I’ve been running OpenRegulatory for ~5 years now. It’s profitable, there are five people working here, and I bootstrapped all of it, so I still own 100% of the company, with zero investors. Cool, great, well done dude, blablabla..
Anyway, in the meantime, a few people approached me on how to found a company in Germany after I wrote this slightly-sarcastic step-by-step guide, and another post on founding a company in Estonia (I didn’t do it).
So as there are quite a few things I learned along the way (in Germany, not Estonia), I thought I’d collect all of them here and share them with you.
I’m quite sure these hacks will save you a gigantic amount of time. If I had known them before, I probably would have saved at least ~1k€ / month in bookkeeping costs, lots of hours and countless nerves. But let’s not get ahead of ourselves and get started!
Considerations Before You Get Started
Quick note: All of my hacks below refer to founding a limited-liability company, i.e. a “UG” or “GmbH”, which is the most popular company choice in Germany.
- You’ll need a tax advisor and a bookkeeper, there’s no way around that.
- Running a German company (UG / GmbH) costs at least ~3k€ / year.
Most of that cost is for the yearly tax filing (“Jahresabschluss”), done by your tax advisor. If your company has more “transactions” per month (e.g. salaries, invoices, etc.), the monthly bookkeeping costs go up – add another 100-400€ / month. - Founding a UG / GmbH costs around 1k€.
Additional, you need to pay in the share capital which will be the initial cash the company operates with. For a UG, this can be any sum between 1€ and 25k€, and for a GmbH it needs to be at least 25k€. If you’re going for the UG, I recommend at least 4k€ or as otherwise your company will be bankrupt quite soon (not a good outcome). - The process takes around 2-4 weeks.
Double that if you found a holding company (see below). - A GmbH is seen as more trustworthy than a UG, but it mostly doesn’t matter.
If you’re building an online business, this doesn’t matter. It only matters if you’re trying to sell something to old-school German companies. - The tax rate of a UG / GmbH is ~30% on profits per year.
Comparing this internationally, this is a rather high tax rate. There are certainly more business-friendly countries out there: Singapore only charges 17% on profits with some generous exemptions for startups, Estonia only taxes companies when they pay out money to their shareholders (= dividends) at currently 20% (will be 22% starting 2025). But founding in another country is likely out of the question for you (see further below). - Taking profits out of the company (= dividends) is taxed at another ~25%.
So, if your company is profitable, those profits are taxed at ~30% at the end of the year. But the money stays in the company. If you now want to take that money out as a dividend (= transfer it to your personal account), it’s taxed at another 25% which is the (flat) capital gains tax rate in Germany. - A huge tax optimisation is to found a holding company which owns the “actual” company.
To improve upon the above tax situation, you can found a holding company which owns your actual company (the holding is typically a UG – no need for 25k€ share capital). Profits from your actual company (after the 30% tax) can be paid into your holding company tax-free (!) and e.g. invested in ETFs there. You could also invest into other companies, purchase property and other fancy “tax optimisations”. Or you could move the money to your personal account for, again, 25% capital gains tax.
Another huge benefit of the holding company is selling your actual company: In simplified terms, if you sell it, your holding company pays close to zero taxes on the revenue you get from selling it (crazy). So now your holding company can use that tax-free money to e.g. invest in other companies, ETFs, or incorporate your next venture. Contrast this with not having a holding company and owning the actual company yourself: You pay your personal tax rate on the profits of selling it, i.e. up to 42%. - If you found a holding company, you pay all costs above twice.
Because you’re founding two companies.. duh. Including the running costs. Your holding company will likely be cheaper due to low transactions, i.e. only the 3k€ / year for the annual filing. Your actual company will have monthly bookkeeping costs on top of that. - If you want to do the holding-company-setup, you have to found the holding company first.
This will effectively double the time you need to get set up, because it has to happen sequentially: 1) Found the holding company, open its bank account, wait for everything to be done etc., 2) found the actual company.
You can, in theory, found your actual company first and move the shares to a future holding company later, but this is probably hell and not optimal. It’s called “qualifizierter Anteilstausch” and the main drawback is that if you sell your actual company within the next 7 years, you pay a progressive tax rate as if it hadn’t belonged to the holding company.
TLDR: Found your holding company first. - Winding down a company (UG / GmbH) is said to be very painful.
You wind a company down if you no longer want it to operate, e.g. you no longer need it. I haven’t gone through this myself, but some of my friends have and they say it’s a super annoying and bureaucratic process which takes 1-3 years (yes, seriously). Then again, this is second-hand information. - Consider a sole proprietorship (Einzelunternehmen) as an alternative.
Setting this up is essentially free and the monthly costs are lower, too. In theory you could do your own bookkeeping and taxes, but hiring a tax advisor is probably a better idea. Its main benefit is its simplicity. Potential drawbacks: Profits are taxed at your personal tax rate – so if profits are low and you’re not earning any other money (by being employed at your day job etc.), the effective tax rate will be low, possibly lower than the 30% of a UG / GmbH. If your profits however surpass ~60k€, your effective tax rate starts surpassing 30%. You are personally liable, so if your company gets sued, you are liable with your personal wealth. This is rare in Germany though and the fears are often overblown.
TLDR: A sole proprietorship makes sense if 1) you’re just starting out and are not making revenue, 2) it’s only you, 3) you’re not hiring people soon and 4) you’re operating in an industry in which people don’t sue each other all the time. These factors are true in many cases. So consider it. - Want to incorporate in another country (US / Singapore / Estonia)? Don’t do it.
Many countries on this planet are more friendly towards businesses: Better digitalization, less bureaucracy and lower tax rates. Why not incorporate there? The #1 problem is that of a so-called “permanent establishment”. In simplified terms, you get taxed to where your company operates. If you are the sole owner and employee of your company, the German tax authorities will assume your company operates in Germany, regardless of where it’s incorporated, and your company gets taxed in Germany. So now you’re really screwed, because your company has to do two tax filings: One in the country of incorporation, and another in Germany.
So the TLDR is: Incorporate in the country in which you live. If you live in Germany, incorporate in Germany. If you live nowhere (digital nomad), incorporate in whichever country you want which allows digital nomads to incorporate (typically Singapore / Estonia).
One exemption to this: If you do live somewhere (e.g. Germany), you might consider founding in another country if you can create “substance” there by e.g. having a physical office, employees, a managing director, etc. That might avoid getting taxed in Germany. It’s a grey area though. More about that in my post on Estonia. - Incorporate not at your home address, but e.g. at a coworking space.
There were some tax considerations regarding office expenses here, but I forgot what they were exactly. Anyway, TLDR your company address shouldn’t be your home address. If you’re already at a coworking space, they often offer some add-on services for company registration mailboxes. There also are dedicated “mailbox” providers for this. Also use a mail scanning service (see further below).
Man, that already was a lot of stuff and I had to condense it a lot. If you’d like to me to expand on anything, leave a comment below.
Okay. Are you still with me? Next up, the hacks when actually founding a company.
Founding The Company
Incorporating
- Incorporation will take a few weeks.
Just so you know. And during this period, you’ll also open your business bank account (see hacks below). - You need to find a Notary Public to incorporate your company.
Search on Google Maps for “Notar” and select one who has non-terrible ratings. Phone calls tend to work better than emails. They’ll likely send you a crappy PDF questionnaire to fill out beforehand so that they can prepare the paperwork. They’ll give you an appointment, you’ll show up in person (with your ID / passport), they’ll read your incorporation documents to you and you’ll sign. Then, they do all the electronic registrations and send you the copies as PDFs later. Ah yes, and they send you an invoice afterwards for these “services”. - Use the “Musterprotokoll” as articles of association.
Your company needs some sort of articles of association which e.g. state which person owns which percentage of the company. There’s an official template called “Musterprotokoll” which you can use. This is great because you don’t have to pay a lawyer to draft it for you. Use it if your company is only owned by you or maybe up to three people or so. If you’re more people and/or have investors, you’ll probably have to do the lawyer-drafts-it thing though. - Beware of “Handelsregister Spam”.
So there’s this thing that your notary public registers your company in the official director for companies (this is normal). But now, shady companies scrape that directory and send you invoices which look like invoices from said official directory (this is not normal). Don’t pay them. Google “Handelsregister Spam” to learn more about it and look at some examples. If you think “yeah right, only non-techy people fall for this”, think again, because the letter spam is usually really well-done. Beware. It also gets more complicated because the official directory actually does send you one invoice you need to pay.
Business Bank Account
- You can have multiple business bank accounts.
I somehow only realized this after a while. This becomes more important further below. - For your first account, optimize for speed – choose a startup bank / fintech.
The most important thing for a business bank account during incorporation is how fast they can give you an account, because otherwise your incorporation process is blocked (crazy). This makes a huge difference because fintechs usually give you a bank account in ~1 day, whereas old-school dinosaur banks easily take multiple weeks. I hope I’m correct in assuming that you’re not interested in waiting an additional 1-4 weeks. So go with a fintech first! - Not all fintechs support German companies during incorporation.
I learned this the hard way and lost a few days. E.g. Wise only supports companies after they’re incorporated, so they’re not an option during your incorporation process. I’ve seen many startups choose Qonto, they seem to work reasonably well, but I don’t have first-hand experience there (I used on of the companies they acquired though, Penta, and they were alright). Then again.. the most important thing for your first bank account is how fast they give you an account so that your incorporation can move forward. - After incorporation, consider moving to an old-school bank.
I’d never thought I’d write this, as I usually prefer working with startups and have some negative preconceptions about old companies. However, at OpenRegulatory, while we were using Wise as our main account, it randomly got frozen and we almost missed payroll (and other catastrophic things). Wise customer support took weeks to reply to our requests and it was a mess. Since then, we’ve moved our main account to Deutsche Bank – sure, the software is less fancy, but we have a personal (human!) customer rep who usually responds within one day (he’s also a nice dude). For a new company, Commerzbank might also be an option, I didn’t try them yet but their terms and pricing looked interesting. Another benefit of old-school banks is that you might be able to get loans from them once your business has been running successfully for a few years and you’re considering expanding. We still have our Wise account, but we use it rarely nowadays.
Running The Company
Tax Advisor & Bookkeeping
- Find a pragmatic tax advisor who likes startups (references!).
This is surprisingly hard and I learned this the hard way and probably lost a couple thousand Euros in too-high costs, endless hours and a lot of nerves, too. A non-pragmatic tax advisor will make your life a living hell, because they’ll come up with all sorts of crazy requests. My favorite one is when I had to go through all our restaurant receipts of one year (when we had lunch as a team) and had to associate each meal with the person who ate it. Imagine that. Crazy.
I still haven’t figured out how to search for a new tax advisor in an objective way. I tried using Google Maps reviews, but that wasn’t super helpful. Neither was their website content (blog posts etc.). What worked in the end was asking for references from startup friends. So ask around, especially those startups which in your opinion “have their act together” (smart founder who doesn’t talk too much, small team, profitable, etc.). - Stay in control of your bookkeeping – consider BuchhaltungsButler.
I’ve had two bookkeeping setups in the past: At first, we’d only submit invoice PDFs to our tax advisor, they’d do some mysterious things and send us mostly-crazy invoices of ~1k€ / month. Later, with the new tax advisors, they’d instruct us on how to prepare the bookkeeping ourselves with a startup-like software called BuchhaltungsButler. No more crazy invoices, because we were doing stuff ourselves. This cost us more time, but we regained control. And later, we hired a freelance bookkeeper ourselves who took over, and she charges ~200€ / month, a huge improvement over 1k€ / month. The moral of the story here is: If you’re in control of your bookkeeping, you can select who you work with, and this allows you to select great (and pragmatic!) people. BuchhaltungsButler also has a list of tax advisors which use their software, maybe that’s another good starting point for finding a pragmatic tax advisor.
Payment Integrations
- Instead of Stripe, use Paddle or Lemon Squeezy.
That’s because taxes are a massive headache otherwise. Quick example: If you sell something (e.g. software) to someone else in another EU country, you have to gather data on whether 1) it’s a person or a business, 2) which country they’re in and 3) their EU VAT ID. At the end of the month, you have to tally taxes per country and submit this with your monthly bookkeeping. Similar stuff for sales tax in each US state (crazy). India with their GST tax is also terrible, no clue how to do that, and Australia might be similar. These problems are not solved by only using Stripe, because it’s only a payment provider. Stripe Tax might help a bit, but it only helps you in calculating the correct rate and determining the customer country. You still need to do the paperwork yourself. Hell.
Paddle and Lemon Squeezy solve this much better: They become a “merchant of record”, i.e. it’s their company name on the invoice towards the customer and not yours. They do all tax calculations and compliance, and you only get one (hopefully huge) payout and invoice at the end of the month. It’s a gigantic simplification.
We use Paddle at OpenRegulatory and are happy. Lemon Squeezy might be an alternative – then again, I’ve heard more bad things on reddit about them, and they’ve recently been acquired by Stripe, so I’m not really sure how they might change in the future. Paddle is probably the safer bet.
There are limitations though: In simplified terms, you can only sell software, webhosting, ebooks and “digital goods” through them. You have to apply for prior approval for each of your websites. Paddle rejects job board products, and both seem to often reject generative AI – based products which e.g. generate photos of people.
So at OpenRegulatory, we sell our software through Paddle (cool), but we sell our consulting services ourselves. This is doable because we only send out 5-20 consulting invoices per month, so the tax and filing stuff is manageable.
Investing & Financing
- Get a business brokerage account for your holding company.
If you did the two-company-holding-company-thing outlined at the top, you’ll want to invest the money you have in your holding company (into something like a MSCI World ETF or so). For that, you need a business brokerage account. Surprisingly, there aren’t many great choices here. I chose Deutsche Bank maxblue which, even more surprisingly, is free. Few people know about it. You can’t open it online though, you’ll have to make an appointment and open it in person. Still, my experience there has been really positive – that was what prompted us to move our main account there from Wise later on (no, this post is not sponsored by Deutsche Bank). - You can always move money around as loans.
With a company, you can’t trivially move money in and out of the company as you please (this is a huge drawback in contrast to the sole proprietorship, where you can just move money around anytime as it’s intermingled with your personal money, tax-wise). However, one simple hack here is doing a loan: Want to move money into your company? No problem, you as an individual give it a loan. Set up a contract (with yourself), sign it, and transfer the money. Want to move money out of your company? Same thing. The most important point here is that you set up a contract and that you use market-equivalent terms, i.e. the interest rate should be whatever interest a bank might charge you for a similar loan. - You can pay out dividends not only at your end-of-year filing, but any time.
Let’s say your company had profits of 100k€ at the end of the year. As we know, at 30% corporate profit tax rate, you now pay 30k€ taxes and are left with 70k€ which you can pay out as dividends to your holding company (if you did that setup) or yourself (if you didn’t). And let’s say you, at this stage, decided to not pay out any dividends. A few months later, you regret this decision because you wanted to pay out money.
This is not a problem. Your tax advisor can create some filings in which you later pay out a dividend of your past profits. Then you pay it out a few weeks later. All good.
Purchasing & Tax Optimisations
- Look at what you can purchase through your company.
The more expenses you move into your company, the better, because this means your profits go down and you pay less taxes. Consider all things which are work-related which you used to pay yourself before: Computer, smartphone, mobile network contract, monitor, desk, etc. And yes, even your car! Germany has some pretty crazy tax advantages when you purchase a car through your company.
This applies to your employees, too: If they want a raise, sure, you could increase their salary, but that increase might already be taxed at the marginal tax rate of ~42%. Instead, you could offer them e.g. a company smartphone or laptop which, in simplified terms, is not taxed at all. - Purchasing Apple hardware? Registering as a small business sucks.
Apple has a small business program for Germany companies on their website. They hint on providing discounts and other stuff, but in practice, that never happened for us. The experience mostly sucked: You can purchase online, but it’s often buggy. Then, you have to purchase through their sales team via phone, and I often got stuck in the process due to weird bugs in their software (e.g. they couldn’t find our old purchases). You later get the email of the sales rep, but it happened twice already that that person then left Apple and I had to purchase via phone again, to get the email of a new sales rep. Ugh. Purchase online if you can, and just assume you won’t get discounts. Also check Amazon for better prices on business products.
Bookkeeping & Admin
- You need to gather invoices for pretty much everything: Hardware, software, meals (yep), etc. And then you have to save those to your bookkeeping software (e.g. BuchhaltungsButler).
- Gmail rules are a huge automation, but some SaaS providers don’t send PDF invoices, which sucks. Use automations and a Virtual Assistant.
So the usual automation for bookkeeping is this: A provider sends you a monthly PDF invoice via email. You set up a Gmail filter to automatically forward this email to your BuchhaltungsButler email address (they give you one) and it gets saved there. Cool.
However, some services don’t send PDFs (e.g. ConvertKit). So you have to manually log in every month, download / “print” the invoice in your browser, and upload it in your bookkeeping. There are various ways to automate this. There are services like GetMyInvoices and Invoicefetcher, but they both suck equally because you have to save your login credentials there (!) and then they just spin up headless browsers (?!) to download your invoices. So you need to create separate user accounts etc. An alternative would be to hire a Virtual Assistant (that’s a freelance human) on site like Upwork. We use a combination of the two. - Use a physical mail scanning service (yes, seriously).
In Germany, your company will still get some snail mail, mostly from tax authorities and the public pension fund when they decide to audit your payroll bookkeeping (crazy, as they technically already have all the data). Also some spam (great). If you’ve incorporated at a coworking space or mailbox provider, well, then you have to physically walk there every few weeks and pick up your mail (and scan it, if you want to archive it like I do). This sucks terribly.
Even though this problem technically shouldn’t exist in the age of email, there are “solutions” to this: Physical mail scanning services. So you forward your snail mail to them and they scan them as PDFs. We’re using Dropscan and it is really cool (also not expensive at ~20€ / month). In addition to those costs, you have to set up a mail forwarding request (Nachsendeauftrag) so that your mail gets redirected there from your “old” company address. Note that, in Berlin, you have to set up the Nachsendeauftrag with Deutsche Post and PIN, because those are the two companies delivering most of the mail. Cost is ~120€ / year (yep).
Employees
- The employee pension plans (Betrieblicher Altersvorsorge) mostly suck.
Germany has tax advantages for setting up pension plans for your employees. While they mostly sound great on paper, most of them include crazy high fees. The short summary is that it’s almost always more worthwhile to simply pay higher salaries and let your employees invest that money in ETFs. That way they can access it before their retirement age, too. There might be some better providers with lower fees around, but I haven’t looked into those yet. - Hiring people outside Germany? Use an employer of record.
The problem is that you have to register and pay social security contributions and insurances for each employee in their respective country. In Germany, this is simple, because you have all the infrastructure in place already (bookkeeper, tax advisor, company registration, etc.). For other countries, that’s not the case, so if you want to hire someone who lives in Spain or India, things get tricky. Researching this can send you down a super long rabbit hole. Here’s my summary instead. You have three options: 1) Incorporate another company in the country of your employee and register for all the stuff. Huge pain and unlikely you’d want to do this. Only do this if you have lots of employees in that country. 2) Your employee becomes a freelancer and sends you freelance invoices each month. This hugely depends on the legislation in their country whether it’s allowed as they’re technically an employee, not a freelancer. Possible in some countries. 3) Use an “employer of record” which is a company which employes them in their country and “forwards” them to you. Costs anywhere between 480€ – 600€ / month / employee, yes, that’s a ton of money. We use Deel and are quite happy, that being said.. why the hell are they all so expensive?!
That’s It!
And that’s it “already” (sarcastic chuckle). Man, this was a lot of stuff but I feel like there were some really useful nuggets in there.
Anyway, comment below if you have any further questions or if you’d like me to expand upon any of those points.
Good luck with your startup!
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