There are many different reasons why someone would like to install a company or a business in Europe. This can be a foreign company not yet present in the EU markets, a cooperation with local partners, expansion of business activities, offering products and services in the EU, import – export activities and many-many others.
This article targets companies and entrepreneurs looking to open a subsidiary in Germany but not knowing how to approach it.
But why choose Germany as your European business location instead of low-cost options like Cyprus or Malta? At the end everybody knows that Germany is a rather expensive destination. And especially small and medium-sized businesses looking for an international expansion often have limited budgets which significantly restrict the country selection.
Well, there are several arguments for Germany:
- Reputation – Germany is world-renowned for its quality and reliability of business relations
- Central location within EU with a good infrastructure
- Well-developed international and intercontinental flight connections as well as a dense road and railway network connecting you with the world. For example, you can easily and quickly reach neighbor countries, like Netherlands, Belgium, Luxemburg, France, Switzerland, Austria, Czech Republic, Poland, Denmark. Within just a couple of flight hours you can reach the most European countries
- Double-taxation agreements with many countries worldwide
- Good international banking options
- Last but not least: the total incorporation costs as well as operational expenses of your business in Germany might be not significantly different to those of Malta or Ireland (as an example) if you use the right setup and the right partners in place. It depends surely on your business nature as well
What do you need to know about Germany before deciding where exactly to incorporate your company?
Let’s talk about taxes. We cannot deny that Germany is a high tax country. But you still have options to improve your taxes, which at the corporate level are anyway lower than personal taxes. You have two levels of corporate taxes in Germany: corporation tax on the federal level (Körperschaftssteuer) and a kind of a trade tax (Gewerbesteuer) charged on a local municipal level. While the corporate tax is equal everywhere in Germany (15,825% incl. solidarity surcharge) the trade tax varies significantly from one location to another and can be anything between 8,75% and 20,3%. As you can see, when selecting the right location for your company in Germany you can already save more than 40% of your trade tax bringing total tax burden down to less than 25%.
For comparison reasons: the regular corporate tax in Malta is at 35%. Surely, the corporate tax in Cyprus or Ireland is at 12,5% only. But the operational costs there could diminish the effect of 12% tax savings compared to Germany. Not to forget about the fact that all three of them – Cyprus, Ireland and Malta – are islands while Germany is well connected to the whole continental Europe.
Incorporating and operating a company is not only a tax topic. You can have a low-tax location and still have rather high operational costs.
Looking at Ireland, for example, if you do not live within EEA you have to have a director – resident within EEA or to pay additional security bond valid for two years (and re-pay it afterwards). Both options – either a local director or a security bond – will increase the running costs of your Irish Ltd. You may not actively do business at your registered address in Ireland but need an additional business address – again an additional cost factor (this applies by the way also to some other countries, like UK).
Surely, depending on the expected turnover and revenues these costs could be just marginal ones. But especially small and medium-sized companies should not underestimate them when planning their expansion to European markets or just need to be aware of them upfront.
Contrary to the conditions in Ireland, companies in Germany do not need to have a local director and do not pay any security bonds even if their shareholders and directors are located, e.g., in Singapore, Malaysia, Australia or any other country outside the EU. The office costs in certain German locations can make just a half (or even less) of those in Ireland. Especially at the beginning of the expansion to Europe these savings can be remarkable in the companies’ budget.
You do not need a corporate secretary in Germany neither. Though we recommend to our customers having a local representative in place who can support them regarding local requirements and eventually regarding communication with local authorities.
Whether you plan to introduce your products to Germany and to European markets, engage local employees, there are always certain local requirements to pay attention to and to comply with, but they are often underestimated or even neglected by SMEs expanding to Europe. Many of them rely on the chance of being able to manage them on their own from the headquarter country in order to save initial costs. Some companies are not sufficiently informed about future requirements by the agencies whom they engage for the company incorporation.
As an example, we had a customer who incorporated in Germany via an agency in his home country. Unfortunately, the agency forgot to mention that its fees did not include the fees of their partners in Germany. The customer was extremely surprised when his initial incorporation fee suddenly doubled, and the fees of the registration court were charged yet on top. In addition to that, the agency dropped the customer right after the incorporation because it did not feel responsible for or was not able to guide the customer through the steps following the incorporation, neither did their German partner (by the way, an international law firm). Via our cooperation with the governmental organization in this country, we were approached by the governmental representative asking us whether we would be willing to take over the support of this customer. Since that time the customer successfully developed its activities in Germany.
Another company was sure that they would be able to manage everything from the home country and do not need any local support. They were astonished and could not understand why there was a higher 4-digit amount suddenly arrested by the German tax authorities and the bank account itself got cancelled shortly afterwards. At the end, they were referred to Singabiz by the governmental business development organization of their home country and we ensured that things were clarified and done the right way. But the frustration of the customer from the first unsuccessful steps was too big and the following global lockdown did the rest, at the end they asked us to strike off their German subsidiary. Their journey to the European market could have been much more positive and successful if they had used the right and experienced local partner like Singabiz from the very beginning.
When you plan to incorporate in Germany, it is important to know that incorporations like in many countries within the Commonwealth for a total fee of just 100-200 Euro are not possible. You need to count with the fees of notary public for the submission of the incorporation to the registration court, there will be fees of the registration court itself and there will be fees of your incorporation agent. The fees for public services or regulated professions, for example, notary public, lawyers, tax advisors are pretty much regulated in the appropriate laws in Germany. In other words, there is no way to negotiate with the notary public whether they could eventually make a discount.
Along with the registration in the companies register (Handelsregister) it is also required to register your company within the local administration office (Gewerbeanmeldung) as well as with the tax authorities.
All in all, your initial incorporation costs will be definitely higher than in countries following the Commonwealth legislations. But you can recover these higher costs later on through the correct setup of your business activities and comparably lower day-to-day expenses.
You also need to know that a company being incorporated in Germany becomes automatically a member of the local Chamber of Commerce and has to pay annual membership fees, even if you did not start any business activities yet.
If you plan to engage local employees, you have to comply with some other legal requirements, like registration of your company in the responsible professional association for the purpose of mandatory accident insurance for your staff. It’s the company itself who is responsible for deduction of mandatory insurance fee (like pension fonds, medical insurance, nursing care insurance) and the taxes from the employee’s monthly salary and appropriate payments into the right fonds.
It might sound complex (and it is indeed complex) but with the right agency at your side your expansion to the EU can be a beautiful success story. Thanks to Singabiz® Network we ensure that your needs are covered via one single point of contact – Singabiz, and we coordinate all necessary activities with our Singabiz® Network partners consisting of lawyers, tax advisors, office providers, and many other services. With us, you do not need to care about anything but your business, your products, your marketing.
We can also take over the local representation of your company towards local authorities, governmental organizations and institutions, and ensure interim management of your company if needed. With our innovative annual subscription packages for these services, you can save up to 90% compared to the costs of a full headcount employed as a local company manager, but you enjoy the same level of quality and service dedication.
Governmental organizations of different countries providing support to their local small and medium-sized companies for the international business development and funding their international activities trust Singabiz and work intensively with us to provide the best-in-class support to their local businesses looking to expand their activities to Europe.
If you wish to know more about how we can support you, just book the first introduction call with us and we will be glad to discuss your individual needs and plans:
