How to Start a Business in Germany: A Detailed Guide for Foreigners

Foreigners can conduct business in Germany as sole proprietors, partners, or company founders. Learn more about legal structures, requirements, costs, and the registration process

The choice of legal structure in Germany determines the founder’s personal liability, the amount of start-up capital, taxation, and the complexity of reporting requirements. An Einzelunternehmen may be sufficient for a sole proprietorship; a small startup often chooses a UG; and a business with plans to scale up and bring in partners typically opts for a GmbH.

Foreign citizenship in and of itself does not prevent someone from starting a business in Germany. However, third-country nationals must verify separately whether their immigration status allows them to engage in entrepreneurial activities. Registering a company does not automatically grant a right of residence. In this article, we’ll explain who can start a business in Germany, how the main legal forms differ, and what procedures must be completed before starting operations.

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Which foreigners can start a business in Germany?

The right to establish a company and the right to personally live and work in Germany are not the same thing. A foreign national may hold a stake in a German company, but to manage the business from within the country, they may need an appropriate residence permit.

Citizens of the European Union, Iceland, Liechtenstein, Norway, and Switzerland enjoy the freedom to conduct business. They can start a business and be self-employed in Germany without a separate business visa or residence permit. Citizens of other countries generally need a residence permit for self-employment (Aufenthaltserlaubnis zur Ausübung einer selbständigen Tätigkeit).

If the applicant plans to engage in commercial activities, German authorities assess the following:

- The existence of an economic interest or regional demand;

- The expected positive impact of the project on the economy;

- The sufficiency of personal capital or verified funding;

- The founder’s experience and the viability of the business plan;

- The existence of pension coverage, if the applicant is over 45 years of age.

Slightly different criteria apply to members of the liberal professions. They must confirm the financing of their activities and, if the profession is regulated, obtain the necessary license or have their qualifications recognized.

An applicant residing abroad typically submits documents for an entrepreneur visa through a German diplomatic mission. Citizens of Australia, the United Kingdom, Israel, Canada, New Zealand, South Korea, the United States, and Japan may enter without such a visa but must obtain the appropriate residence permit in Germany before starting work.

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Gewerbe or Freiberufler: What’s the Difference

Before choosing a legal structure, you need to determine the nature of your business. In Germany, entrepreneurs are divided into those who run a commercial business (Gewerbe) and those in the liberal professions (Freiberufler). This affects the registration process, trade tax payments, and membership in professional organizations.

Gewerbe typically includes retail, food service, manufacturing, skilled trades, e-commerce, and most other commercial sectors. Such activities must be registered with the local Gewerbeamt. Afterward, the information is forwarded to the tax office, the Chamber of Industry and Commerce (IHK) or the Chamber of Crafts (HWK), and other relevant agencies.

The status of Freiberufler can be obtained by representatives of professions defined by law or similar independent professions. These include:

- Doctors and other medical professionals

- Attorneys, tax consultants, and auditors

- Engineers and architects

- Teachers and translators

- Journalists, writers, artists, and certain creative professionals

- Consultants in specific professional fields

A “Freiberufler” does not register a business (Gewerbe) with the local authorities but notifies the tax office (Finanzamt) of the start of work and submits a tax registration form. Such activities are not subject to trade tax (Gewerbesteuer), and mandatory membership in the IHK is generally not required. At the same time, regulated professions may be subject to requirements regarding membership in a professional association, recognition of a degree, or obtaining a license.

You cannot independently choose the status of a freelancer solely because of more favorable conditions. The final decision is made by the tax office, taking into account education, qualifications, and the actual nature of the work. For example, the work of an IT specialist, designer, or business consultant may be classified differently depending on the specific services provided.

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Which business structure should you choose in Germany?

There is no single “best” structure for all situations. The decision depends on the number of founders, financial risk, start-up capital, client requirements, and plans for scaling up. The simplest structures allow you to get started faster but usually do not protect the entrepreneur’s personal assets.

Sole Proprietorship: A Simple Start for a Single Founder

A sole proprietorship is a business owned by a single person without separate legal entity status. It is established when a single person independently begins a commercial or professional activity and does not choose a corporate form such as a UG or GmbH.

No registered capital, notary, or articles of incorporation are required to establish an Einzelunternehmen. A commercial entrepreneur registers with the Gewerbeamt, while a self-employed professional applies directly to the Finanzamt. Entry in the Handelsregister is generally not required unless the business, based on its scale and organizational structure, is considered a commercial enterprise that must be registered as an e.K.

The main risk of this form is unlimited liability. The entrepreneur is liable for contracts, loans, tax debts, and customer claims not only with the business’s assets but also with their personal assets.

A sole proprietorship is suitable for:

- Consultants and independent professionals

- Small online projects

- Tradespeople and service providers

- Entrepreneurs with low contractual and financial risks

- Those who want to test a business model without forming a company

Profits are taxed at the owner’s level as personal income tax. If the activity is classified as a Gewerbe, Gewerbesteuer may also apply. For small businesses, accounting is generally simpler than for a UG or GmbH; however, as revenue and risks grow, the lack of limited liability becomes a significant drawback.

GbR: A partnership for two or more founders

A Gesellschaft bürgerlichen Rechts (GbR) is formed by at least two individuals or legal entities for joint business activities. This structure is often used by small teams of consultants, creative agencies, family businesses, and professionals working on a single project.

There is no minimum authorized capital. The law does not always require a written agreement, but starting a joint business without one is risky. The document should specify the amount of contributions, profit shares, decision-making authority, partners’ powers, exit conditions, and the procedure for resolving conflicts.

If the GbR engages in commercial activities, the founders must register with the Gewerbeamt. Partnerships among members of the liberal professions apply directly to the Finanzamt. A GbR may also be entered into the special company register (Gesellschaftsregister) and subsequently use the designation eGbR. For certain transactions involving real estate, company shares, and other rights, such registration may be required.

The main drawback of a GbR is personal and joint liability. If the partnership fails to meet its obligations, a creditor may demand the full amount of the debt from any of the partners, even if the problem was caused by another partner.

A GbR is worth considering when:

- The founders know each other well

- The business does not require significant loans

- Contractual and operational risks remain low

- The partners do not need a corporate structure

- All partners are prepared to be liable with their personal assets

Profits are typically distributed among the partners and taxed at their individual levels. A commercial GbR may be subject to Gewerbesteuer, whereas a partnership of independent professionals is generally exempt from this tax.

UG: a limited-liability company starting at €1

An Unternehmergesellschaft, or UG (haftungsbeschränkt), is a type of GmbH with a lower minimum capital requirement. It is often referred to as a “Mini-GmbH,” although the official company name must include “UG (haftungsbeschränkt).”

The minimum capital is €1 per shareholder. It must be paid in full in cash before filing documents with the Handelsregister. It is not permitted to establish a UG through a contribution in kind, such as equipment, a car, or intellectual property rights.

The formal possibility of starting a company with just a few euros does not mean that this amount will be sufficient to operate the business. The capital must cover at least the initial costs of registration, rent, purchases, and ongoing payments. If the company is unable to meet its obligations from the outset, the manager risks facing claims due to a failure to respond promptly to insolvency.

To establish a UG, you need a notarized articles of incorporation, a corporate bank account, and entry in the Handelsregister. Limited liability takes full effect after state registration. Until that point, the founders may be personally liable for contracts signed on behalf of the future company.

An UG is required to allocate 25% of its adjusted annual profit to a statutory reserve. Once equity reaches €25,000, the shareholders may increase the authorized capital and re-register the company as a standard GmbH. There is no automatic conversion.

This structure is suitable for startups and small companies that need to separate personal assets from business risks but lack the capital required for a GmbH. At the same time, a UG maintains double-entry bookkeeping, prepares annual financial statements, and fulfills nearly the same corporate formalities as a GmbH.

GmbH: The Classic Structure for Scaling Up

Gesellschaft mit beschränkter Haftung, or GmbH, is one of the most common corporate structures in Germany. It is suitable for companies with regular revenue, employees, significant contracts, or plans to bring in partners and investors.

The minimum registered capital for a GmbH is €25,000. If the capital is contributed in cash, a payment of at least €12,500 is typically sufficient for initial registration, provided that the payment requirements for each share are met. The remainder is not forfeited: the shareholders remain obligated to contribute it upon the company’s request.

The incorporation process includes:

- Preparing the articles of association or a standard memorandum of association

- Notarization

- Appointing a managing director (Geschäftsführer)

- Opening a corporate bank account and contributing capital

- Registration in the Handelsregister

- Filing a Gewerbeanmeldung

- Registering for tax purposes

Once entered in the Handelsregister, the company itself is generally liable for its obligations with its assets. However, this is not absolute protection against all claims. Founders or the managing director may be held personally liable in the event of a violation of the law, the unlawful withdrawal of funds, failure to file for insolvency in a timely manner, or the provision of personal guarantees to a bank.

Compared to a sole proprietorship (Einzelunternehmen) or a general partnership (GbR), a GmbH involves more costs and formalities. The company is required to maintain double-entry bookkeeping, prepare annual financial statements, and submit corporate data to the relevant registries. At the same time, this structure better separates the business from the founders’ personal finances and is generally more easily understood by major clients, banks, and investors.

A GmbH is suitable for businesses with heightened financial or contractual risks, long-term development plans, and sufficient capital to get started.

OHG, KG, and AG: Structures for More Complex Business Models

In addition to Einzelunternehmen, GbR, UG, and GmbH, German law provides for partnerships and corporate structures. These require more complex management and are less commonly used by foreigners for their first small business.

OHG, or offene Handelsgesellschaft, is formed by at least two partners to operate a commercial enterprise. There is no minimum capital requirement, but all partners are liable for the company’s debts with their personal assets. An OHG is entered in the Handelsregister, and the partners typically participate directly in its management.

KG, or Kommanditgesellschaft, has at least one general partner (Komplementär) with unlimited liability and one limited partner (Kommanditist), whose risk is limited to their registered contribution. This model allows for raising capital without granting all investors the right to manage the business.

A common variant is the GmbH & Co. KG, where the general partner is not an individual but a GmbH. This helps limit personal liability but creates a more complex structure involving two interrelated companies, separate formalities, and higher administrative costs.

AG, or Aktiengesellschaft, is designed for large-scale projects and raising capital through shares. The minimum authorized capital is €50,000. The company must have a management board, a supervisory board, and a general meeting of shareholders, so its establishment and subsequent management are significantly more complex than those of a GmbH.

OHG is suitable for partners willing to take personal responsibility for the joint business. KG is used when there is a need to distinguish between active managers and passive investors. AG is appropriate for companies with substantial capital and a complex ownership structure, but is usually excessive for small businesses or early-stage startups.

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How to Choose a Legal Structure for Your Business?

Comparing legal structures based solely on the minimum capital requirement is insufficient. A UG with €1 in capital may turn out to be more expensive to administer than an Einzelunternehmen, and a simple GbR exposes partners to significantly greater personal risks than a GmbH.

Before registering, you need to answer a few questions:

- How many people are founding the business?

- Is there a risk of debt, customer claims, or significant losses?

- What is the founders’ initial capital?

- Does the company plan to attract investors?

- Are loans, employees, and long-term contracts needed?

- How important is the company’s reputation with banks and major clients?

- Is the business prepared for double-entry bookkeeping and regular reporting

- How do they plan to distribute or reinvest profits

For sole proprietorships with low risks, an Einzelunternehmen is usually sufficient. Two or more professionals can operate as a GbR if they understand the implications of joint and several liability. An UG is suitable for projects that require limited liability with a small startup budget. A GmbH is a better choice for businesses with sufficient capital, significant contracts, and plans for scaling up.

The legal structure can be changed after launch, but the conversion affects contracts, taxes, accounting, and registration details. Therefore, you need to assess not only your current budget but also what the business could become over the next few years. A German portal for entrepreneurs recommends consulting a tax advisor or lawyer before making your final decision.

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How do you register a business in Germany?

The procedure depends on the type of activity and legal form. An Einzelunternehmen can be launched without a notary or entry in the Handelsregister, whereas establishing a UG or GmbH requires founding documents, a corporate bank account, and company registration.

The main steps are as follows:

1. Verify your right to self-employment. Third-country nationals must ensure that their visa or residence permit allows them to engage in entrepreneurial activities.

2. Determine the type of business activity. You need to find out whether the work falls under Gewerbe or the liberal professions. For regulated fields, a license, recognition of a diploma, or confirmation of professional qualifications may be required.

3. Choose a legal form and name. Before registering a UG, GmbH, or other company, check the name with the IHK to ensure it is not misleading and does not conflict with an already registered name.

4. Prepare the founding documents. Partnerships require an agreement among the partners. UGs and GmbHs must draft articles of association or a standard founding protocol containing information about the founders, capital, shares, and the managing director.

5. Complete the notarization process. A notary certifies the UG or GmbH documents and prepares the application for the Handelsregister. In standard cases, part of the procedure can be completed remotely through the German online notary system.

6. Open a corporate bank account and contribute capital. After notarization, the founders transfer the authorized capital. The bank may request the founding documents, proof of address, information about the owners, and the source of funds.

7. Register the company with the Handelsregister. The notary submits the application after confirming the capital contribution. For UG and GmbH, limited liability takes full effect only after entry into the register.

8. File a Gewerbeanmeldung. Commercial businesses are registered with the local Gewerbeamt at the same time as operations begin. The office forwards the information to the Finanzamt, IHK, or HWK, and other agencies. Freelancers (Freiberufler) typically skip this step.

9. Complete tax registration. Submit the “Fragebogen zur steuerlichen Erfassung” via the ELSTER system, including an income forecast, type of activity, bank details, and VAT information. After verification, the Finanzamt assigns a tax ID number.

Legal entities must also verify compliance with the Transparency Register’s requirements regarding ultimate beneficial owners. Once employees are hired, registration with the social insurance system and compliance with Berufsgenossenschaft requirements will also be necessary.

The German Federal Portal notes that a business registration (Gewerbeanmeldung) can be submitted in person, by mail, or online, provided the relevant digital service is available in a specific city. If the documents are completed correctly, electronic or written applications are processed in approximately three days in some regions.

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What documents does a foreign founder need?

The list of required documents depends on citizenship, type of business activity, legal form, and the requirements of the specific city. The smallest set of documents is required for a sole proprietorship (Einzelunternehmen), while a UG and a GmbH require notarization, a bank verification, and registration in the Commercial Register (Handelsregister).

To start a business, you may need:

- A valid passport or national ID card

- A visa or residence permit with the right to self-employment

- Proof of residential address and the business’s registered address

- A completed Gewerbeanmeldung form

- A description of the planned business activities

- Diplomas, certificates, and proof of qualifications

- Professional license or permit for regulated activities

- Articles of incorporation or bylaws

- List of shareholders and distribution of shares

- Resolution appointing a managing director

- Proof of payment of the authorized capital

- Notarized documents and application to the Handelsregister

- Information on ultimate beneficial owners

- Power of attorney if a representative is handling the registration

For an entrepreneur visa or a self-employment permit, you must also prepare a business plan, financial projections, proof of equity or loan financing, the founder’s resume, and evidence of professional experience. Applicants over the age of 45 may also need to submit proof of adequate pension coverage.

Documents in a foreign language may require translation into German, and certain foreign official documents may require an apostille or legalization. It is advisable to clarify specific requirements with a notary, the local Gewerbeamt, Finanzamt, and Ausländerbehörde before submitting applications, as the absence of a single document can halt the entire process.

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How much does it cost to start a business in Germany?

Costs depend on the city, legal structure, number of founders, and the complexity of the founding documents. It is cheapest to set up a Freiberufler or Einzelunternehmen, whereas for a UG and GmbH, you must factor in the notary, the Handelsregister, and corporate administration.

The main costs include:

1. Business registration (Gewerbeanmeldung). The fee is set by the municipality. For example, in Hamburg, registration costs €25; in Hesse, the typical fee is €28; and in some cities, the amount may be higher. For a GbR, the fee is sometimes charged to each partner.

2. Notarization. According to the Federal Chamber of Notaries, notarization costs can range from approximately €105 for a single-member UG with a standard protocol to about €630 for a GmbH with multiple shareholders and a customized articles of association. Costs for documents, postal services, and VAT are charged separately.

3. Commercial Register. A court fee is payable for the registration of UGs, GmbHs, and other registered companies. The amount depends on the type of entity and the procedure.

4. Share Capital. For a UG, it starts at €1 per shareholder; for a GmbH, it is €25,000; and for an AG, it is €50,000.

5. Bank Account. Fees depend on the bank, the service package, and the number of transactions.

6. Professional support. The budget may include consultations with a lawyer, tax advisor, translator, or Gründungsberater.

7. Licenses and permits. Regulated activities require additional procedures, recognition of qualifications, and payment of industry-specific fees.

The standard incorporation protocol (Musterprotokoll) helps reduce the costs of establishing a simple UG or GmbH. However, it is not suitable for every business, as it offers limited flexibility in regulating relationships among shareholders.

Authorized capital is not an administrative fee. After registration, the company may use the contributed funds for legitimate operational needs, such as equipment, rent, or payment for services. At the same time, founders cannot simply withdraw the capital for personal use.

Even though administrative registration costs a few dozen euros, you’ll need to add accounting, insurance, a registered address, software, and a cash reserve for the first few months of operation to your startup budget. Therefore, the actual cost of launching a business almost always exceeds the official fees.

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Taxes and Obligations After Registration

The tax burden depends on the legal form, type of activity, profit level, and place of registration. Sole proprietorships (Einzelunternehmen) and GbR partners are taxed primarily as individuals, while UGs and GmbHs are taxed as separate companies.

Main taxes for businesses:

1. Einkommensteuer. The income of sole proprietors, freelancers, and partners in partnerships is included in their personal taxable income. The tax rate is progressive.

2. Körperschaftsteuer. UGs, GmbHs, and AGs pay corporate income tax at a rate of 15%. Additionally, the Solidaritätszuschlag is applied to the amount of this tax, bringing the total rate, including trade tax, to approximately 15.83%.

3. Gewerbesteuer. Commercial enterprises pay trade tax, the amount of which depends on the municipal rate. For sole proprietorships and partnerships, there is a tax-exempt threshold of €24,500 in annual business income. UGs and GmbHs do not have such a threshold.

4. Value-Added Tax (VAT). The standard VAT rate is 19%, while a 7% rate applies to certain goods and services. Some transactions, including specific medical or financial services, may be exempt from VAT.

Small businesses can take advantage of the Kleinunternehmerregelung (small business exemption). Starting in 2025, this exemption applies if the turnover in the previous calendar year did not exceed €25,000 and does not exceed €100,000 in the current year. For new businesses, the €25,000 threshold applies in the year of establishment. Once this limit is exceeded, the VAT exemption ceases for the transaction that exceeded the limit. Kleinunternehmer do not charge VAT to customers, but they also cannot claim input tax credits.

After registration, the entrepreneur must also:

- Maintain accounting and tax records

- Retain invoices, contracts, and source documents

- File tax returns and make advance tax payments

- Obtain mandatory health insurance

- Comply with the requirements of the IHK, HWK, or professional chamber

- File annual financial statements if required by the legal form

- Register employees and remit taxes and social security contributions

- Monitor the validity periods of licenses and professional permits

UGs and GmbHs have more complex accounting requirements than sole proprietorships. They use double-entry bookkeeping and prepare balance sheets and annual financial statements. Therefore, the costs of a tax advisor should be taken into account when choosing a legal form, rather than after receiving the first letter from the tax office.

Investments, opening a company in another country, remote launch of a representative office or team relocation require a clear legal strategy. A personal business lawyer accompanies the entire process: from choosing a jurisdiction and tax model to visa processing and asset protection.

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