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 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.

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.

[0]: https://www.ceondo.com

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).

I incorporated a Limited in the past in Switzerland, Germany and France. Switzerland is a snap, Germany is unnecessary time consuming. France is hell.

Clarification: Setting up a SARL in France is comparable to Germany, but the red tape to run it is hell.

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.

You can find some more info at https://bkpk.me/estonia-eresidency-digital-nomads

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.

Infinitely easier in the UK: you don't need capital, the forms are simple, it costs virtually nothing and you'll be done in less than a day.

https://www.gov.uk/limited-company-formation/register-your-c...

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).

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 :).

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.

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

Is something wrong in this situation?

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.

Are there any (German) resources on how to do the tax reports yourself?

I can't find anything. I did incorporate too early and now have nothing but a few payments to declare. Don't want to spend 500€+ on the accountant :-/

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".

I guess this applies to any human language ;-)

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?

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 :-)

3 words: Don't do it! Unless you are focused on Germany and German market and you are forced to live in Germany.

Try Singapore!

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.

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?

> 1500 to 2500€/year for the "end of the year" accounting

Why does it cost so much? In Sweden it's like two entries in the book that take 5 minutes to do and generating two reports from your program.

In the UK, it is doable to do your own accounts, as a one man band.

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 direct the company from Germany, you'll be accountable for taxes in Germany anyway, regardless of where you incorporated.

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.

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 :)

Well, if I Google the name, the first 10 hits look like spam sites set up to promote it.

That's a reason not to go that route, IMHO.

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.

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?