If you had been worried about what Brexit might mean for your business in another country, you may be breathing a sigh of relief that the decision has been postponed until the end of January. However, getting the right paperwork can take a while, so if you’re thinking about moving to Germany or registering a business there, it’s a good idea to make sure you’re prepared for the changes! They may mean that British expats starting a business in Germany will have to make some significant changes, including registering their business and applying for citizenship there. If you’re planning on moving to Germany, here’s a starter on what you need to know about how Brexit will change things.
- Moving to and Living in Germany after Brexit
- Business Formation in Germany
- Types of Businesses in Germany
- How to Register your Business in Germany
- Opening a Bank Account
- Paying Taxes
- Employing Staff
- Business Culture in Germany
- Where to Get Help and Other Useful Information
Moving to and Living in Germany after Brexit: Everything you Need to Know
In addition to travel documents such as a passport, Brexit will mean that British expats planning on staying in Germany longer than three months should register at a citizen’s office, known as the Kreisverwaltungsreferat (KVR), Einwohnermeldeamt, or Bürgeramt, within 14 days of arrival. Fortunately, in the event of a no-deal Brexit, the German government has planned for a 3-month period in which British expats living in Germany have the right to receive any benefits and undertake any work or study they previously could, and the transition period will likely be extended to 9 months. You may be able to apply for German citizenship, but unlike the UK, Germany has much tighter restrictions on dual nationality. You will also need to register with a health insurance company in order to access health care and will have to purchase travel insurance for healthcare in the UK. Amongst other things, like getting a German driver’s license, you’ll also need to register your business.
Business Formation in Germany
Brexit will mean big changes for UK nationals, especially those with businesses in other countries. Brexit will not only mean registering your business in Germany, but will have implications for VAT and professional credential recognition. If your business type depends on a formal credential, make sure you look into getting it recognized in Germany so you can continue to practice. Take a look at government websites to figure out whether or not you need your credentials recognized in Germany and the steps you’ll need to take or visit the British embassy. You could also look into getting legal advice, particularly if there are other business matters you need advice on.
Types of Businesses in Germany
When you’re setting up a business in any country, it’s important to choose the right type of legal entity for your business needs. The most common type of company in Germany is a GmbH, or Gesellschaft mit beschränkter Haftung—this is basically a limited liability company and can be started with only one person. However, the share capital must total €25,000.
If you don’t have these funds yet, you can decide to open a UG, or Unternehmergesellschaft, which is structurally similar, but only requires €1 to get started.
The German equivalent of a sole proprietorship is an Einzelunternehmen (one person involved), or GbR (more than one person involved). Liability in a GbR falls on the individual, whose private assets are at stake.
There are several other types as well, including corporations (Aktiengesellschaft, or AG), various types of partnerships, and subsidiary and branch companies. Which one you pick will depend on whether you are going into business on your own or with someone else, how many shareholders you’ll have, and whether or not you are going to hire employees. It’s important to take a close look at each one or ask a professional for help if you’re unsure what legal entity is right for you. There’s also the option of being self-employed, but you will need to ensure that you have defined your business type, as rules about professional organizations may vary depending on how your work is defined.
How to Register your Business in Germany
In order to register your business in Germany, you’ll first need to register your address at a citizen’s office, or Bürgeramt. This will give you a tax ID and certificate of registration, which you’ll need to open a bank account. You’ll need a bank account, in turn, to register with the tax office. People who aren’t citizens of the EU will need a work visa in Germany in order to freelance or set up a business—if your residence permit does not explicitly state that self-employment is allowed, you need a visa. If it goes through, your next step will be the tax office if you’re registering as a freelancer; they’ll decide what category of freelance worker you belong to, and therefore what regulations you’ll need to follow. You may, for example, need a trade license, and some types of freelancers are required to do double-entry bookkeeping while others aren’t.
If you’re starting a limited company, you’ll need to first choose a company name, checking the commercial register, or Handelsregister, to make sure it’s still available. The official object of your company needs to be specific under German law, and your company name and object must both be related to the line of work. The German Chamber of Commerce and Industry will check both of them for free, so it’s wise to apply for a company name and purpose check to avoid issues down the road. Next, you’ll need to bring articles of association, a shareholder’s list, and founding documents to a notary to finalize your business. If you’re not a member of the EU, there may be some extra paperwork involved, so make sure to give yourself a lot of time for this step! You’ll need to open a business bank account, deposit the share capital into the account, and send the deposit slip to the notary to prove you have the necessary funds.
The next step for both freelancers and company owners is to register your business with the tax office, where you’ll get a business tax number and VAT number. You will also need to inform your health insurance company; be aware that you’ll pay more for health insurance now that you’re self-employed.
Opening a Bank Account
When you’re opening a bank account in Germany, it’s important to consider whether or not you’re comfortable doing some of your banking in German. While a few banks like N26, Commerzbank, and Deutsche Bank offer their services in English, many only offer services in German. While many personal accounts are free or low fee, business accounts are often expensive and can have a lot of different charges. While freelancers, sole proprietors, and partnerships may not legally be required to have a business account, corporations will—and sometimes the fees are worthwhile even for sole proprietors and freelancers, since having a business account will keep your personal funds separate from your business funds, making it easier to know whether or not you’re turning a profit.
One thing that’s important to compare is lines of credit if you’re borrowing money—check how much interest is charged for each line of credit and what your options might be if you need to borrow more. When you go to the bank as the owner of a corporation, you’ll need to bring your articles of association, shareholder information, and possibly other documentation as well. It’s a good idea to call ahead to set up a meeting for opening a business account and ask about what documents you’ll need to bring so that you can be ready with them.
In Germany, you need a business tax number in order to invoice—but you also need it to pay taxes. Taxes are paid quarterly in advance, with an annual tax assessment. As a business owner, you’ll pay Municipal Trade Tax and VAT if you earn over €17,500 in one year. VAT is charged at 19% or 7% depending on the product or service, and some services such as medical, insurance, and bank services, are exempt from VAT. If you have employees, you’ll need to think about their income tax, the solidarity surcharge, and church tax if they belong to a registered church in Germany. If you’re an incorporated business such as a GmbH or AG, you will also have to pay 15% corporate tax—but the Municipal Trade Tax is considered a business expense, and deductible from the corporate tax.
It’s important to remember that Brexit will also have an impact on VAT—so if you charge VAT to EU customers, you will have to sign up for a German VAT system or an EU VAT MOSS system instead of using the UK’s VAT MOSS. The final return for the UK’s VAT MOSS system has been updated to March 31, 2020—but you should only record sales made prior to Brexit in this system.
One of the most important things to keep in mind when employing staff in Germany is that wages and salary are different concepts—people paid a wage are paid hourly, whereas people paid a salary are paid a set amount per month which is not tied to the number of hours they work. You’ll have to pay the three taxes and social security contributions like health insurance and unemployment insurance. The workweek is 6 days from Monday to Saturday, 8 hours per day. However, office working days are generally from Monday to Friday, with both Saturday and Sunday off. German employees are entitled to four weeks of vacation time—24 days for those who work 6 working days a week, and 20 days for those who work 5 office days a week. However, in order to be competitive, most employers offer more than the minimum vacation days, usually 25 or 30. Since German employment law may be new to you if you haven’t done hiring in Germany before, it’s important to research it carefully before doing any hiring.
Business Culture in Germany
A significant portion of Germany’s companies are part of the Mittelstand, or small to medium-sized firms employing anywhere from 10 to 500 people. A general philosophy of quality products and well-qualified employees runs through these smaller businesses, with owners that have a presence in the company. While taxes on wages may be higher than in other countries, employees have more benefits, including generous parental leave. Companies may also often subsidize the day to day costs associated with work, such as transportation or lunch. It’s also difficult to dismiss employees without good cause in Germany—after the probationary period, the employer must convince the unions or labour court that they have grounds for the person’s dismissal.
Where to Get Help and Other Useful Information
If you’re living in Germany already and concerned about the changes Brexit may bring, you can sign up for the British government’s notifications about living in Germany, which will give you up-to-date guidance on any changes as they occur. You can also attend an outreach meeting held by the British Embassy in various locations throughout Germany or visit the embassy closest to you.
You can also take a look at some of the UK government’s website, or take a look at some online guides to help you make sure you’re following all the right steps when setting up your business. Although Brexit is still up in the air, it’s important to keep in mind that if you stay on top of things as best you can throughout the changes, you’ll minimize the problems it will cause you down the road.