According to data from the Polish Embassy in Berlin, around 170,000 sole proprietorships are registered in Germany each year by Polish citizens. However, it is important to remember that this also involves additional obligations. How much does it cost to set up a Gewerbe? What are the entrepreneur’s obligations towards German authorities? Where to start? Here is a practical guide that will tell you everything you need to know about Gewerbe in Germany.
Starting a business, just like in Poland, is not particularly complicated, but it requires time, basic legal knowledge, and meeting a number of formal requirements. Knowledge of the German language is also essential. But what if you don’t have any of these skills? How can you open a business in Germany in such a situation? A person starting a business can use the services of a company specializing in consulting on setting up and later running a business in Germany.
Gewerbeanmeldung, commonly known as Gewerba – what is it?
“Gewerba” is an entry in the business register in Germany. This entry may apply to natural persons, such as a sole proprietorship, as well as legal entities, such as a GmbH – the equivalent of a Polish limited liability company (sp. z o.o.). . Entities engaged in providing services such as construction, industry, manufacturing, or trade are required to register. Liberal professions are exempt from this obligation.
Who can start a Gewerbe
Starting a business in Germany is practically possible for anyone who has a business idea and is able to implement it.
How to start a business in Germany
Documents you will need to start a Gewerbe:
- a photocopy of your passport or ID card (both sides),
- proof of residence,
- a power of attorney authorizing the establishment of the business,
- the address where the business is registered and the lease agreement for the premises where it will be operated,
- a certificate of good conduct (Polizeiliches Führungszeugnis),
- a certificate of no tax arrears,
- a certificate of financial security,
- a document authorizing the practice of the profession,
- all types of permits and concessions authorizing the performance of a specific profession.
- submit the application by the end of the second year following the year in which the deduction was made (for example, by the end of 2019 you can apply for a refund of tax deducted in 2017),
- fulfill the tax registration obligation and have a tax number for the construction company,
- attach the documents – contract, invoice, and others,
- no tax arrears.
- fewer formalities when starting and running a business,
- lower income tax depending on the amount of income,
- a lower tax threshold than in Poland, amounting to 14%,
- the tax-free allowance in Germany is as high as 7,000 euros,
- voluntary disability and pension insurance (in some industries disability insurance is mandatory – when starting a Gewerbe in Germany, it is worth knowing which ones),
- health insurance, although mandatory, is not expensive, especially considering the high quality of healthcare,
- entrepreneurs who decide to pay pension contributions in Germany can expect significantly higher pensions than in Poland.
In the case of certain industries, the following must also be submitted when registering the business:
With the completed application, ID document, and the above-mentioned documents, you must go to the Trade Office (Gewerbeamt), which is usually located in the city office (Bürgeramt) or the town hall (Rathaus). The clerk will enter the data into the register. This service involves a fee. The amount of the fee depends on the office where the business is registered; for example, in Görlitz it is 55 euros.
That’s not all. In addition to registering with the Gewerbeamt, the registration must also be made with other offices and institutions. The most important is the registration with the German tax office. Depending on the industry, registration is also required with institutions such as the Professional Association (BG), IHK, HWK, and Soka-Bau.
It should also be remembered that many business entities, such as GmbH (equivalent to a limited liability company), OHG (equivalent to a general partnership), or sole proprietorships whose income exceeds €60,000.00 or turnover exceeds €600,000.00, are also subject to registration with the commercial court register. In many cases, a notary visit is required before entry into the court register.
Because all registration obligations must be verified before starting a business and it must be checked whether the entity meets all the requirements, it is best to use the services of companies that professionally handle business registration and help avoid mistakes.
How much does it cost to start a Gewerbe
Starting a business in Germany involves a fee ranging from 15 to 65 euros, depending on the federal state and city where the business is registered. Depending on the industry and requirements, the cost of obtaining permits or notary and court fees for registration in the commercial register must be added. For example, obtaining a permit for construction work requiring a master craftsman’s certificate in Saxony costs around 500 euros. On top of that, translation costs or fees for a company commissioned to obtain such a permit must be included. Additional costs may also apply, such as renting premises (if required) or accounting services. Interestingly, for most sole proprietorships in the construction industry, renting a premises is not mandatory. It is sufficient for the company to be operated from a business service address or registered at a residential address in Germany if one is available.
Gewerbe without registration of residence
A person running a business across the western border is not required to register their place of residence in Germany. The basis for registering a business is providing an address where the company will operate. Depending on the industry, the way the business is conducted, and its type, this can be the address of business premises, a residence in Germany, or another address where the company will operate, such as a business service address.
Gewerbe costs – how much does it cost to run a business in Germany
Tax settlement
Every entrepreneur is subject to tax settlement obligations, regardless of the amount of income earned or the legal form of the business. Just like in Poland, taxes such as VAT and income tax must be settled. Unlike in Poland, in Germany an additional trade tax must also be paid.
Since tax matters are usually handled by tax offices, the entrepreneur should also take into account the costs of accounting services. The amount of these costs depends on turnover, the type of accounting, and the time required. For example, a sole proprietorship in the construction industry should expect monthly costs starting at around 50 euros.
Income tax
Every business entity must file an income tax return once a year. For individuals, this tax is called Einkommensteuer, while legal entities pay Körperschaftsteuer (the equivalent of CIT). It is not possible to determine or describe in a standardized way how much tax someone will pay, as both income earned in Germany and outside Germany, for example in Poland, are taken into account. Some individuals can also file jointly with their spouse and receive a tax-free allowance for the spouse.
VAT tax
A person who has registered a Gewerbe will receive a form (Fragebogen zur steuerlichen Erfassung) in which they declare whether they want to use the small business tax regulation. This option is available to those who estimate that their annual turnover in the first year will be below 17,000 euros and below 50,000 euros in the following year. The turnover limit of 17,500 euros is calculated proportionally to the time the business operates in the first year. If the limit is exceeded in the first year, the entrepreneur is required to pay VAT in the following year.
After exceeding the limit or if the exemption is not used, the entrepreneur must register as a VAT payer and issue VAT invoices. Every VAT payer is obliged to submit a monthly VAT tax return (Umsatzsteuervoranmeldung).
Social insurance
Fixed business costs also include social insurance contributions. The cost of social insurance is around 85 euros. Pension and disability insurance are voluntary.
Health insurance
Health insurance in Germany, known as Krankenversicherung, is mandatory for entrepreneurs. Every entrepreneur can pay health insurance contributions through either a private or a statutory health insurance fund. However, most entrepreneurs fall under the private health insurance system. The cost of this insurance is calculated individually and depends on several factors, including the entrepreneur’s age, health condition, and others. The contribution can range from several dozen to even 200 euros per month.
Failure to register for insurance may result in having to pay outstanding contributions or fines in case of an inspection. If there is no health insurance, in the event of illness or an accident, the costs of medical visits and treatment must be covered personally. When the entrepreneur’s main place of living is in Germany, European insurance from Poland is not valid.
Exemptions
It is also possible to obtain an exemption from the construction tax. The construction tax amounts to 15% of the payment for the service stated in the contract between the company and its client. The client deducts the appropriate amount from the total and pays it to the relevant tax office. This tax serves as an advance payment towards income tax, and the company can apply for a refund by submitting an application to the tax office. However, to be eligible for a refund, the following conditions must be met:
You can obtain complete information on this topic from an accountant or a consulting company.
Remember to keep all documents related to running your business in Germany for a period of 6 to 10 years (depending on the type), even after closing the Gewerbe.
Company in Germany – advantages and disadvantages
Starting a business in Germany is an attractive option for those who have decided to seek opportunities outside Poland. What are the advantages of running a business across the western border? Here they are:
Starting a business in Germany is certainly much easier than in Poland. Fewer formalities, a simple and friendly tax system, and a low tax threshold compensate for any potential inconveniences compared to an employment contract. Running your own business means you must acquire clients yourself, take care of health insurance, and handle all the formalities. Having your own company comes with greater responsibility, but also greater benefits and profits.