Setting Up and Doing Business in Germany With a GmbH

Setting up a GmbH

The minimum capital of a GmbH is 25.000,00 Euro. A quarter of the nominal capital but at least 12.500,00 EUR has to be paid in at the time when the company is founded and before the application for the entry in the commercial registry is filed. If the GmbH has only one partner who shall also act as director he will have to provide a security for the outstanding residual amount.

In November 2008 a new sort of baby-sized GmbH was introduced. It is called Unternehmergesellschaft (haftungsbeschraenkt) or UG (haftungsbeschraenkt) and may operate at the start with a share capital between 1,00 and 24.999 Euro. However, the partners of such business company with limited liability are obliged to invest one quarter of the future annual profits of the company in into its capital reserves until the statutory minimum share capital of 25.000 Euro is reached.

The company agreement is subject to a notarial recording. The notary manages for the partners also the application for the registration of the company in the Commercial Register. However, the a notarial recording if the partners choose a standard set of clauses provided by law for their articles of association. This set stipulates only the minimum which is necessary for the company's entry in the registry.

Costs for the establishment of a GmbH then depend on the nominal capital. For a GmbH holding the minimum capital of 25.000 Euro; the costs are:

- 168 Euro; of the notarial drafts of the company charter,

- 168 Euro; for the notarial recording of the first general meeting (actually not needed),

- 42 Euro; for the entry in the register, publication in the gazette

- 100 Euro; publication in the gazette

The notarial establishment of any company charter also requires the involvement a sworn translator unless the founders waive this requirement. The waiver is only accepted by the civil notary if he is assured that the founders gain proper knowledge of the company charter in another way.

Conduct of the GmbH

The start of a business must be reported to the local office of trade and industry. It will inform the tax office immediately and they will send a questionnaire to the owner of the business in order to acquire data which are necessary for taxation purposes. The questions refer from general information such as the type of business, its address, banking data and so on to data which are particularly important for the taxation, e.g. if the business is liable to VAT due to its size or whether the tax office will have to assess advance payments on the income, corporation and business taxes. If cross border business is planned the business owner can apply for a trade ID. The questionnaire has to be filled in and sent back to the tax office within a month.

GmbHs have to maintain an adequate and orderly accounting in the shape of a double entry book keeping irrespective of their size. They will also have to produce annual statements consisting at least of a balance sheet, the explanatory notes to the accounts and a profit-and-loss report within three months as of the beginning of a new accounting year. For small GmbHs this period is extended to six months. The annual statements have to be published by furnishing them to the Commercial Register.

Managing directors (Geschaeftsfuehrer, GF) act as statutory representatives of the GmbH. As such, they are exposed to various liabilities in particular if the business of the GmbH is not thrivng. In general, any damage caused through deliberate acts contrary to public policy can incur a personal liabilty of the GF eg. by the placement of orders at a time when the GmbH is already overindebted and is not able to pay the rendered work later on. In connection with the overindebtedness of a GmbH the criminal delay by the managing director in filing a bankruptcy petition is practically very relevant. Such petition is to be filed without undue delay upon the occurrence of either an overindebtedness or an illiquidity of the GmbH (after three weeks at the latest). However, if no plausible solution to save the business is on hand there is no cause in deferring the filing until the end of this three-week-deadline. Any financial obligation incurred after illiquidity or indebtedness may cause a personal liability of the GF against the contractors of the GmbH. Furthermore, the failure to pay wage withholding tax or social security contributions for the employees often may cause respective claims. Therefore, any GF is well advised to shorten the staff`s salaries or wages if necessary in order to keep enough cash to meet the statutory obligations. Otherwise, even a prison sentence for the GF may be imminent.

Business Income Taxation and Taxation of the Partners

The German government offers a variety of tax advantages as well as funding supports to starting businesses.

The GmbH is liable to corporate income tax including the solidarity surcharge and to business income tax. The corporation tax rate at present is 15 %. Losses incurred by the GmbH in one fiscal year can be carried further or backwards which may reduce the profits that serve as a basis for the assessment of the corporation taxes in earlier or later tax assessment periods.

In addition to the corporation tax the profits of the GmbH are subject to the municipal business tax at a rate that is made of result of the municipal rate as fixed by the municipality multiplied with 3,5 %. As the tax rates differ considerably from town to town the business tax constitutes a decision factor on the location of the company.

Dividends paid out to the shareholders as well as profits arising of the sale of share are liable to capital gains taxes at a rate of 25 % plus solidarity surcharge and - if applicable - church tax. Upon a respective application, the tax rate can be reduced for taxpayers with low income. Partners holding at least 25 % of the nominal capital or partners who hold at least 1 % and work for the GmbH can also opt for a taxation pursuant a partial income procedure (Teileinkuenfteverfahren). Here, 60 % of the dividends received or the sales profits are subject to income taxation. the other 40 % of the proceeds are income tax free. For corporations holding interests in a GmbH only 5 % of the dividends and sales profits received are subject to taxation. Foreign shareholders/ partners have to observe the taxation rules as stipulated in the double taxation agreements between Germany and their respective home country.

Labour Relations

A foreign employer will have to observe that labour contracts had better concluded in writing. This also applies to notices of termination of a work contract. Employees benefit from several rights which cannot be deviated from by mutual agreement to their disadvantage, e.g. in regard to the vacation which are stipulated in the Federal Vacation Act.

Employers are required to pay half of their workers' health, unemployment, pension and old-age care insurance. They also have to pay for the statutory accident insurance. Moreover, they are responsible that the employers' and the employees' shares of the insurance contributions are paid to the Employers` Liability Insurance Association and health insurance fund in charge for the collections.

Further Information for Founders of New Businesses and Foreign Investors

The German Ministry of Economy and Technology offers an English language online service for foreigners wishing to start a business in Germany. This step-by-step portal lists start-up procedures, business planning strategies and management techniques to ensure the company is successful. State aid can also be applied for, although previous employment in the country is required for at least a year to be eligible for assistance in general.

Foreign nationals seeking to start-up a business the German Federal Ministry of Economy provides a website in English, French, Turkish and Russian with further information (URL: existenzgruender.de)

For foreign investors the "Invest in Germany GmbH" - a government agency - provides among others a thorough investment guide and comprehensive information about the German industries (URL: gtai.com)

Henning M. Haarhaus Certified German Attorney-at-Law/ Certified Tax Specialist Lawyer Schlosssstr. 96, 12163 Berlin http://www.kanzlei-haarhaus.de/english/Overview-english.htm

Case Study - Setting Yourself Up As The Expert

An insurance representative had just signed on as a broker for a national insurance company offering what was an outstanding new corporate product. After reviewing the corporate insurance product he could not see how any corporation with 5 - 50 employees could turn it down. It offered better employee benefits for a much lower cost and the same deductibles as other similar products.

PROBLEM:

Although he had the best product, he could not compete because he could not get in the doors! Others with similar - but not better - products had established contacts and years of experience.

The insurance representative decided to try a soft-sell approach - inform the prospects of the product and teach them about the advantages in a teacher-student setting rather than a high pressure 1-on-1 situation. This would set him up as the expert by default. The question now was how to accomplish this task.

SOLUTION:

He booked a meeting hall to hold a seminar and printed material regarding the insurance product. The seminar would be free to everyone and include breakfast and prizes for attendees.

In every communication he let it be know clearly that this was an invitation only event and seating was limited - no exceptions.

In order to promote the seminar he:

1. Created specific home and reservation pages for his website. The pages included links to the national insurance company website and PDF files of literature from both the national insurance company and his own company about the new product. Reservations could be made instantly online.

2. Ran ads with Google, Yahoo and MSN that were geographically specific. The ads began running in just a few short hours.

3. Contracted with a service bureau to bulk email an ad based on a guaranteed opening of 12,000 emails, which were expected to take up to 90 days because of the specific market he was attempting to reach. The email contained an image which linked the viewer to the seminar section of his website.

4. Since he had 90 days for the bulk email campaign to be completed he created a quick newsletter focusing on the seminar but also offering tips and advice - more informative than sales oriented. The newsletter was a simple self-mailer on card stock with a perforated return form for readers to make reservations for the seminar. He thought he would need to produce two newsletters, one per month for the first two months. A third could be produced if needed. He thought he would need at least two newsletters but he was wrong.

RESULTS:

The seminar was full within 45 days of the beginning of his promotion and responses continued to come in.

Instead of creating a waiting list he quickly reserved the meeting hall for a second date... then a third.

Neil Walsh
Daba Designs
P.O. Box 255
North Olmsted, Ohio 44070
Phone: (440)465-0744
Website: http://www.daba-designs.com

Setting Proper Priorities For Humanitarian Aid

Lets say somebody forced you to give 500 dollars away but gave you the option to choose who to give it to. Lets say they also gave you the option of giving same amount in the form of a gift or labor. Would you give it to your loved ones and/or friends, or would you give it to total strangers? It might seem like a no-brainer since you can help your family out with something they need, brighten the day of somebody you know, see tangible results and improvements right away, and even get a bit of that money back through improved relations and reciprocity. The benefit of improving a stranger's life, pales in comparison from the perspective of self interest.

We all know how people shriek when other people force them to give away their resources through the muscleman of the government. We are familiar how many Americans would rather give the same resources to somebody close to them (themselves or their families) than other fellow citizens. This is not an article about that. Neither is it about the philosophical debate on possibility of unselfish action. All human action is done to expand influence within the world in a variety of creative ways. Even something like suicide, that seems blatantly against the person's self interest, expands that person's influence after death since it is such a powerful act.

This article is about proper prioritizing of private humanitarian aid. This type of aid is considered non-coerced and voluntary giving of personal resources to others. Many individuals around the world, particularly Westerners, seem to have their prioritizes of this type of resource giving mixed up.

Let's start with describing 3 of these primarily Western humanitarians (although non-Westerners have been making inroads recently when it comes to giving):

1) Religious people - In United States in particular, they are a large number since poorer education in large swaths of the country allows such demographic to be numerous. They point to how much Americans contribute to private charity compared to other countries. They are these Americans. They say since Americans are so generous on average, compared to Europeans, government shouldn't get involved in humanitarian aid. A point is made that people who already give a lot would give more if it wasn't redistributed under the barrel of the gun and if citizens could personally decide on the target of the aid. They say that they don't want government to take fruits of their labor and spend it on practices that their internalized moral dogma prohibits. This point is as valid (and powerless) as a Green party member not wanting his tax dollars going to the military. The religious humanitarians don't see that funding for contraception and abortion for poorer American citizens produces Christian results. Government funding, that they are against, reduces poverty, disease, death, suffering, crime, and "ungodly" behavior that economically disadvantaged are more at risk for such as earlier teen sex.

Christians, if they are predisposed to giving, would rather give the money to their local church or religiously based humanitarian organization. These in turn can spend it on local or third world missionary work that uses food and medicine as an incentive to show up to church. Third world is often more of a focus for large churches than local humanitarian work since they can convert more desperate people abroad. A lot of the money does find its way to feed, clothe, and provide medicine when it's not used on stamping out fairy tale literature and mega church expansion. Let's leave alone for now the perpetuating cycle of poverty and misery that just feeding and clothing the poor creates.

2) Secular middle class humanitarians - These are a lot more numerous in Europe but are also prevalent in all Western urban areas. These people acquired just enough education about the international situation to be able to adequately compare their middle class lifestyles to the rest of the world. Many of these people have sufficient neural emotionality to feel above average levels of empathy for others. They get involved in raising awareness about the suffering but are less inclined to give actual money since that money does not strengthen the power of the church internationally as is the case with the religious people. Their contribution in food and medicine, does not come with additional benefits of imposing a moral worldview on the third world poor, and as such, has less influence. Secular humanists are strategically more predisposed to lobbying government to increase its aid through tax revenue although many undoubtedly give personally as well. The "bleeding hearts" as the rural religious like to call them, often have to pick and choose their humanitarian aid considering the amount of suffering in the world. They don't have a church to do the thinking for them so fads are created in terms which society to give to. Many also like to get involved in actually traveling to the third world and helping the needy themselves. That has the benefit of showing the target of resources spent. It also provides more self growth through an exciting well rounded foreign trip that is lacking with study abroad to safer societies.

3) Oligarchic philanthropists - We know about how charity can help with tax write offs and company image, but many philanthropists are genuinely helping third world peoples with tangible large scale schemes. They are the ones who start the organizations that the urban activists get involved in. Although the reasons, for starting the organizations, are often fad based or economically self serving to better public image, the end result is that billions of dollars flow to other countries.

All these humanitarians have their priorities seriously mixed up. It's not even the fact that they are just increasing poverty and corresponding suffering from generation to generation by disproportionate expenditure on food and medicine. 99% of the money does not go to actual utilitarian reduction of long term suffering such as hiring expensive Western teachers, bringing condoms, textbooks, and sterilization procedures.

The true outrage is that these people's only publicly stated humanitarian focus, is not their own families, communities, and countrymen. A middle class woman who writes a 200 dollar check to be spent on some tsunami relief does not use that money to buy a nice present for her mother, father, uncle, sister, brother, husband, and child. Sure, she might be wealthy enough to give all of them even nicer gifts but the fact remains that she could give to people actually close to her even more if she didn't write that check. Some things, are zero sum games, and a personal income is one of those things. Are all American families so smoothly functioning and so happy together that even a dollar can be spent to be sent abroad? Over 50% divorce rates seem to indicate the opposite. Does giving $3000 worth of personal labor to work for some humanitarian organization bring more joy than spending $3000 worth of personal labor to help out one's own flesh and blood? If it truly does, then logically, the foreign strangers are the real family who should be lived with.

One might argue that a person is single and hates his or her distant relatives. In that case, is there no suffering in one's own community? Why travel to a distant land when many American children can use a boost in contraceptive education or funds to get to college? Surely one's neighborhood and community can be well off and its members roughly co-equal. Then why not give to a domestic humanitarian organization that will bring needed resources to fellow tax payers, fellow language speakers, fellow contributors in one's country's competition with other states abroad? The suffering in the richest countries is of course materially different than suffering in the poorest but that doesn't mean vast differences in contentness levels.

A poor rural American, in Appalachia or New Orleans, might be 20 times better off materially than a rural man in a poor African province, but it doesn't mean the African is 20 times as psychologically distressed. Individual psychology is remarkably adaptive. Studies in psychology have shown that peoples' physiologies and their conscious appraisals of how content they are, are remarkably stable. A man who wins a lottery and a man who losses a leg return to roughly the same level of self reported contentness level after a few years. A man born in Africa , raised illiterate, and who did hard labor to survive can be just as psychologically content as a person who was born into poverty in New Orleans, worked hard to survive for many years, and then lost his wife in a divorce. An illiterate person who never left his region also does not have the self consciousness to really assess the hole he is in compared to those in wealthier countries to be too distressed about it. Yes there are actual famines, wars, and disease in Africa. However, unless 99% of aid is contraceptive and educational, the situation is just worsened since only that type of aid can decrease fertility rates and improve economic methods.

When millions of Americans are uninsured, borderline illiterate, have access to inadequate nutrition, are poor, and burdened with excessive birthrates, the sheer outflow of money to the third world is borderline treasonous. Richest countries becoming socially and economically destabilized can have drastic effects on the poorer societies. Large developing nations, like China, Brazil, India, and Russia, understand this and know that there are plenty of their own citizens who need aid even though many Africans and Central Americans are dirt poor as well.

There is a slogan that is very appropriate. "Think globally. Act locally." Lets start adhering to that. If one has to give, it is better to give to family and loved ones and then his countrymen. World government does not yet exist and as the economic crisis has shown there is plenty of rot within our own society that has to be addressed. Private outflow of money abroad for charity purposes has to be banned. Too much has left the country instead of being invested into infrastructure, economy, and country's citizens. Only national governments should be in control of giving proper developmental aid to other societies. The government should encourage humanitarian aid organizations to provide domestically and can create a list of targets for them. Maybe Bill Gates should be appointed as the economic developmental officer of Appalachian schools rather than be allowed to waste his wealth on bettering foreigners. Maybe the international community should finally pressure the Vatican on the condom policy so millions don't die from AIDS and don't leave many children to suffer as well. If it takes Iran level marginalizing and alienating of the Vatican, as well as refusal to meet with Vatican's leadership, so be it.

That's not to say that aid to other societies should stop completely but it should go through national leadership. Government has the power to attach proper strings to make sure fertility of third world poor is decreased and proper investments into schooling provided. Sometimes aiding poorer societies can help prevent destabilization on the richer country's borders. Treason is a very crude word and often misused. But when a grown man, who believes in ghosts, ignores the poor in his own neighborhood and gives money to help foreign poor through some third world church, treason is the only word that springs to mind. When an educated urban woman spends energy and her money to help foreigners and not her own family or fellow citizens, treason is the only word that springs to mind. Such sensibilities obviously have intention of betterment and help, but the priorities are disastrously misplaced.