Are you interested in starting a business in Germany? If YES, here is a complete guide plus legal requirements for starting a business in Germany as a foreigner.
Okay, having provided an in-depth analysis of the top 50 best small business ideas in Germany and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in Germany. So put on your entrepreneurial hat and let’s proceed.
Why Start a Business in Germany?
For anyone who is looking to start a business in any part of the world at all, then you may want to look at Germany. If not for anything, then you should be satisfied with Germany because of the abundant opportunities that are available therein, and the fact that it’s a country which was once a world power, and also boasts of a large population which cuts across different countries of the world.
Germany is a great power and has the world’s fourth-largest economy by nominal GDP, as well as the fifth-largest by PPP. It is also a global leader in several industrial and technological sectors; it is both the world’s third-largest exporter and importer of goods.
It is a developed country per excellence and by all standards with a very high standard of living sustained by a skilled and productive society. It is one of the few countries in the world that upholds a social security and universal health care system, environmental protection and a tuition-free university education.
In 1993, it was one of the founding members of the European Union and of course a leading member. Also in 1999, it became a co-founder of the Eurozone. It is also a member of the United Nations, NATO, the G8, the G20, and the OECD. The national military expenditure of the country is the 9th highest in the world and widely known for its rich cultural history,
Starting a Business in Germany as a Foreigner – A Complete Guide
- General Overview
Germany, a truly exceptional country has a social market economy with a highly skilled labour force, a large capital stock, a low level of corruption, and a high level of innovation. It is the world’s third largest exporter of goods, and has the largest national economy in Europe which is also the world’s fourth largest by nominal GDP and the fifth one by PPP.
As Europe’s largest economy and second most populous nation (after Russia), Germany is a key member of the continent’s economic, political, and defence organisations. It is also has the largest population of any EU country. Its territory stretches from the North Sea and the Baltic in the north to the Alps in the south and is traversed by some of Europe’s major rivers such as the Rhine, Danube and Elbe.
German is the most widely spoken first language in the European Union. Germany is the world’s third largest economy, producing automobiles, precision engineering products, electronic and communications equipment, chemicals and pharmaceuticals, and much more besides. Its companies have invested heavily in the central and east European countries which joined the EU in 2004. Germany is the second largest producer of hops in the world and the country is known for its quality beers.
The service sector contributes approximately 71% of the total GDP (including information technology), industry 28%, and agriculture 1%. The unemployment rate published by Eurostat amounts to 4.7% in January 2015, which is the lowest rate of all 28 EU member states. With 7.1% Germany also has the lowest youth unemployment rate of all EU member states. According to the OECD Germany has one of the highest labour productivity levels in the world
Facts and Figures of Germany That Will Interest You as an Investor/Entrepreneur
There are loads of facts and figures that make Germany exciting. Since it’s one of the leading countries of the world, it is not surprising that people throng the states to do one form of business or the other there. This is because of the human and capital resources that the country possesses. Here are some good facts that you might find handy;
- Germany has the largest population of any country in Western Europe and also the largest economy. Despite its long history, the nation of Germany is one of the newest in Europe, much younger than the United States of America.
- The country has the largest economy in the European Union (EU) and the fourth largest in the world after the USA, China, and Japan. Its great innovativeness and strong focus on exports has really gone a long way to aid its competitiveness and global networking.
- In 2014, only China and the USA exported more goods. Germany invests around 80 billion Euros annually in research and development (R&D); hence small and medium-sized enterprises (SMEs) are the backbone of the economy.
- About 1,000 public and publicly funded institutions for science, research and development. German higher education institutions maintain over 32,000 international collaborative partnerships with roughly 5,200 universities and research institutions in more than 150 countries.
- The GDP of the country as at 2012, stood at $3.4 trillion, making it the 4th highest in the world.
Factors or Incentives Encouraging Investors to Venture into Business in Germany
The wish of every investor is to venture into business in places where their investment will be useful and yield positive returns at the end of the day. Hence, there are several incentives that attract investors in Germany. Here are some of the benefits of investing in Germany;
- Strong economy
- Solid infrastructure
- Mixed/Large market
- Strength of the country’s currency
- Diverse ethnic groups and persons
- Government support to economic development through infrastructure development, facilitation, amongst others
- The accessibility of infrastructure and utilities such as good roads, power, communication facilities, and lack of corruption and bureaucratic delays in obtaining such utilities encourage entrepreneurship.
- Economic freedom in the form of promising legislation and few hurdles to start and operate businesses encourage entrepreneurship.
- Sound laws that are investors’ friendly.
Starting a Business in Germany – Market Feasibility Research
A large number of investors from different countries have migrated to Germany to do business. Those who have been privileged to find themselves there, have stayed there to say the least, this is to enable them to continue doing what they know how to do best. It is therefore not out of place to postulate that Germany is one of the best countries to do business in.
This is one of the reasons why small brands have continued to soar higher to become a formidable force to reckon with. It has a total area of about 357,168Km2 making it the 63rd in the world, and about 137,847 sq mi. With a 2015 population estimate of 81,459,000, making it the 16th most populated country in the world.
Germany is part of the European single market which represents more than 508 million consumers. Several domestic commercial policies are determined by agreements among European Union (EU) members and by EU legislation. Germany introduced the common European currency; the Euro in 2002.It is a member of the Eurozone which represents around 338 million citizens.
It’s important to mention that of the world’s 500 largest stock-market-listed companies measured by revenue in 2014, the Fortune Global 500, 28 are headquartered in Germany. The top 10 exports of Germany are vehicles, machinery, chemical goods, electronic products, electrical equipment, pharmaceuticals, transport equipment, basic metals, food products, and rubber and plastics.
10 Well Known Foreign Brands Doing Business in Germany
Over the years, several brands have gone from being small to becoming household names. One of the good things about these brands is that they are foreign. Here is a list of 10 well known foreign brands in Germany;
- British Airways
- Qatar Airways
- DHL express
List of 10 Well Known Indigenous Entrepreneurs in Germany
Just as there are foreign entrepreneurs doing business and excelling in Germany, so are there indigenous counterparts. These indigenous moguls have grown from small to solid and have become a force to reckon with. Here is a list of indigenous brands doing business in Germany;
- Adolf Dassler – Founder, Adidas
- Alexandre Straub – Internet and Telecom entrepreneur
- Artur Bruner – Film producer
- August Belmont – Businessman/entrepreneur
- Ben Neumann – Founder Icom.com
- Chris Von der Ahe – Owner, St. Louis Brown stockings
- Christoph Bertsh – Founder, Top 21 companies
- Dietmar Hopp – Software entrepreneur
- Donald Trump – Founder, Trump Entertainment Resorts
- Edward Huber – Industrialist
List of 10 Most Popular Indigenous Businesses
Owning a business in the Germany isn’t as easy as it seems. A lot of folks over the centuries have built strong businesses. Whilst some have not made it past the first few years of operation, yet others have stood the test of time and have continued to wax stronger and stronger as the years go by.
As a matter of fact, some of these businesses are not just known in the Germany alone, but has transcended its shores. Here are 10 most popular indigenous businesses in Germany;
- Schwarz Gruppe
- Deutsche Telecom
Top 5 Best Cities to do Business in Germany
Actually, doing businesses anywhere in Germany is generally okay, but the truth is that just like in many countries of the world, there are however some cities and states that have an edge over others because of the very favourable conditions they offer.
Different businesses have gone ahead to be borne here and they have birthed other businesses as well. Here is a list of top best cities to do business in Germany;
When looking to start a business in the Germany, a whole lot has to be looked at from the economic point of view. Some of the factors in consideration include the following; Human Capacity Building and Job creation, Social policies and corporate social responsibility initiatives, Infrastructure improvements, Technology and knowledge transfer.
An essential feature of the German economy is the economic freedom given to the private sector and the fact that its economy is a diverse and mixed one. This is enhanced by relatively low levels of regulation and government participation, as well as a court system that normally protects property rights and imposes contracts.
As Europe’s largest economy, Germany offers a prime continental location, a qualified labor force, openness to foreign investment and relative economic stability, making it a popular international expansion choice for U.S.-based companies.
With over 81 million inhabitants, Germany is the most populous member state in the European Union. The capital and largest city in Germany is Berlin, where 3.5 million people reside. Germany has been a member of the European Monetary Union since 2002, when it adopted the Euro currency.
Germany is the major economic and political power in Europe and a historic leader in many cultural and technical fields. It has also consistently experienced significant inbound investment, which has had a considerable impact on the country’s growth and prosperity. As a result, the German government actively encourages foreign investment.
Possible Threats and Challenges You will Face When Starting a Business in Germany
There isn’t a country in the world today that is free from business challenges- no matter how little. Germany too is not an exception. While the government encourages foreign investment, it has some set laws that must be adhered to. Here are some challenges to face when you do business there;
- Strict employment Law
- Unique IP rules
- Complex tax structure
- Openness to Foreign Investment
- An Emphasis on Quality
- Growth Opportunities
- Cultural sensitivity
Starting a Business in Germany as a Foreigner – Legal Aspect
- Business Licenses and Permits That You Need to Start a Business in Germany
In order to be able to start a business in Germany, there is a need to get acquainted with local, state and federal business licenses and permits. However, there are basic and most common licenses and permits that all businesses need.
Without these licenses you risk being clamped down on by the authorities involved in the execution of business laws in Germany. They include the following;
- Fire department permit-: In case your business uses any flammable materials or if your premises will be open to the public Air and water control permit-Check with the state environmental protection agency regarding federal or state regulations that may apply to your business. You should get a permit from your fire department
- Sign/Advertisement permit – If your business is such that, you need to make use of signs or advertise your business, there is need to make use of this permit.
- County permit – County governments frequently need the same types of permits and licenses as cities. As such, you have to ensure that you get this permit, so that you will have the access to the jurisprudence within your county.
- Sales tax license – Sales taxes differ by state and are compulsory at the retail level. It’s vital to know the rules in the states and localities where you operate your business because if you’re a retailer, you must collect state sales tax on each sale you make.
- Health department permit – The health department will want to inspect your facilities before issuing the permit. And this permit is necessary so as to ensure that all hazards that could be accrued from your company are well taken care of.
The Best Legal Entity to Use in Germany
Choosing a business entity as you start out in trade is your responsibility. On the other hand, the type of business which you plan to operate may also suggest the type of entity to use. It all depends on the type of business you want to run. Here is a list of entities to guide you;
- Sole Proprietorship
Adopting a sole proprietorship type of entity means that you may be looking to start on a small scale from the outset. The less complex structure is the sole proprietorship, as it usually involves just one individual who owns and operates the enterprise.
If you intend to work alone, this may be the way to go. The tax aspects of a sole proprietorship are particularly attractive because income and expenses from the business are included on your personal income tax return
This is particularly necessary when you don’t intend to be the only one that would be involved in ownership, then you can consider adopting the partnership style of entity. If your business will be possessed and run by several individuals, you may want to take a look at organizing your business as a partnership. Partnerships come in two variations: general partnerships and limited partnerships.
In a general partnership, the partners accomplish the company and shoulder the responsibility for the partnership’s debts and other responsibilities. On the other hand, a limited partnership has both general and limited partners. The general partners possess and activate the business and assume liability for the partnership, while the limited partners function as investors only. This means that they take no control over the company and are not saddled with the same liabilities as the general partners.
This type of entity is adopted on a very large scale and adopting the corporate structure is more complex and costly than most other business structures. A corporation is an independent legal entity, separate from its owners, and as such, it needs fulfilling more regulations and tax requirements.
List of Legal Documents You Need to Run a Business in Germany
There are several documents that must be in place to run a business in Germany. The inability to have all or more of these documents in place means that you just might be found wanting along the line. As such, here are some of the documents that you will be needing;
- Certificate of Incorporation
- Business Plan
- Non-Disclosure Agreement (NDA)
- Insurance Policy
- Contract documents
- Patent or Copyright registration
- Operating Agreement
- Business License
List of Government Agencies and Parastatals that are In-charge of Registering businesses and Issuing Licenses and Permits in Germany
In different countries of the world, there are various licensing bodies. Germany has its own bodies that are saddled with the affairs of business permits and licensing. They see to it that before a business fully commences trade, they have to be well licensed.
In different countries of the world, there are various licensing bodies. Germany is not an exception as it has its agencies that are saddled with the affairs of business permits and licensing. They see to it that before a business fully commences trade, they have to be well licensed. These government agencies must approve of one’s business before you can practice in the country. They include the following:
- Labour agency (Agentur fur Arbeit)-: They are basically responsible for registering craftsmen, entrepreneurs etc. their licenses, and assist them too to start up successfully.
- Chambers of commerce and Industry-: These are located throughout the country, and they basically assist in licensing start-ups to commence successfully and give advice where necessary.
- Federal ministry of Economic affairs and energy, labour and social affairs-: These three government parastatals are also responsible for licensing professionals and entrepreneurs that are interested in doing businesses in Germany.
- Company registrar-: This is a centralised point of access for company information, where upon registration they are required to file annual accounts of the company to be published annually.
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