Tips for Starting a Business in Germany

Tap to Read ➤ Aparna Iyer

When you plan to do business in another country, there are many things that you will have to keep in mind. Here's some information for those who desire to start a business in Germany.

Germany, the fourth-largest economy in the world, is a member of the Organization for Economic Cooperation and Development (OECD). It is also a member of the European Union. The country primarily relies on export-oriented growth.

According to The World Bank Group, Germany ranks 24th among 181 countries as far as 'ease of doing business' is concerned. The same study ranks Germany at 114 when it comes to starting a business. Clearly, starting a business in Germany is not an easy task.

Doing Business in Germany

Applying for a Residence Permit

Having a residence permit is a precondition for starting any business in Germany. The rules regarding applying for the permit vary, depending on whether or not the person is a citizen of a European Union (EU) member country.

Citizens of an EU Member State A person from an EU member state is required to inform the registry office before starting any business.

Citizens from Non-EU Countries In order to obtain a residence permit there should be an economic justification or a social need for the proposed business.

It might be easier to obtain a permit in case the business is able to generate at least five jobs and the investment is around €500,000. A person already having a residence permit has to get it re-approved before starting a business.

Types of Business

Any person who intends to start a business and remain self-employed can be classified under one of the following categories: professionals, businessmen, or micro-entrepreneurs.

Professionals The liberal professions are as follows: medical and non-medical healing professions, legal, tax and other business advisory services, technical and scientific jobs, professions facilitating communication, and linguistics and teaching professions.

Any member of a liberal profession needs to prove his skills by taking a test. This is a means of convincing the authorities that his skills are required by the society and they would benefit the economy.

The entrepreneur is required to register with the tax office, and pay taxes using the tax number assigned to him. However, there is no trade tax. An English teacher who decides to start a spoken-English coaching class is an example of a self-employed professional.

Businessmen Generally, all self-employed people who do not belong to any of the liberal professions are classified as business people. The key point is that the business under consideration should aim to provide employment to the entrepreneur and a few others. Preferably five or more people should be employed by the business.

An entrepreneur who is interested in starting a catering business is an example of a business person. Business people are required to register with the designated trade office and submit their annual profit & loss statement and balance sheet to the tax office.

Micro-Entrepreneurs A micro enterprise is intended to provide employment only to the entrepreneur. In this case, the enterprise has to be registered with the Chamber of Industry and Commerce or with the Chamber of Crafts. The fees paid and the taxes levied depend on the amount of revenue generated.

Germany, like most countries, is going through a phase of recession. The government is trying to revive the economy by giving a boost to the automobile industry. It is encouraging fuel-efficient and environment-friendly cars. A business related to the automobile industry might be a good option for people desiring to set up a business in Germany.