How to start a business in Germany

By Nicolas Bouliane Verified by 1 expert

This guide explains how to start a business in Germany, step by step.

This guide is for people who live in Germany. If you want to move to Germany and become a freelancer, read this guide first.

This guide explains how to form a single proprietorship (Einzelunternehmen), not a corporation or a limited liability company (UG or GmbH).

How hard is it?

It’s not so bad. It’s a lot of work in the first year. There is a lot to learn, and a lot of paperwork to do. You must be organised. After a year or two, it’s easier.

If you don’t speak German, it’s much harder. You will need a lot of help. Important letters, online information and official forms are only in German. Most Bürgeramt, Ausländerbehörde and Finanzamt employees only speak German. If you have a problem, you must speak German to solve it.

If you need a residence permit to live in Germany, it’s harder. You might need to apply for a freelance visa. It takes a few months. It adds costs, delays and paperwork. Your current residence permit might allow part-time self-employment, but you might need a freelance visa for full-time self-employment.

Residence permits to start a business

Cost of running a business

Your business should cover your cost of living and let you save money for retirement.

Personal taxes

As a German resident, you must pay these taxes:

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Disposable income Health insurance Public pension Unemployment insurance Income tax Solidarity surcharge Church tax
Health insurance

Your private health insurance costs per month.

Public pension

Public pension insurance pays for your pension when you retire.

Your employer pays

You pay

Unemployment insurance

Unemployment insurance pays for unemployment benefits if you lose your job.

Your employer pays

You pay

Income tax

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Taxable income

Income tax rate

Solidarity surcharge

If you pay more than /year in income tax, you must pay a solidarity surcharge. It's a percentage of your income tax.

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Church tax

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Your income is too low to pay income tax, so you don't pay church tax.

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This is what you pay for all taxes and social contributions.

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This is your net income. It's how much money you keep after taxes and other deductions. It's your money. You can spend it.

If you are self-employed, you must earn more than an employee to get the same net income and benefits. Your health insurance, pension insurance and unemployment insurance are twice as expensive, because your employer does not pay half of it.

Unemployment and pension insurance are optional. If you don’t pay for it, you don’t get unemployment benefits, and you must plan for your own retirement.

How taxes work in Germany

Trade tax

If you run a Gewerbe, you must pay the trade tax (Gewerbesteuer). In Berlin, it’s a 1.05% tax on all profit above 24,500€ per year.

If you are a Freiberufler, you don’t pay the trade tax.

Are you a Freiberufler or a Gewerbe?

How the trade tax works

IHK membership

If you run a Gewerbe in Berlin, you are forced to join the IHK. The mandatory membership fee is a percentage of your revenue. It costs a few hundred euros per year.

IHK membership fee calculator

Value Added Tax (VAT)

Value added tax (VAT or Umsatzsteuer) is a 19% tax on goods and services. Usually, you must charge VAT on your invoices, and you pay VAT on your expenses.

If you receive more VAT than you give, you must give the extra money to the Finanzamt. If you give more VAT than you receive, the Finanzamt gives you the difference back. You don’t win or lose any money with VAT.

How VAT works in Germany

Small businesses (Kleinunternehmer) can choose not to charge VAT. It simplifies things, but it’s not always a good idea.

How being a Kleinunternehmer works

Tax advisor and bookkeeping

Tax advisors are worth it. They handle your taxes and most of your paperwork. They can prevent expensive mistakes, and solve problems with the Finanzamt. You must have a tax advisor to renew your freelance visa.

A tax advisor costs 700€ to 2,000€ per year if you charge VAT, or 300€ to 800€ per year if you don’t. The prices vary a lot. The only way to know is to call and ask.

Tax software is cheaper than a tax advisor. Sorted and Lexware Office help with invoicing and VAT reporting. You can do your tax declaration in ELSTER. I use Lexware Office for all of my bookkeeping, but I still have a tax advisor.

List of English-speaking tax advisors

List of German tax software

Some banks like Qonto, Holvi and Kontist can also make your accounting easier. I use Kontist as my business bank.

Other business expenses

If you run a business, you can get insurance against disability, lawsuits, mistakes, and other problems. This is optional. You could also need tools, equipment and office space.

Types of insurance in Germany

You can deduct all of your business expenses. This allows you to pay less income tax.

Before you start

Register your address

In Germany, you must register your address every time you move. It’s called the Anmeldung.

When you register your address for the first time, you get a tax ID (Steueridentifikationsnummer). You need a registered address and a tax ID to create an ELSTER account and register your business at the Finanzamt.

How to register your address in Berlin

How to get a tax ID

Open a bank account

You need a bank account to pay taxes, pay for health insurance, and to get paid by your customers. You can use any European bank.1

Use a separate bank account for your business. Bookkeeping is easier when your personal and business transactions are separate. Some banks don’t let you use your personal account for business.2

Business banks like Holvi, Qonto, Kontist and Finom help with your accounting. I use Kontist since January 2022, but I don’t recommend it.

Best German banks for expats

The Finanzamt can freeze your bank accounts if you don’t pay your taxes. They will freeze all of your accounts, not just your business account. They can also freeze your accounts in other EU countries.3 When the Finanzamt freezes your bank account, you can’t withdraw money or make bank transfers.4

Sometimes, they freeze your account by mistake. It happened to me, and to other people I know. Even if it’s not your fault, it can take a few days to fix. During that time, you can’t withdraw money.

Get a P-Konto (Pfändungsschutzkonto). It lets you access some of your money when your account is frozen, so you can buy food and pay your bills. You can get a P-Konto for free, but it can affect your Schufa score.

Find a tax advisor

A tax advisor can register your business at the Finanzamt and at the Gewerbeamt, and prepare your tax declarations. They make accounting easier, and they prevent expensive mistakes.

You need a tax advisor to renew a freelance visa. They must prepare and stamp some of the required documents.

It’s hard to find a tax advisor. It can take a few weeks.

English-speaking tax advisors in Berlin

Steps to start your business

1. Know if you are a Freiberufler or a Gewerbe

There are two kinds of self-employed people: freelancers (Freiberufler) and tradespeople (Gewerbetreibende). The difference is important.

Tradespeople must…

When you apply for a freelance visa or permanent residence, the required documents are different for Freiberufler and Gewerbetreibende

Not all freelancers are Freiberufler, only people in specific professions. For example, designers, engineers, doctors, architects, teachers, artists and journalists.

Freiberufler or Gewerbe, what’s the difference?

2. Get a trade licence

If you register as a Gewerbe, you must get a trade licence (Gewerbeschein) before you register your business with the Finanzamt.

In Berlin, you can apply for a Gewerbeschein online. You need a valid residence permit before you do this. In the rest of Germany, you can use the paper form. Your tax advisor can also do it for you.

What is the trade tax?

How to get a trade licence in Berlin

3. Register with the Finanzamt

The next step is to declare your business to the Finanzamt. You must fill the Fragebogen zur steuerlichen Erfassung online. It takes 5 to 7 weeks,5 including 1 week to create an ELSTER account.

Your tax advisor can register your business for you. If you don’t speak German, use Sorted’s free tool to register your business. I tried it; it’s really good.

How to register a business in Germany

4. Get a residence permit

You might need a residence permit to be self-employed in Germany. It depends on your nationality. It can take a few months to get a residence permit.

Who needs a residence permit?

How to apply for the German freelance visa

5. Tell your health insurer

If you already have health insurance, tell your insurance company that you will be self-employed.

When you are an employee, health insurance payments are taken from your salary. If you are self-employed, you pay every month by bank transfer.

Health insurance for freelancers is more expensive, because your employer does not pay half of it.

If you have public health insurance, the cost of your insurance depends on your income. Since you don’t know your future income, they use your estimated income. If you pay too much for insurance, you will get a refund later. If you don’t pay enough, you will get an invoice later.

If you are self-employed, private health insurance could be a lot cheaper. Since I switched to private, I save over 400€ per month, and I have better coverage. Talk to a health insurance broker about it. It’s not a simple decision.

How to choose health insurance

6. Get financial help

The state can help you start a business. There are many options:

You can apply for a training voucher, initial funding and an investment grant at the Agentur für Arbeit or the Jobcenter. You might not get a training voucher if you don’t qualify for unemployment benefits.8

What to do next

Update your website

If you have a website, it must follow German and European laws. If you make a mistake, you can get an Abmahnung and waste a lot of money.

How to run a website in Germany

Join the Künst­ler­so­zi­al­kas­se

If you are an artist, publicist or art teacher, join the Künstlersozialkasse. They pay half of your health insurance, and half of your public pension insurance. It’s a really good deal.

How to join the Künstlersozialkasse

Do your taxes

Every year, you must make a tax declaration. Remember that most business expenses are tax-deductible: tax advisor, tax software, insurance, transportation, computers, internet, mobile phone, banking fees, part of your rent and a lot more. This reduces your taxable income, so you pay less taxes.

Need help?

There are tools that make it easier:

English-speaking tax advisors in Berlin

Where to ask business questions

Sources and footnotes

  1. Screenshot ⤴

  2. allrecht.de ⤴

  3. together.bunq.com (2018) ⤴

  4. juraforum.de ⤴

  5. medium.com ⤴

  6. existenzgruender.de, deutschland-startet.de ⤴

  7. deutschland-startet.de ⤴

  8. hartz4widerspruch.de, Carina Senf at Rotwang Law (July 2023) ⤴