A helpful guide on how to understand business competitors in a new international market from Wise Business
Germany is seen by many as Europe’s powerhouse. Small and medium sized enterprises (SMEs) make up a huge proportion of the economy, ranging from sole proprietorships and family businesses, up to larger operations employing dozens or even hundreds of people. Operating across all industries, they're the true backbone of the nation.
If you're thinking of starting your own new business venture in Germany, then there’s a few things to know to get started. We’ll walk through how to start a business in Germany, the costs involved and why doing business in Germany could give your UK business a boost.
Plus we’ll introduce Wise Business as a smart solution to handle your business finances in Germany and wherever else your ambitions might take you.
Germany ranks at number 22 out of close to 200 countries listed in the most recent World Bank Doing Business report2 which examines ease of doing business by country. That means it’s considered to be a pretty easy place to operate in terms of regulations and processes.
If you’re considering opening a business in Germany in 2024, it’s worth also looking out for the World Bank B-READY report3 which is due to launch in spring 2024, and which will cover a thorough look at - and comparison of - the regulatory framework and public service support available for business founders in different countries including Germany.
Generally UK business owners and entrepreneurs could consider expanding into Germany in sectors such as manufacturing, engineering, chemical and electrical, which contribute hugely to the overall economy4. However, as Germany is a strong economy overall, UK businesses may benefit from an international expansion in a whole range of sectors - as long as you have a good idea, it’s got a chance to grow in Germany.
If you’re planning on starting a business in Germany, it’s also worth investing some time into understanding German business culture and etiquette. While this can vary a lot depending on the business type and sector you intend to operate, German business culture can be somewhat more formal compared to the UK business culture you may be used to - it’s also considered to be very efficient and well organised, which can make doing business in Germany fairly straightforward once you acclimatise to the subtle differences in style.
Before you can start your German business, you’ll need to decide which type of entity structure suits your specific needs. There are a lot of different options for structure type5 - including some which will be familiar to anyone who runs a business in the UK, and some which have slightly different rules and requirements. We’ll introduce the different German business entity types one by one to give a flavour for your options, and to help you start your research into how company registration in Germany may work in your specific case.
In German law, a small business is one which due to the number of transactions it makes, the turnover, employee count and other deciding factors, does not need to be entered onto the commercial register. Unregistered small businesses can not operate under a commercial name. Whether or not your enterprise falls under this law will depend on the specific nature and scope of your activities. Even if your business does not need to be registered in Germany, you may choose to adopt one of the other entity types we’ll work through below and be entered into the commercial register, to allow you to work under an official company name.
While very small businesses may not need to be registered, you’ll also be able to register as a commercial business under any of the entity types we’ll explore next. Depending on your business scope and size, it may be mandatory to register - and even if it is not mandatory, you may find that there are tax advantages, and a reduced personal financial risk, if you formally register your company as a separate entity.
The sole proprietor or sole trader business structure is mainly intended for individuals working alone. If you employ others, a different type of corporate entity might be better for you. As a sole trader you have full personal liability for your business activities, and you pay both personal and business tax together as a single entity.
The partnership model can be a general partnership in which the partners are responsible for all the liabilities of the company or a limited liability model, which we’ll look at next. The partners can be individuals or companies already established in their own right, either in Germany or elsewhere in the world.
In a general partnership arrangement, there is no limit to the liability of the partners in the event that the business runs into financial difficulties. Other arrangements relating to the partnership, such as profit sharing and representation agreements should be detailed in the memorandum of association, so all partners are clear on the scope of their roles.
It's also possible to have a partnership in which one partner is a ‘general partner’, and another limits their liabilities to the amount they initially invest into the company. In this case the general partner has unlimited liability for the company, and is also given the right to represent the company which may be limited for the partner with lesser liability.
A limited liability company means that the business is considered a separate entity to the individuals who form it. The liabilities of the business are therefore kept separate from the personal affairs of the founders.
To found a GmBH company in Germany you’ll need an initial investment of 25,000 EUR or more. This company type is very popular, and there are various different ways that it can be structured - if this is the type of business in Germany you’re interested in setting up, it’s worth taking professional advice to make sure you register in the optimal way for your specific needs.
This is a simpler version of a GmBH, which can be founded with less paperwork, and only one euro as an initial opening stake. It’s intended to allow entrepreneurs to found companies without such a bureaucratic process - and if the company works out well, it can be later changed to a full GmBH when it starts to scale.
A joint stock company requires at least 50,000 EUR to set up, and is represented by a management board and supervisory board. The rules which apply to this entity type can vary depending on the scope of the company - if this is the type of German business that you think may suit your needs you’ll need to get professional advice, and consult with the Chamber of Commerce wherever you’re founding your company, to understand the specific rules in your circumstances.
If you already have a UK business - or a business registered elsewhere in the world for that matter - you can also choose to open a branch office in Germany. In this case, your German branch would usually trade under the name of the original company, but the manager of the German branch would have the freedom to operate fairly independently.
It helps to know that there are some aspects of starting a business in Germany which work quite differently to in the UK. You may choose to seek professional advice to get your company set up as efficiently as possible, and to navigate a new business landscape.
For example, some of the process to open a business in Germany is decided at a local level. You’ll be able to find the relevant local authorities in your area by entering your postcode into the handy tool on the German government website6. This covers all you need to know, and where to find local advice, based on your specific location and requirements.
You may also find you need a licence to operate in some trades, or you need to register with specific authorities before you’ll be allowed to do business7. This depends on the type of work you do.
Usually, the easiest entity type is to set up as a sole proprietor. To get started as a sole trader you must register with tax authorities online via ELSTER8, and you may also need to register at the trade office in the municipality in which you want to do business. Where this is required, you need to present the following documents:
- Valid photo ID or passport
- Any relevant permit or approval (depending on the type of business)
- Proof of residence
Most partnerships, companies and corporations need to be entered into the Bundesanzeiger Company Register9. This attracts a fee depending on the type and size of the company.
You can register your German company online, and also use the same portal to upload annual accounts and other required documents. Details of the process are available on the Company Register website.
Let’s take a look at some common questions and answers about setting up a business in Germany.
The costs of opening a German business vary a lot depending on the entity type you select and how you choose to get started. Some charges may also depend on where you are based and the sector you work in.
To register a GmbH, expect to pay a registration fee of around EUR 400, plus the required share capital depending on how you structure your business. You might also incur legal fees, for example, if you have documents certified by a notary, plus professional service fees if you have an agent to help you with the company formation process. Fees vary according to the particular company details, but you may not have to register if you run a very small business or are a sole trader. Seek local legal advice to be sure.
On a global level, Germany is considered to be a pretty straightforward place to found a business. Plus, the German government offers some support and financing for new SMEs organised at both a federal and a regional level. Check out the details based on where you’re located in Germany, which are available on local authority websites.
Depending on the type of business you're setting up, you might be able to find help and advice (as well as useful connections) through the German Startups Association10. They have regional offices as well as their Berlin headquarters, and support new businesses in setting up and finding finance.
Trade associations and chambers of commerce are another useful resource for your new German business. Here you'll find friendly faces and useful advice from others who’ve already started businesses in Germany.
Yes. Foreign ownership of businesses is allowed in Germany. Depending on the entity type you may prefer - or need - to get local representative services in Germany if you’re not based there. It’s also worth remembering that having a business in Germany does not automatically mean you’ll have the right to live or work there - permits and visas may still be required depending on your situation.
Before you start your new German business check out Wise Business as a smart way to manage your company’s finances in euros and pounds, with flexible, low cost multi-currency accounts.
Wise Business accounts support EUR and GBP, with options to hold and exchange a total of 40+ currencies with the mid-market exchange rate and low fees from 0.43%1. You’ll get local bank details for GBP, EUR and a selection of other major currencies which you can use to get paid by customers or through PSPs like Stripe and marketplaces like Amazon.
Wise also offers low cost ways to send money to 160+ countries globally, and business friendly features like linked debit and expense cards, multi-user access, batch payment tools and cloud accounting integrations. Here’s how to register a Wise Business account in just a few simple steps:
- Download the Wise app or head to the Wise desktop site
- Tap Register and follow the prompts to apply for a business account
- Add your personal and contact information
- Upload the documents needed which are detailed online and in this Wise Business bank account requirements guide
- Pay the one time fee to register your account and get a linked payment card if you need one
- Once your account is verified you can start transacting - your account will be live in the Wise app, your physical card will be posted to you, and you can get a digital card right away for mobile spending
Use this full guide to starting a business in Germany from the UK to kickstart your research into how to incorporate your new German company - and don’t forget to check out Wise Business as a simple and cheap way to manage your money across borders.
Sources used in this article:
- World bank - Doing Business report 2020
- World bank - B-READY
- Deutschland.de - German economy by sector
- Stuttgart Chamber of Commerce - business entity guide
- German Government site - local authorities and offices
- German Government site - business registration
- ELSTER - tax portal
- Bundesanzeiger Company Register
- German Startups Association
Sources last checked Dec 20, 2023
This publication is provided for general information purposes and does not constitute legal, tax or other professional advice from Wise Payments Limited or its subsidiaries and its affiliates, and it is not intended as a substitute for obtaining advice from a financial advisor or any other professional.
We make no representations, warranties or guarantees, whether expressed or implied, that the content in the publication is accurate, complete or up to date.
An insightful look at the power of business partnerships, including the benefits they offer and why business partnerships fail
A helpful guide on hiring international employees, including the benefits of a global team and how to get started on the hiring process
Run an international business, or planning to expand your operations overseas from the UK? You’ll need to get to grips with managing your cash flow in...
A helpful guide on how to invoice overseas customers, for small UK businesses looking to expand internationally.
Want to know how to get funding for business expansion overseas? Get started with our helpful guide.