A couple comments (having started both an UG and GmbH):
- I don't recommend starting an UG with less than 2k capital. If you do the minimum (1 euro), you won't have anything to pay your startup bills and it costs extra money (and a trip to the notary) to change your company's investment capital.
- While a GmbH requires 25k capital, only half has to be paid into the company. The rest is marked as a liability on the shareholders.
- A GmbH is generally looked upon as "more serious" than an UG. Some companies won't interact with you if you're an UG, but this is changing over time.
- For what it's worth, I used to hate the bureaucracy, and it can be streamlined further but over the years (and multiple attempts) I've come appreciate how it reduces the risk that you are dealing with shady companies.
- Thanks for the tip about Fidor bank! Setting up a company bank account is a pain in the ass in Germany.
I incorporated in German as well and while I studied all of the procedure and book keeping in school, it was still extremely scary and I would never ever do it again without an accountant.
I want to emphasize on the "less than 2000 Euro" part. There is a good amount of people who literally start with 1 euro, pay the notary and have to file bankruptcy because the 1 euro can't cover the notary fee.
Bank accounts are tricky as well. Only some banks allow accounts for companies and they usually cost a lot more than normal ones. Internet banks recently changed that so definitely go with something like Fidor. (Again, careful that the bank account fee doesn't get your company bankrupt)
Then papers papers and papers. Don't attempt to file the entire stuff by yourself unless you are 100% sure you know what you're doing. Even tax exemptions for smaller businesses you have to explicitly pick on the first documents otherwise you will be treated as a normal company. I forgot to file some and almost got fined thousands of euros.
Then be aware of scammers. The register is public so a lot of companies just send mass scary letters to everyone that look like they come from the government. Once you sign one (which naive me did) you have to get a lawyer. You will almost always win against them but still need to pay the lawyer.
Lastly if you completely screw up, you can apply for "deletion" of your company if you have no money debt to any entity and your company is officially without money (a balance around 0 euro, but not under since this means you have to file for bankruptcy). This skips the long and tedious liquidation process and gets rid of the company immediately once the court confirms it.
One more comment that saves quite a lot of money in the phase where you are building your company: DO NOT APPLY FOR VAT TAX EXEMPTION!
If you are in the initial investment phase and you have more bills than earnings, you'll get 19% of the bills back from Finanzamt. You'll pay 19% of your invoices, too, but if thats less, you're saving.
If you're starting to earn, the Finanzamt will remove the exemption anyways.
Don't know if that makes sense for an outsider, but just read it up and thank me later.
Having a VAT exemption can be interesting in some cases though. Say you sell goods to EU consumers through an entity, you can sell them legally without VAT. That's quite a competitive advantage when getting started.
"Donate" sounds strange, but yes, you can pay any bill from any account – including your personal one, or cash in your wallet. Technically, this would be regarded as a loan to the company, and you can later pay it back to yourself. As long as it's a business-related expense and the company's name is on the bill (above a certain threshold), you can claim those expenses on the business' taxes if you later make any revenue.
What may make this a bit complicated (and make the advice given above sound) is that one of the condition triggering bankruptcy is having more liabilities than assets. If you start the company with 1 Euro, and then go for coffee with the notary spending 10 Euros with the intent to claim it as a business expense, you're 9 Euros underwater. Not sure if this is something you have to monitor throughout the year or if it only becomes relevant when you actually do the bookkeeping at the end of the year.
Contrary to popular opinion (and the article) this stuff is quite easy to sort out as long as it doesn't involve real money, so I wouldn't worry about it. I know some people start companies with a bit of money for this reason, or even use something physical (i. e. their notebook) as an initial deposit into the company.
And just in case people are wondering "but why": these rules are supposed to protect vendors. Limited liability companies shield the founders from financial responsibility, so the rules are written in such a way that founders/owners are on the hook for at least 25,000 Euro (GmbH), or – nowadays – that the risk is clearly communicated to vendors. You can start a personal company much easier (basically a form with an address field and three questions) if you don't need limited liability.
> Not sure if this is something you have to monitor throughout the year or if it only becomes relevant when you actually do the bookkeeping at the end of the year.
You have to deal with it as soon as you can not meet a obligation. ("Zahlungunfähigkeit") If you give your own company a loan, then you can meet your obligation and you're fine on this side.
You also have to keep an eye on your debt level but that's more complicated, especially for owner-loans.
> I know some people start companies with a bit of money for this reason, or even use something physical (i. e. their notebook) as an initial deposit into the company.
Funding with physical good ("Sacheinlage") is however only allowed with a proper GmbH. This rule makes it sometimes a little bit interesting to convert an existing, fully liable, business into a limited liability corporation if if all the goods and money don't add up to 25,000 Euro.
Is this really seen as a problem for a consulting business or a tech business without significant capex?
Most jurisdictions have similar laws, and as long as you put money in through loans when you need it, you're fine, since you will be able to service your liabilities.
What do you mean by 'donate money to the company'? Why/for what purpose? There are various ways to bring money into the company, e.g. you can increase the share/base capital of the company. You can also give the company a credit, but careful, it needs to be on conditions you'd give a similar 3rd party. Probably a topic for your tax accountant. If we are talking low-profile, say a UG w/ 1000 Euro base capital, you'd usually increase the baseline capital steadily up to the 25k Euro and turn it into a regular GmbH (though that doesn't really matter a lot unless you want to take on regular credits).
It might subject you to gift tax. If you give more than 20k€ to a private person over the course of X years, you have to pay 20% gift tax on the amount above 20k€. Something like that, the numbers may be wrong. I don't know if there are similar rules when you give money to a company.
I would not recommend Bulgaria, Estonia or any other "dodgy" countries to form a limited company alas you yourself are from that country.
For a lot of big businesses simply looking at a company address where the country has no to bad rep is already a red flag. So you will have to do a lot of convincing work to do if you want to get funding.
Even a UK limited is the running gag in upper management since it needs next to no effort to create one and they are by default a risky to work with. In the past it was a common thing for dubious companies to create limiteds in the UK and this history is what drives the stereotypes of today.
That said I am confident that Germany is not the cheapest option tax wise and there is a lot of paperwork to do to get your company running. On the flip side you will inherently gain more trust with potential customers and investors.
I wonder how did you come up to put Bulgaria and Estonia in the same bucket. The two countries have almost nothing in common. I am a Bulgarian native and for my current endeavor I seriously consider creating an Estonian company.
The parent's comment ("dodgy") definitely doesn't seem to make sense. Estonia ranks fairly well internationally in terms of being non-corrupt and safe to live and do business in. It's at least on par with highly developed nations such as France or Japan and is better than most of Europe.
The dodgyness ("caninety?") in this case may actually be a result of their non-dodginess ("felinity?"):
Estonia is big on e-government and have apparently made the process of registering an llc really easy. That attracts all sorts of people for whom it makes a difference if the process costs $100 or $110. And that is – as a group – self-selecting for people you can't necessarily trust as much as others. The same mechanism is at work with British LLCs. Those became somewhat famous (being first in this market) because they were often used by people who couldn't start a company in their native country – most often because of messy bankruptcies that can get barred from trying again for certain periods.
For the context: 7 years running a UK limited from outside the UK (until 2014) and 3 years running a GmbH from Germany (now). In both cases, I am a chemical engineer and I am doing mostly programming/consulting work[0].
At the end of the day, it costs basically the same if you are in UK or in Germany because your cost will be your salary and if you read the advices here you are anyway to small to run some special tax optimization programs.
For Germany because the costs are in my head:
- Notary costs for the contract: 450€
- Registration of the company (chamber of commerce): 150€
- Registration at the city level: 20€
Opening a bank account is free but it will cost you about 100€ to "run" it.
The real added costs are the accounting costs. About 80€/month to take care of the books and the paper work for the salary (inclusive transmission of the salary tax information to the Finanzamt and VAT) + 1500 to 2500€/year for the "end of the year" accounting and taking care of the related taxes.
So, the "company structure" costs are about €2000/year if you go through the services of an accountant (you really must do it in fact).
The real cost will anyway be your salary.
In UK, the taxes on the profit of the company is lower than in Germany, it is here where I would have been pleased to have in Germany at least a small "less than XXX€ no taxes" or a relatively easy way to schedule charges in the future to transfer money from one year to another. If you are a single person, saving for a future project is a bit hard in the current structure. Let say you want to accumulate 100k€ before hiring somebody, you end up with the need to make 150k€ extra on top of your salary to have the 100 on your bank account "free" from tax liability.
Do you feel that any of the bureaucracy creates an undue burden – or one that could possibly thwart a company which would otherwise achieve scale?
I'm asking because the article seems to buy into the narrative that these rules and regulation create an actual obstacle to ventures such as google ever being founded in Germany, and having gone through the process a few times, I can neither find any step of the process that I would consider completely unreasonable (except the chamber of commerce), nor could I imagine it being more than an irrelevant nuisance to any dedicated team.
I also think the 2000 Euro/year you're citing is true only for a company actually doing a fair amount of business and having employees. I'm sure it's less than half that if you're just maintaining the legal structure, or are a single founder before launch – VAT reporting, for example, has threshold below which reporting happens only quarterly or yearly.
The 2k/y (a little more) is what I pay for a one person GmbH serviced by an accountant. If you employ people or earn significant money, it'll cost you extra (employing people has its own filing/processing requirements, but the tax-account will do that for you, so it is not 'hard' per se).
Note: you can reduce costs by doing a lot of stuff on your own, but well, do you want to? :-)
BTW: If you plan Google big and want to take on multiple investors pouring in 100k's or millions, you wouldn't usually found a 'GmbH' or UG but an 'AG' (Aktiengesellschaft, a share based construct). This involves more reporting/regulations but also makes it easier to deal with the ownership of the company.
Wrt your 'Google ever being founded in Germany'. The process of founding a company is not an obstacle, that part is easy enough. Other obstacles are manyfold: you don't have nearly as much VC money available, there are strong data protection laws, employing people is a significant liability in Germany (vs California where you can quit them any day), side-costs of employment are very high (state required insurances for medical, unemployment, disability, pension, ...) etc etc.
Summary: If you plan a small software/IT business it probably makes sense to just start with an UG and see where it goes.
In my case the turnover is around 100k€. The cost are based on turnover for most of them.
For the general question about rules etc. At my level, it is a non problem because everything is taken into account by my accountant. It means, it is very easy. Also, the GmbH structure is the same for everybody, it means, everybody must follow these strict rules and as a customer told me: "You have a GmbH, we can trust you that you do the things the right way".
So, for me, these relatively small requirements at the start are a way to keep the non serious people out of business. This is good for the trust when running your business on the long run. I like it this way.
Saving money for future investments can be done with a so called Ansparabschreibung. This is a depreciation for an investment in the future. If later you decide not to invest you have to dissolve the Ansparabschreibung and then you have to pay taxes for the money in that year.
This might be attractive if for example you made some extra money this year which would raise your tax rate. If you know that you will make less money next year you can shift the extra money into the next year, reducing the total tax burden. Whether this is legal if you do not really plan to invest, IANAL. How would they prove it?
Because it is all "vetted" by a registered accountant which is taking liability if the reporting is not don the right way. You can cut on the monthly fee for VAT/salary etc. by doing it yourself but if you consider that it costs you 80€ per month and that you invoice 100€ per hour of your work, it is not worth your time to have worry with this stuff.
The end of the year book stuff is a fee based on your turnover, it is regulated by the german accountant association.
There is missing ("Gewerbeamt") and partially wrong information there (the 17.500 VAT thing), so use with caution!
My best advice: get a tax-guy. They do all this crap and more and while they come with a price (German tax laws are no laughing matters) it's money well spent and also acts as security because said tax-guy shoulders a lot of accountability (pun intended).
You're right, that's the simple and valuable one-sentence advise for anyone starting a business in Germany, and I can only repeat it: get a tax advisor. Trust me, it'll pay for itself.
Curious to know when you incorporated in France exactly?
It didn't seem too hard to me when I did it, and sites like https://www.legalstart.fr/fiches-pratiques/creer-sa-societe/ mention that you need 5 admin procedure and 7 days to start one, where the average of the G20 countries is 7.6 admin procedures and 22 days on average.
So I really wanted to know more about when and how you incorporated etc, out of curiosity.
Belgium is probably similar. One "trick" I've discovered for bureaucratic countries is that certain lawyers will be able to set up entities blazingly fast, in comparison to doing it all yourself.
That's because they have the contacts to get it all done (bank account, notary visit, required reports, etc) in a day or two, instead of 1-2 months.
Not sure if there is a specific benefit in incorporating in Germany vs some other EU country.
If there isn't, I'd suggest looking into Estonia and their e-residency program. They have a fixed 20% corporate tax which you only pay when you take the money out of the company (as opposed to paying on income). I've recently applied and the bureaucracy has been a breeze so far.
In my opinion this is only great if you live outside the EU and want to have a financial place in the EU. One example: Imagine you live in Germany. When you create this company in Estonia good luck in describing to German tax authorities why you have founded it there and not in Germany! You probably also have to pay more taxes in total (to Estonia and Germany) if you are transferring money to yourself.
If you want to keep it simple it very likely makes sense to found the company where you reside. If you don't mind complexity, lookup `Double Irish With a Dutch Sandwich` :->
If you want to move to Europe (which I think was part of the idea of the article), it may indeed make sense to consider where to move. Germany (and one of its startup hubs, like Berlin or Hamburg) is probably not the worst place to be for various reasons, but I've also heard good things about e.g. Estonia.
I don't have backup readily available but I think your statement about the taxes is just plain wrong. Generally I think income is taxed where it is produced and Europe has (no)double-taxation treaties with pretty much any country.
Personally I'd still avoid the extra complexity for a startup :-)
Please don't put a smile after that. Corporate tax evasion is a blight on society and people facilitating it are scum. Pay your dues, just like the people of a society have to.
It's not a company's responsibility to pay more than it owes. It's the people's responsibility to elect a government that will write rules without such gross and long standing loopholes. Or at least to elect a government that will close them after a decade or two of abuse instead of keeping them permanently.
According to that logic, if I found a software exploit that allows me to order anything for free on Amazon, I should be allowed to keep all the stuff without any consequences, because it's the resistibility of Amazon to prevent such loopholes from being used?
Imagine how nasty Amazon would be and how much money they would lose if they just blamed their users for bugs of that magnitude. That's how Europe's tax authorities are running their business.
Well in your logic all big companies are scum. There are whole industries which making a lot of bucks for tax evasion (I mean the 100% legal one) and a lot of people are working there. So they are all scum? Just saying... if you are doing everything 100% legal according to the laws of your country why not optimize it? It's unfair that small and medium fish cannot do the same as big fish ;)
Within the EU you shouldn't have to pay tax twice. There are agreements in place, worst case the tax from Estonia would be deductible. You will end up paying less than with an all-German company.
And as they get the information from Estonia, I don't think German authorities will have an issue that the company is abroad. They're used to deal with a lot of UK companies (especially when the UG didn't exist yet), it's not new topic.
If you live in Germany and pay yourself a salary from an Estonian company, then you will only pay taxes in Germany and no taxes in Estonia.
The 20% Estonian corporate tax does not apply to salaries for non-residents, but for things like dividends.
P.S. Leapin is a company that specializes in accounting for online businesses looking to establish a presence in Estonia. You can find some more info on this stuff on their website:
> good luck in describing to German tax authorities why you have founded it there and not in Germany
Why would you need to explain my business choices to any german authorities? It's none of their business. On top, Estonia is a member of the EU, not some off-shore tax-evasion island.
It was an example. If you are a German citizen you have to explain the tax authorities your business (and I'm pretty sure this is also valid for every or most other EU country)... this includes foreign companies which you own because you need to pay taxes to the country where you live (and it does not matter if your companies are abroad!!!).
Forgive me if im wrong, but as long you don't receive a salary (or money transfers in general) from the Estonian company entity, you should not be paying any personal taxes in Germany since all the money remains in the company?
Germany is different and has something called "Aussensteuergesetz". As a result you get to pay income taxes for your foreign companies, if they are located in tax havens like US or Estonia. Unless you can prove that you aren't managing them from Germany, like paying for an Office and a CEO.
German tax authorities will get information that you founded the company in Estonia... don't think that you are anonymous. When you make your yearly tax credit you have to tell somehow there that you have this company abroad. You have to tell and make evidence to German tax authorities that you don't earn a buck there. Does not matter if you transfer money to yourself or not.
Assuming the company isn't operating at a loss it is producing company income. Companies have to pay taxes on their profits too! AFAIK that income (excluding loopholes) needs to be taxed where it is generated. So if that company made 100k Euro using software you developed in Berlin, you'll pay the company taxes for 100k revenue in Germany. Not 100% sure, but that is my understanding of the situation.
Also note: You need to be quite careful, tax law is complicated in Germany. E.g. if you work for the company but you are not paying yourself a salary, but just profits, this can in itself be considered tax evasion! (since in Germany the corporate tax can be lower than your personal income tax)
But again, ask a tax lawyer or call your tax authority if you want dependable information on this.
P.S.: I don't believe bureaucracy is an issue here, you quite likely increase it by setting up a multinational.
Well, if you are NOT the company leader of the Estonian one then it's like an investment and I think you don't have to pay taxes or much less taxes. But if you ARE the company leader and decide what to do on Estonian one you are doing business with an offshore company in German eyes. It get's more complicated (not less if you live in Germany!) because you have to prove everything to German tax authorities no matter if you pay no salary to yourself... there is also some kind of law that you cannot just create a company abroad and be safe not to pay taxes in Germany (don't know the name of the law currently, sorry).
Estonia, simple forms, simple tax system (even a layman can understand it and can do their own taxes or small biz taxes). No need to visit to open a company or bank account if you have an e-resident card. E-residency cards are available to citizens of most nations.
have always wondered on the benefits of forming a company in Estonia - I'm not an expert - but wouldn't you still need to pay personal taxes in your country of residence (where you spend 6+ months in a year) in addition on what you pay in Estonia?
You pay personal taxes on your personal income (the salary the company may give you). That is completely distinct to the type of the company discussed in the link, a GmbH/UG. A company construct like that is its own legal person and it pays its own taxes (which usually works different to your 'personal taxes'). Where it has to pay them is a question for your tax accountant, I think (ignoring loopholes) a company producing income in Germany has to pay taxes on that in Germany, regardless where the company is registered. Though especially with IT it is sometimes hard to specify the 'where' :-) But trust me, the tax authorities will know :-)
What you can gain by filing your company in Estonia is less bureaucracy. The talk is that Estonia is a lot in e-government, so I suppose that means you can do a lot of filing stuff very conveniently on the Internet. Or if you employ people in Estonia, the employment laws may be less strict than in a country like Germany.
If you plan to operate out of Germany, I don't think you'll gain much by registering a company in Estonia. If you want to move to and operate in Estonia, it may be well worth a consideration.
As mentioned, in the past people filed companies in the UK to avoid the 25000 Euro investment required for a GmbH. But that's gone with the UG.
Just to clarify, as long as all the money remains in the Estonian company entity (e.g. you are not paying yourself a salary), you should not owe any personal income tax in Germany since their is no income, correct?
If you have no personal income from a company (profits or salary) you do not owe personal income taxes - wherever. No personal income, no personal income taxes. That seems kinda obvious :-)
However, the company itself very likely has to pay German company taxes and need German business permits if you operate from Germany / generate the income in Germany.
But if you have 10 Estonian developers in your Estonian company doing programming for you in Estonia and you are only the founder/investor living in Germany, you probably wouldn't have to pay anything in Germany if you don't pay out profits.
To get a dependable answer you really have to discuss that with a tax lawyer. And finding one which can deal with multinational businesses is going to be really tough and presumably expensive. Which is another reason why this whole thing is more headache than gain, IMO.
In Germany this was common before they introduced the 'UG' which is a GmbH (limited liability company) w/o the 25000 Euro investment requirement. I know a few people who did found in the UK, it works and isn't particularly hard either (and there are companies which do the paperwork for you for relatively little money).
Now you can start a UG with a 1,- Euro investment (more like 500 Euro min because it still has to cover setup fees). Which I think has made the UK thing superfluous, just complicates things even more.
I guess that's the reason a lot of companies work in the UK. I remember a lot of recruiters doing business from there because looks like it's easy to start.
Probably after brexit this will be still a competitive advantage of the UK against other markets.
The same story in Switzerland, perhaps even worse. Any company here generally requires a full-time administrator to handle the paperwork (and salaries here are huge). Or you can outsource it to the agency, but it will cost at least $10k/year, even for the smallest operations (cheaper than hiring a full-time administrator, however, agencies tend to miss things).
currently running two small swiss it companies (3 and 6 employees), and ran several more in the past. none had a "full-time administrator".
founding costs (notary, fees etc) were always around €2000 for GmbH and €5000 for AG. our yearly expense for an external accounting expert to do our end-of-year accounting and taxes is around 1k to 2k per company (i.e. 1 to 2 man-day).
sorry for the late reply. nidwalden and zurich... there was not much difference between the process in the two cantons. we had a lawyer and an accountant help us in the beginning to get the hard-to-figure-out things during incorporation right. money well spent!
If you actually look at the meat of the article you'll notice that all it takes for the setup is about an afternoon with a notary and 500 Euros. Yearly expenses are mentioned by the author somewhere in this threat, and he says 2000 Euro pa, but note that they're talking about a business that must do at least 6-figures revenue (otherwise VAT reporting wouldn't be on a monthly basis). For a minimum shell company, you can easily get by with a few hundred, and the burdens scale at below O(n), so it never becomes economical to chose a different jurisdiction for for the administrative burdens.
Although designed for investors, rather than founders, this is an interesting (English-language) primer on different corporate structures available under German business law, and the regulations that pertain to each: http://www.fr-lawfirm.de/fileadmin/user_upload/Aufsaetze/Doi...
Is there a reason to not go BVI/Nevis IBC route for a small online startup ? The no accounting/record-keeping requirement should look appealing to many, beside 0% tax :).
Some EU countries have tax laws that look through said structures, attributing earned income to the shareholders. That's one reason.
Second, if you play by the book (and a lot of people who use these entities don't), you can't control said entity directly from an EU jurisdiction. You need to fly there (or somewhere else with no corporate tax) and do board meetings there.
There are cases where it's worth it, but it almost always has to do with shaving off percentage points of corporate tax from your profits, and not with reducing administrative burden. If anything, if you want to use a company like this (or any foreign company), you need to be careful and understand what you can and cannot do under the laws of your resident country.
The internet does offer some additional opportunities, because it's not location linked and it's often hard to figure out how to tax internet generated revenue. It's easier to do tax arbitrage, but doing it right also requires a great deal of additional paperwork (+ extra overhead expenses).
You should read up on tax law -- the cost of getting it wrong can be high.
> Even if the company is not tax resident of said countries ? Mind pointing me to the laws/countries.
Yes. Broadly this falls under CFC ("Controlled foreign corporation") related laws. Taxation of the foreign entity could exist at either the corporate level (i.e. some domestic entity owns a low tax subsidiary in some tax haven), or the shareholder level (i.e. you own shares of a company in some tax haven).
> Any estimate?
Depends on the business. Some things you can't run through a low tax entity, others you can. If you sell an app on the app store, that would be relatively easy, for example. But you'd have to fly to the jurisdiction to sign the contract + probably have a local director.
The problem with these structures is not the set up cost. It's the cost of defending it in court if the tax authority of your residence country comes after you. And they do.
If you can't afford to defend yourself, you might as well not set it up.
Things have changed a lot in the last year with FATCA and other tax laws. Regardless of where the company is incorporated you will be taxed on where you do business (so if you live in Europe then your local tax office with ignore the fact the company is incorporated in an off shore tax haven and tax you as if it was local.
The next problem is getting a bank account, if you get a bank account in the offshore tax haven, it is hard for people to go business with you (paypal, payment processors). You could try and get a merchant account with your tax haven bank but this can be complicated and payments you put through may be rejected by the customers bank.
Thus you can try and get a bank in a better jurisdiction , however still paypal / payment processors won't touch you as want to know why your business / bank and you are all in different countries.
There are ways around this, but you need serious money to make it worthwhile.
As well, if you are from the US, things get even more complicated due to the IRS taxing US citizens in any way they can find out how to :)
Germany is probably bad option within EU. I would recommend Bulgaria: flat tax rate 10% on corporate income and capital gains. Considerably cheaper office and accounting cost.
Note that registering a company in another country doesn't necessarily stop your local government from taxing it. Especially if the owners and employees stay in your country.
No, and dealing with the government is quite an adventure, even for natives (as I am). I certainly do not recommend, unless you have a Bulgarian native co-founder or/and lots of money to spend on good accountants/representatives.
Anyway, I don't understand what I do wrong, if:
1. I have a job in Germany and live in Germany
2. I have opened a company in Estonia (owner)
3. I do consultancy through USA services (like Upwork) for USA or UK clients and money is earned by a company in Estonia
4. How an estonian's company income (not a income of a person) be taxed by germany?
5. If i want to get money from company - it will be dividents with taxation in Estonia and rest in Germany
1. doesn't matter. It sounds like this is your day job unrelated to the hypothetical company.
2. this is OK, you can do that.
3. this is where it becomes a little more difficult. since you are presumably working from Germany, the value is created in Germany and therefore is going to be taxed there. sounds like the obvious (and fair) thing to do to me.
4. income is taxed where it is created, not where you originate from. Consider it like this: If I'm a German and live more than 6 months in the US, my primary taxation point is the US. My origin doesn't matter, it is where I live (and in essence whose state services (what taxes pay for) I use). The same goes for companies. If the company is registered in Estonia, fine, you can do that. But if the company is actually _operating_ in Germany, well, you have to pay taxes over there _just for the business you do over there, NOT for business you do from Estonia_.
5. yes, this is personal income. You'll pay taxes in Estonia which you can match up to your taxes in Germany. In no circumstance you pay twice. Again sounds very correct to me.
To be honest I'm not entirely sure this is the actual situation, but nothing about it seems wrong :-)
Don't worry, your government representative has some good ideas to improve the startup landscape and internet companies! You'll get a 40% corporate tax deduction for the first 4 years if you crowdfund.
There are, of course, specific conditions and regulatory work for the crowdfunding agency which mean no existing one (that anyone here has ever heard of) meets the bar and will essentially require a local operation to be set up. One of the biggest local banks (who probably pushed for the legislation?) meets the bar, though.
What do you mean, your potential backers want to use existing platforms they know? I'm sorry but can you ask those Kickstarter guys to file paperwork in our country (which they have never heard of either)?
If that's not an option, there' also the possibility to issue bonds. Bondholders won't have to pay the 30% tax on the bond's dividend if you start paying them out.
Lastly, it should be noted that all of the above benefits are forfeit if the crowdfunding campaign sends any backers' rewards.
I wish I'd make this up, but it was signed into law 3 days ago.
And there's the BAFA INVEST program (http://www.invest-wagniskapital.de, German language only) that refunds/grants 20% to any EU-based angel investor who invests in German startups. It's actually a really great and pretty unbureaucratic program.
I really love this quote: "only available in German, but don’t worry most Germans don’t understand it either, because it contains a million juristic and fiscal terms".
Germany is one of the worst options in Europe to incorporate, except you reside in Germany.
My top 10 list of why not to incorporate in Germany:
1. Yearly accountant costs of a limited (UG/GmbH) is around €2,000; you need this accountant, he is kind of an API to the German tax system which is super complicated and even native Germans wouldn't be able to handle its requirements or to file in all the paperwork themselves; AND it's not so easy to find good accountants/tax consultants, once you found one you are locked-in and they happily charge you for every extra things; the pricing is regulated but still they find ways to get all your money
2. 'Protection money', you have to pay to IHK which should help business owners (but they nothing) and to ARD/ZDF which are Germany's public TV stations; the costs depend on your headcount and are not that high but once ARD/ZDF have your name they never ever again let you out, so it's impossible to cancel this 'subscription' and you might pay additional fees for you 'personal self'; it's a mafia which creates additional mental clutter and mail
1. + 2. Just the operating costs of a limited which doesn't make any money is €2,500 to €3,000
3. Germany has probably the most friendly labor law; at the end of the day employees have in Germany super powers; e.g. if you have more the ten headcount it's impossible to lay off people (there are many, many more, I could give you 20 more examples); 30% of your time is spend on how to work around German labor law with German lawyers at €300/h
4. They try to get everybody to pay into their social system, once you are under 49% shares you must join them leaving most of your personal salary to the state; the only benefits is an ok health system and an ok unemployement insurance
4.a) Having freelancers is risky because the state always suspect you to circumvent their social system; one mistake and the freelancer can blackmail you
5. Super strong consumer protection but which is applicable to all European countries; consumers get it all (money-back guarantee, ...)
6. Setup of the limited is unnecessary slow and bureaucratic, takes 6 to 8 weeks and all the momentum out of the founding team
7. You need at least €12,500 share captial for the GmbH, forget about the UG, doesn't have any reputation and to migrate to a GmbH later is a PITA
8. Taxes are cluttered, you have VAT, corporate tax and 'Gewerbesteuer'
9. German labor is ok but not as good as e.g. US labor; non-tech labor is in general too expensive and education is limited, especially English skills are not on par with other Northern European countries, still better than southern European countries; tech labor is good but expensive compared to rest of Europe, but cheap again compared to the US; still it's very hard to find affordable native German devs so people look for foreign tech talent which are good and easy to attract in bigger cities (Berlin)
10. Political situation is ok and stable compared to US and UK but could tip with elections in summer, right wing is strong but not as strong as in other countries
Some more:
11. Shutting down your limited takes one year
12. Insolvency is covered in its own law and is super complicated, don't apply to early, don't apply to late
13. In general all German laws are very cryptic written and even for native German hard to understand without experts; even simple tax stuff is hard to grok and other countries have much more accessible laws (just look at gov.uk as an example); calling your tax guy helps here and there but costs money; researching stuff yourself takes days
14. You have to save documents and even mail which led to business for 10 (!!!) years; after few years you need to rent a space just for all the folders
Who knows about better options in Europe? Happy to hear alternatives, also from a relocation perspective, so which country is founder-friendly AND nice to live?
You need to differentiate between where your company has its "real seat" (= place of business activity) and your "legal seat" (=incorporated as GmbH or LLC or ...). If your office building is in Berlin and you employ a local team (your "real seat"), it does not matter if your company is a GmbH, a UK Limited or an Estonian e-company - you are still under German tax, employment, insolvency, consumer protection law...
If you have your "real seat" in Germany, in my view, it makes sense to go for GmbH, instead of registering in UK/Estonia, because the corporate law differences are not that big.
The question if you should decide to build a company in Germany is another discussion.
Forgive me if im wrong, but as long you don't receive a salary (or money transfers in general) from the Estonian company entity, you should not be paying any personal taxes in Germany since all the money remains in the company?
This is absolutely right, you don't have to pay personal taxes in Germany if the money remains in the company (it may be a little more difficult, but in essence this is correct).
The company however would have to pay company taxes in Germany.
Agree with some, disagree with some but this one surprised me:
> and to migrate to a GmbH later is a PITA
I've never done it myself but what I know it should just be a short trip to the notary, they take care of the rest. Did you have a different experience?
It's def. not a non-issue. As you write yourself there some requirements to get there and in general you should do a migration to the GmbH after the end/before the beginning of a business year and not in-between. Just this restriction is a big bummer and paired with the other requirements creates some headache. So, you can't go to the notary and just opt to the GmbH, no you have to consult your tax consultant, find the right time, probably wait some months and prepare the switch properly.
> others seem just wrong.
Are you so kind and tell us which you think are wrong?
The text is pretty good and covers some basic rules (such as having an imprint), but it makes the process look much harder than it actually is. I did some as a noob and found setting up an (IT) GmbH and UG in Germany very easy. All the involved people, from the bank to the notary to the tax consultants are usually very helpful and supportive. E.g. setting up the bank account requires a certain flow (because a GmbH is its own legal person), but the notary and the bank will tell you the exact steps (it is like 3 or 4, having the bank and the notary close by makes it easier as you can just walk between the two and get it done on a day :-). The notary will notify all the local authorities that you got founded, you don't need to do anything on your own here.
Though I suppose it is much harder if you don't speak German, or have a friend which does.
I recommend finding a good tax consultant first. Unlike stated in the text they actually are cheap as long as your company doesn't make a lot of money (the fees are usually bound to the earnings). You pay ~70 euros a month, plus ~1000 for the year-end stuff, and they do everything required for you, all the filings, talk to the tax authorities when required, etc. Since they see you as a potential future business (when you make actual money), they will usually help you with all the other things (notary, bank). Some are even registered 'startup helpers'.
Note that you don't have to have a GmbH, you can also just register a 'Gewerbe' (a business) under your own person. That is even easier and much cheaper, but you have full personal liability.
Important: This is specifically for IT companies, which are easy. If you setup other companies, like in the building sector (but almost any other field is affected by this, even a hair cutter!), it can be way harder and usually requires an approved education (you need to be a 'meister' in your field).
The text suggests that you should delay founding the company as long as possible. Be careful with that. If you say produced a significant amount of software before, you technically have to 'sell' that to the company for the fair value (and pay taxes on that etc). It can make things easier if everything is 'owned' by the company from the start. If you talk to investors or want to sell the company, they will want to know about such stuff.
Summary: IMO it is very easy to setup a GmbH/UG - at least if you speak German or have a friend who can translate. Yes, it does cost some money to start and operate (I'd say, calculate ~2500/y), but you'll get limited liability.
P.S.: This again makes the process kinda harder than easier, but most German states actively support startups. There is sponsored consulting for setting up business plans (usually as part of a competition), if you plan to employ people you can get that co-financed, most states even have state-VC's! There are many programs and a lot of public money is put into supporting startups in Germany, but well, you have to deal with authorities :-)
- I don't recommend starting an UG with less than 2k capital. If you do the minimum (1 euro), you won't have anything to pay your startup bills and it costs extra money (and a trip to the notary) to change your company's investment capital.
- While a GmbH requires 25k capital, only half has to be paid into the company. The rest is marked as a liability on the shareholders.
- A GmbH is generally looked upon as "more serious" than an UG. Some companies won't interact with you if you're an UG, but this is changing over time.
- For what it's worth, I used to hate the bureaucracy, and it can be streamlined further but over the years (and multiple attempts) I've come appreciate how it reduces the risk that you are dealing with shady companies.
- Thanks for the tip about Fidor bank! Setting up a company bank account is a pain in the ass in Germany.