Tips for Entrepreneurs About to Start a Business in Germany

It is not surprising that Germany is one of the best countries in Europe for startups and those who want to expand their business. They have a solid 1.6% expected GDP growth in 2020. Germany is the leader in many ways when it comes to businesses and leads one of the strongest economies in the world.

A huge number of consumers and large trade value are two of the main things that await entrepreneurs there. It is also relatively easy to extend to, as it is located in the heart of Europe.

What Makes it Hard to Extend to Germany?

Expanding your company to Germany is not going to be cheap and it can’t be done overnight either. One of the reasons why the country has such a strong economy is because it protects its already existing businesses.

Before getting right into it, you need to understand the complex employment legislation there. Germany’s labor law is specifically designed to protect their employees and its market is rather regulated.

Business Registration in Germany

Just like any other country, Germany also has its own authorities for social security and tax registration. If you want to start a business there, you are going to need an employer number first. This opens you the door to health and social insurance and makes you able to hire employees.

Furthermore, all legal businesses need accident insurance and a tax number to start with. The whole company registration process takes six weeks on average. Meanwhile, you can register a bank account that will allow you to deal with business finances separately.

This is not important when it comes to paying your employees but rather for reimbursements paid by government entities.

Getting Work Permits for Employees

Your employees will need different types of papers in order to be able to start working:

  • The work permit – Arbeitsgenehmiung or residency permit
  • Social security number – Sozialversicherungsnummer
  • Tax card – Lohnsteuerkarte

Income Tax for Employees

The same rules apply to every employee in Germany, regardless whether they are foreigners or German citizens. If they are working there, they are also subject to income tax. You, as the owner of the business, have to calculate income tax for every one of your employees.

Then, it has to be submitted to the federal tax authority. Tax rates for individuals are the following:

  • 0% if lower than 9,000 Euros
  • 14% if between 9,000 and 54,949 Euros
  • 42% if between 54,949 and 260,532 Euros
  • 45% if higher than 260,532 Euros

The solidarity surcharge tax in Germany is called Solidaritaetszuschlag and it has to be added as an additional 5.5% extra to the income tax.

Social Insurance Scheme in Germany

This one applies to employees and employers as well. They both are subject to social security contributions. These include:

  • Nursing care insurance – This cuts down 22.5% of the gross salary, an equal amount from the employer and the employees
  • Accident insurance – This one has to be paid by the employer. With an amount of 11.9%, work accidents can be covered long term
  • Health insurance – This is also split between employer and employee and its contribution rate is 15.6% from gross income
  • Pension insurance – 8.6% is automatically deducted from gross income for every employee you have
  • Unemployment insurance – This is only 3% from gross income, both employer and employee are subject to it

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