What to know about setting up a company in Berlin
rom navigating the bureaucracy to battling the German tax system, starting a business in Berlin can be a complicated affair. We look at what to watch out for when tackling the first stages of setting up a company.
Home to many successful startups such as Soundcloud, N26 and Delivery Hero, Berlin remains the startup hotspot in Germany, with the states of North Rhine-Westphalia, Bavaria and Baden-Württemberg quickly catching up.
Across Germany, an average of almost 30 percent of employees at startups are not German, and in Berlin, every other startup staff member is hired from abroad, according to broadcaster Deutsche Welle.
Just over 100,000 Berliners work at startups, Florian Nöll, founder and chairman of the German Startups Association told broadcaster Deutschlandfunk last spring. There are between 6,000 and 7,000 startups across Germany, according to Florian.
With access to an international pool of talent and a vibrant creative community, it’s easy to see why the German capital is so attractive to innovative types (in spite of the rising cost of rents).
But amidst Berlin’s notable advantages are certain complications that make setting up a business somewhat difficult. While language barriers come into play for non-German speakers, navigating the bureaucracy when it comes to setting up shop here can be an uphill climb for aspiring entrepreneurs.
When seeking to set up a business in Berlin, there are certain questions you need to consider. Do you want to set up a business by yourself or team up with others? Will you freelance or be self-employed? Have you thought about the structure your business will take?
The structure of your company
After you’ve given some thought to your business idea and you’re ready to officially start your company, one of the first things to consider is its legal structure.
In Germany, determining your company’s structure has huge implications for the process with which you register, and the legal obligations that you are under. It will, for instance, determine whether you are personally liable for your company and how much equity you will need.
Registering a company in Berlin is a significant grey area that many founders struggle to navigate, Pauline Roussel, cofounder and CEO of a Berlin-based company called Coworkies, told Startup Guide.
As a native French speaker, with English as her second language, Pauline found the information the IHK (Chamber of Commerce and Industry in Germany) had available in English about how to set up a company helpful. In spite of this, it’s very difficult for startups to know which kind of legal structure their company should be registered under, she says.
According to the German government’s website, Make it in Germany, there are two ways of starting a business in the country: either you are self-employed or a freelancer. This decision will directly inform your company’s legal structure, “the solid backbone for your company,” according to the Federal Ministry for Economic Affairs, as well as certain formalities.
Do not register a company in December here. For tax reasons, it’s better if you can wait until January to register.
The three main types of structure include: Sole proprietorship (Einzelunternehmen), Limited Liability Company (GmbH) and a Civil law partnership (GbR).
In some cases, it may be possible for your company to register as a UG, an entrepreneurial company with limited liability (Unternehmergesellschaft), otherwise known as a mini GmbH. The UG is the German form of a private limited company and acts as an alternative to a German corporation or GmbH.
For fledgling business enterprises, registering as a UG can make founding a company more simple and less expensive. Unlike a GmbH, a UG is not required to meet the €25,000 share capital and can instead be set up with as little as €1 in capital.
According to Pauline, the amount of money needed to register as a GmbH is a significant challenge for startups, especially when compared to setting up in other countries such as the UK. Setting up as a private limited company in the UK, comparatively, costs just £12 and your business can usually be registered within 24 hours. Unlike Germany, registration can also be completed online.
Registering your business
The German government is famed for its flawless planning and logistical prowess, but amidst all of their full-proof processes is a bureaucratic system that many foreigners struggle to navigate.
In Germany, every process has a paper trail. If you’re a freelancer, starting a company is relatively easy. With your freelance visa in hand, head straight to the tax office (Finanzamt) and fill out a form for your tax number. If you plan to make over €17,500 per year, it’s also necessary that you charge your clients value-added tax (Mehrwertsteuer) and pass it along to the government.
If you wish to register as a self-employed entrepreneur, you will need to contact your local trade office (Gewerbeamt), where you can find out more info, such as which authorities you need to get in touch with.
To found a GmbH, you need to show a notarized agreement between the various shareholders, and investment capital of €25,000. Then you can enter your company into the commercial register (Handelsregister). You can find further registration help here.
For some professions, a document is required to prove that you do not have a criminal record. EU citizens that are resident in Germany can usually apply for a “European certificate of good conduct” at a local registration office. If you are from a country outside of the EU, you will need to obtain a comparable document from the equivalent authority in your country.
We did not experience any trouble being foreigners here and registering our company.
For non-EU citizens aiming to set up a business, you will need a residence permit for the purpose of self-employment. If you are still resident in your home country, you’ll need to apply for a visa for the purpose of self-employment at a German mission near you.
One piece of advice that Pauline gives concerns the time of year that you register your company. “Do not register a company in December here,” she says. “For tax reasons, it’s better if you can wait until January to register.”
“We did not experience any trouble being foreigners here and registering our company,” Pauline adds, stating the notary in their area even had the registration documents in “both English and German, so that was really helpful for us.” Pauline says it took three to four weeks to register her company.
Before beginning any business activity, you must notify the regulatory agency (Ordnungsamt) in the district that your company will be based and attend an interview. You will be required to present your identity card or passport, as well any licenses you have obtained while setting up.
If there are several founding members of your business, you must all attend to present your documents.
It is within your responsibility to inform the Ordnungsamt about the date when your business is to start operating for the first time. This can be when you first rent premises, promote your business or recruit employees.
For future reference, if you decide to open any additional business premises, or change the address of your current premises, you must notify the authorities of your relocation.
Supportive initiatives and programs
The German government is particularly supportive of startups and has a number of initiatives such as the IBB, Berlin’s business development bank, Pauline says. “The IBB gives grants to companies who are either starting, growing or hiring.”
Berlin’s wide range of incubators and accelerators, some of which can be found in our Berlin Vol. 4 book, offer a number of services to help startups effectively launch their ideas.
Entities like Berlin Partner, for example, offer a range of support for companies thinking to settle in the German capital. They offer information “from registering your company to finding an office, or even helping you understand other markets outside of Berlin through their Start Alliance program,” Pauline says.
Berlin currently has the highest percentage of female founders of any German city but compared to the rest of Europe, where 17 percent of tech startups are founded by women, this figure appears slightly less impressive.
In an effort to amend this problem, there are a number of initiatives in Berlin which are geared towards increasing the number of businesses started by women across the country. Platforms such as The National Agency for Women Startups Activities and Services, for example, give information and advice to women involved in the various phases of entrepreneurship.
The capital’s startup community also hosts a number of events to encourage budding female entrepreneurs to start their own businesses. #Sheinnovates, for example, is an initiative launched by SAP Next-Gen which strives to accelerate the advancement of females in innovation, tech, and entrepreneurship.
SAP Next-Gen has actually teamed up with Startup Guide this month and next month with a series of workshops which aim to inspire and support women in forming their own businesses. One of these events, which will take place at Ahoy! Berlin on November 22nd at 10am, will feature a panel discussion whereby Berlin-based female founders will share their experiences and expertise.
If you’d like to attend any of the upcoming #sheinnovates workshops, please register here.
Main image: Eglė Duleckytė, Global Production Lead for Startup Guide