmbH) isnt a lot of money. If your business starts so small that you dont even need that much, you should think about a different legal form. Also if you dont have that much money or cant get a loan, you should consider a different legal form.

The additional administrative work and the costs would be a heavy burden and make your success less likely.

 

Thx for not being sarcastic. ;)

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Aha. So you reckon people that cannot afford to buy a Gmbh, should not buy a Gmbh?

 

Bit like if you cannot afford a helicopter, then don't buy a helicopter.

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Aha. So you reckon people that cannot afford to buy a Gmbh, should not buy a Gmbh?

No.

I reckon that people who start a very small business, should not buy a Gmbh - even if they could afford it.

And I reckon that people who dont have 12.500 EUR should not buy a Mini-GmbH.

(I edited my last post a little bit.)

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I think the point is to decide if a GmbH is the right vehicle in the first place. UK folks quickly reach for a Ltd because they are 10-a-penny, cheap to set up (or acquire) and everyone does it. GmbH are a little more complex and expensive to set up, are more tightly controlled and monitored, and for many, especially smaller company operations are simply not necessary.

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