How to establish a business in Germany Andreas Seidel [email protected] BUTZEL LONG A PROFESSIONAL CORPORATION 150 WEST JEFFERSON, SUITE 100 DETROIT, MI 48226 TEL: 313 225 7000 I FAX: 313 225 7080 www.butzel.com Index • Corporate Entities in Germany • GmbH I. Main characteristics & Legal Framework II. Formation III. Costs IV. Taxation • Foundation of a branch in Germany Major Forms of Organizations • Sole Proprietorship – No staturory capital required. – Individuals are liable with all their assets • Partnership – Civil –Law Association (GbR) – General Partnership – Limited Partnership (KG) • GmbH: Limited liability company – Minimum capital required, Euro 25,000 – Shares cannot be listed on a stock exchange (vs. AG) – Flexibility regarding the corporate governance framework Major Forms of Organizations • UG: Limited liability entrepreneurial company – Start-up businesses – Minimum capital required, 1 euro – Possibility of transforming into a GmbH • AG: Stock corporation – Shares can be listed on a stock exchange – More formal requirements and strict capital protection rules – Shareholders have less control on management GmbH I. Main characteristics & Legal Framework 1. 2. 3. 4. 5. 6. 7. Simplest form of a capital company that can be set up for any admissible purpose Composed by capital amounts and not by the combination of persons (vs. Partnership) The Shareholders’ Agreement determines the share capital In General, only the company itself is liable. Minimum capital required: EUR 25,000 (US$ 32,000) Nationality and residence of the shareholder(s) and the managing director(s) of a GmbH are irrelevant. Regulated by The Act on Limited Liability Companies (Gesetz betreffend die Gesellschaften mit beschrankter Haftung) GmbH II. Formation 1. Drafting of Articles of Association a) Mandatory content: i. ii. iii. iv. v. Share Capital, Shareholders and Respective Shares, Business Name, Registered Office, and Company Object. 2. Notarization of Articles Of Association a) If the persons acting before the German notary are not fluent in German, German law requires that the notary’s appointment be translated and sworn by a translator. GmbH 3. Payment of Share Capital a) Opening of company account at a German bank. b) Minimum stock capital is Euro 25,000, of which 50% must be at least paid to the Company’s account. c) Entire amount of Euro 12,500 must be paid. No deductions for bank fees, etc. GmbH 4. Registration with the Commercial Register a) b) c) d) e) Official Commercial Register is located at the local court. Registration is required before taking up commercial activities. All persons acting on behalf of the company are personally liable for debts resulting from transactions carried out on behalf of the company before registration. Done by the notary after receiving a bank confirmation that share capital has been paid. Application form must signed by the managing director(s) personally in front of a notary public and must be notarized. Entry in the official commercial register will take between 3 to 7 weeks. GmbH 5. Final Step a) Registration in a special register for business activities (Gewerbeanmelding) b) Registration with the Chamber of Commerce (IHK) c) Registration with Tax Authorities. GmbH III. Costs 1. 2. 3. 4. 5. 6. Notarial registration costs: approximately Euro 500 Authority fees for the official registration in the commercial register of the local court of the new company’s domicile: approximately Euro 250 Yearly payment to the local chamber of commerce of the company’s domicile: approximately Euro 250/year Cost for registration in the special register for business activities (Gewerbeanmeldung): approximately Euro 30 Translation costs: Euro 800 Legal Fees: Dependant on workload and range of services involved. GmbH IV. Taxation Germany has one of the most competitive tax systems of big industrialized countries: • Overall Tax burden below 30% • Taxation of Corporations consists of: – Corporate income tax, + solidary surcharge (fixed rate of 15% + 5.5% of the assessed amount of corporate income tax = 15.8 %) – Trade tax (varies from municipality to municipality but averages between 12% and 18%) GmbH • Capital Gains – No separate capital gains tax in Germany. Capital gains are included in taxable income unless exempt under the participation exemption. All capital gains realized by an enterprise from the disposal of business assets generally are treated as ordinary business income. • Value –added Tax (VAT) – Tax on exchange of goods and services – Added to price of Goods • No Double taxation – Double taxation agreement with USA even allows a reduction of dividend taxation to zero percent if certain requirements are met. GmbH GmbH • In cases of doubt, the Competent Chamber of Industry and Commerce will give comments on the admissibility of the corporate name • http://www.unternehmens register.de/ • [email protected] Foundation of a branch in Germany It is possible to establish a branch office of a foreign company or partnership. A branch: • is not a separate legal entity distinct from the parent company (vs. creating a GmbH) • has no rights or obligations itself, but derives them from the parent company of which it is part of • A branch is categorized either as a dependent entity lacking its own business profile (like a representative office) or as an independent trading entity. • Only independent branches must be entered in the commercial register. Foundation of a branch in Germany • Pros: – A branch is not subject to the same disclosure requirements as a subsidiary. – In a start up situation, a branch has the advantage of letting the foreign investor offset German source start-up losses against homecountry taxable income, depending on the home country’s tax system. • Cons: – A subsequent conversion of the branch into a German corporation typically results in gain recognition, particularly for goodwill. – The liability of a branch extends to the foreign head office; a subsidiary in principle does not expose the foreign parent to potential liabilities. Please do not hesitate to ask any Questions Thank you Andreas Seidel [email protected] BUTZEL LONG A PROFESSIONAL CORPORATION 150 WEST JEFFERSON, SUITE 100 DETROIT, MI 48226 TEL: 313 225 7000 I FAX: 313 225 7080 www.butzel.com