Set Up Business in Germany

Germany Expansion Guide

Global Upside helps companies set up, hire, and operate in Germany. Set up a legal entity quickly and easily with our solutions for branch, subsidiary, and rep office. Looking for an alternative to permanent establishment? Hire and pay employees in Germany without a legal entity by using our PEO & employer of record services. Once your business is set up, our teams can support with recruitment and staffing, human resources, employee benefits, payroll, accounting, and tax.

Capital City



Euro (EUR)


German (Deutsch)


Federal Parliamentary Republic

Country Overview

Germany has the largest economy as well as the largest population in Europe. The capital city, Berlin, is also its biggest city. After World War II, Germany faced an economic crisis but is now the global center of industrial and technological innovation.

Options for setting up a legal entity in Germany include:


At least two people or two legal entities are required to establish partnership businesses. There are four significant forms of partnership structures in Germany:  

GmbH & Co. KG, oHG (Offene Handelsgesellschaft), GbR (Gesellschaft bürgerlichen Rechts), KG (Kommanditgesellschaft)

  • No minimum share capital required
  • One partner is personally liable (unrestricted)


A corporation is a legal entity setup that can be established between one to five people, require some startup capital, and safeguard your personal assets from business debts. In Germany, there are four primary forms of corporate structures: 

GmbH (Gesellschaft mit beschränkter Haftung) – Limited Liability Company

  • Number of partner(s) – 1 or more
  • Minimum share capital is €25,000
  • Liability is restricted to only the share capital
  • One of the most recognized forms of setup
  • Individual establishment is also possible due to minimal compulsory provisions

UG (Unternehmergesellschaft haftungsbeschränkt) – Limited Liability Entrepreneurial Establishment

  • Number of partner(s) – 1 or more
  • Minimum share capital is €1
  • Liability is restricted to only the share capital
  • Strict prerequisites to collect annual revenue

AG (Aktiengesellschaft) – Stock Corporation

  • Number of partner(s) – 1 or more
  • Minimum share capital is €50,000
  • More number of shareholders involved
  • Stocks are convertible and can be traded

KGaA (Kommanditgesellschaft auf Aktien) – Partnership Limited by Stake

  • Number of partners – 2 or more – one as a general partner and one as a limited partner
  • Minimum share capital is €50,000
  • General partner is accountable without limitation
  • Limited partner is liable which is limited to only his share

A written contract is the most common type of contract in Germany. However, written agreements are not mandatory for employment for an indefinite period. Nevertheless, employers should provide contracts in Germany. 

Some of the details typically mentioned in the written contract include: 

  • Work classification and a brief job description 
  • Salary, bonuses, and any other extra payments 
  • Work hours, annual leave, and termination notice periods 
  • Reference to collective bargaining and other agreements 
  • and more 

The different types of employment relationships are:

  • Permanent EmploymentUnless specified in the employment contract, employment in Germany is deemed indefinite. 
  • Fixed-Term ContractsPer German law, fixed-term contracts should not exceed two years and four years for new businesses. Employers can renew fixed-term agreements up to 4 times (including the first contract), provided the total period does not exceed two years.
  • Temporary Employment – Temporary employees in Germany can be hired through an agency for a maximum of 18 months, according to the amended Temporary Employment Act.  

Probationary Period 

In Germany, a probationary period typically lasts up to 6 months, and either party may terminate the relationship with two weeks’ notice. 

Work/Time Regulations 

The Hours of Work Act states that work hours may extend up to a maximum of 10 hours per day if an employee does not exceed an average of 8 hours per working day over six calendar months.


Employees in Germany are entitled to the following leaves: 

  • Annual leave – Per the Federal Holiday Act (Bundesurlaubsgesetz), employees who work six days a week are allowed at least 24 working days of leave. The paid vacation period varies with age for young workers. 
  • Maternity leave Per the Federal Parents Education and Parent Allowance Act, employees are allowed up to 3 years of parental leave for their natural or adopted child and care for a newborn until they become three years of age. Both parents can claim this at the same time or separately. 
  • Sick leave – The Sick Pay Act (Entgeltfortzahlungsgesetz) governs sick pay leave, and employees get paid sick leave of 6 weeks for each illness that causes them to be unable to work.
  • Parental leavePer the Federal Parents Education and Parent Allowance Act, employees are allowed up to 3 years of parental leave for their natural or adopted child and care for a newborn until they become three years of age. Both parents can claim this at the same time or separately.
  • Family-related leave – Per the amended Family Nursing Care Statute, taking part­-time family nursing care leave does not necessitate the employer’s approval.

Public Holidays 

The following are the statutory national holidays observed in Germany: 

  • January 1 – New Year’s Day 
  • April 2 – Good Friday 
  • April 5 – Easter Monday 
  • May 1 – May Day 
  • May 13 – Ascension Day 
  • May 24 – Whit Monday 
  • October 3 – Day of German Unity 
  • December 25 – Christmas Day 
  • December 26 – Boxing Day 


The Social Security Code VI (SGB VI) has the primary regulations for statutory pensions. In addition, the Company Pension Act (BetrAVG) is the principal applicable law for occupational pension schemes. 

Social insurance, often known as social welfare, is a government-mandated insurance program that provides financial help to the elderly, disabled, injured, and unemployed. 

Some examples of social insurance programs are: 

  • Dependents’/Survivors Benefit – The pension amount is a proportion of the deceased spouse/partner’s full statutory pension and is determined by the surviving spouse’s income. Dependent children are entitled to an orphan’s pension until 18 years and can be extended until 27 if they are still studying. 
  • Life and Disability Insurance/Benefit – Victims of work-related accidents or illnesses are entitled to occupational accident insurance injury compensation until they can work and receive payment. 
  • Unemployment InsuranceAn employee is entitled to receive unemployment benefits if a job was held for a minimum of 12 months in the previous three years before the unemployment.


The German Civil Code governs the termination of an employment contract, which states that an employee may terminate the employment relationship with a 4-week statutory notice effective on the 15th or the end of a calendar month. If the employer wants to conclude the employment contract, the notice period varies per the length of the employment connection.

Visa/ Work Permits 

Germany is part of the Schengen Borders Agreement, together with 25 other European countries. 

There are typically two categories of visas: 

  • Short-term stays (Schengen visa)Short-term visas are for stays of up to 90 days, and people are not permitted to work. Generally, these visas are not extendable. Individuals will often require a visa that is valid throughout the Schengen area. 
  • Long-term stays – Long-term visas are for individuals who plan to stay for more than 90 days or plan to work. 

Citizens of the European Union, Japan, the Republic of Korea, Canada, the United States of America, Switzerland, Israel, New Zealand, and Australia can apply for a work permit after entering Germany without a visa. Citizens of other countries must apply for and get a work permit from their home country before entering the country. 

For Non-EU Nationals, there are three types of work-related residence permits: 

  • Specialist professional 
  • General employment 
  • Self-employed

Employment agreements primarily determine payment schedules. If there is no agreement on the payment schedule, the wage payment intervals for manual workers cannot exceed one month. For other employees, it cannot exceed 15 days.

Accounting standards must adhere to German commercial Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). It is necessary to prepare annual financial reports. Taxpayers must retain their books in Germany, though electronic bookkeeping is transferred abroad with the tax authorities’ prior authorization.

Corporate Tax 

The standard corporate tax rate is 15%. 

Value Added Tax (VAT) 

The standard VAT rate in Germany is 19%. It applies to most goods and services. 

There is also a reduced rate of 7% for some goods and services. 

Filing Dates  

Typically, the tax return must be filed electronically by July 31, following the tax year. 

For a non-resident entity (NRE), also called a payroll registration, the employer cannot legally withhold tax, and the employee has to file themselves.


Penalties for late filing (up to 0.25% of the tax due, at a minimum of EUR 25 and a maximum of EUR 25,000 for each commenced month of delay) and late payment of assessed taxes (1% on the outstanding rounded-down tax amount per month or part thereof). 

The Federal Data Protection Act (Bundesdatenschutzgesetz) and the General Data Protection Regulation (GDPR) regulate the collection and use of personal data.

Anti-Bribery & Anti-Corruption Law

The German Criminal Code, Sections 331-338, regulates the bribery of public officials (Vorteilsannahme, Bestechlichkeit, Vorteilsgewährung, and Bestechung). Penalties (for individuals and legal entities) include imprisonment up to 3 years, a monetary fine, criminal penalties imposed on the company and officials, and confiscation of the received benefits.