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Registering and Establishing a Business

Definition, Explanation

Tips, Checklist

Definition, Explanation

All self-employed activities that do not belong to the liberal professions occupations or agricultural or silvicultural fields fall under the term "trade". A trade is always carried out on one's sole responsibility, for one's own account and with the permanent intention of making a profit. Among these are self-employed producing and processing activities in the fields of industry, crafts, home labour and publishing. Also selling at jumble sales and car boots or door-to-door sales, which all belong to the so-called itinerant trade fall under the term of trade. Law gives us the following definition: a trade is every allowed and independent activity that is noticeable to the outside that serves the purpose of making a profit, which is pursued to plan and for a certain duration and is not a freelancing profession.

In Germany, pursuing a trade underlies the Industrial Code (GewO). Among others, the freedom of trade is stipulated in it. According to this, everyone if free to pursue a trade within the scope of further laws.

You can register your business at the town hall using a form. The forms are usually available on the internet and can be filled in at home. When filling in the form, information is to be provided about the kind of self-employment or the object of business. The process costs about 20 to 30 euros. One speaks colloquially of the issuing of a trading license. The office for trades consequently informs the Chamber of Industry and Commerce as well as the fiscal office about the company registration.

On registering a business, you automatically become a mandatory member of the Chamber of Industry and Commerce (according to § 2 Chamber of Industry and Commerce Code). This mandatory membership is free of charge or very cheap for small businesses. The membership fee is calculated from the basic fee and an apportionment that depends on the amount of business tax to be paid. Small businesses are exempt from the fee (see § 3 section 3 sentence 3 Chamber of Industry and Commerce Code), if they are not registered in the register of companies and their profit does not exceed 5200 euros per annum.

After registering your business, you receive a questionnaire from the fiscal office in which you have to provide information about yourself, your residence and the kind of business. In addition, questions are asked about the following:

• The type of profit assessment
  In the case of small businesses (up to a profit of 30,000 euros per annum), usually the simpler form of cash-based accounting is appropriate. In the case of higher profits or turnover exceeding 500,000 euros, commercial accounting must be done
• Floating capital
  This is only relevant if a trading company starts off with a large stock. Otherwise, you can ignore this question
• Estimated turnover and profit in the first year and the following year
• Terms: turnover = returns; profit = returns minus expenditure
  In the case of estimating a high profit, the fiscal office will define income tax prepayments. Due to the possibilities of building up special amortizations and other tax instruments, an initial profit of 0.00 euros can be explained for precautionary reasons
• Taxation of small businesses
  A business falling short of certain profit and turnover limits is regarded as a small business. According to tax law, businesses that do not achieve a turnover of more than 17,500 euros count among these. Small businesses are exempt from the duty to pay turnover tax. In total, they have to deploy less effort
• Type of VAT accounting (actual taxation or imputed taxation)
  Someone deciding to go for the actual taxation (§ 20 Value Added Tax Code) does not have to pay taxes until the respective invoice has actually been paid. In this case, pre-financing is not necessary as is the case with imputed taxation, where returns are taxed on the date of invoice. The actual taxation is permitted in small businesses that have an annual turnover of up to 250,000 euros
• Value added tax identification number (VAT ID)
  It is needed for transactions between the business and companies in other EU member states
• Planned placing of employees

Based on the information provided, the fiscal office then issues a new tax number for income tax. If the business activities do not fall under the small business regulation, a value added tax identification number will also be issued. The income tax number and the VAT ID must be stated in letterheads, on invoices, and on websites. Businesspersons are obliged to fill in an income tax declaration and value added tax declaration (commercial tax attachment)

Tips, Checklist

• Register and insure permanent workers, even casual employees working on a 400-euro basis at the trade association responsible. By doing so, you, as employer, are relieved of liability under civil law for impairments to health resulting from accidents at work and occupational diseases
• If you are employed full-time and pursue your business as a secondary occupation, the must inform your employer about the business and he must authorise the same. This applies to public employees or civil servants, moreover if corresponding clauses are included in the contract of employment or collective agreement, as well as to those performing military and civil service
• Unemployed persons must inform the Federal Employment office of their intent to establish a business before registering it. Self-employment can be supported by means of a foundation benefit. It is paid for a maximum of 15 months and is higher than normal unemployment benefit as an extra sum is paid for national contributions
• For tax reasons it is relevant that the commencement of the business is not the date of issuing the trading licence but when the actual self-employment is pursued
• Make use of offers the Chamber of Industry and Commerce make. As a statutory body, it is a contact for businesspersons in case of questions concerning setting up a business, questions on location as well as training and further training
• Exemption from paying Chamber of Industry and Commerce membership fees is granted to entrepreneurs for a period of two years, if their annual profit does not exceed 25,000 euros. In addition, they can benefit from an exemption from apportionment of 15,340 euros
• A business must make a profit in the long term. If no profit is made within four years, the fiscal office will declare the activities a hobby. Possible tax savings and refunded value added tax can then be reclaimed
• Find out whether you need a trading permit for your company in addition to registering it

Last update: 02/15/2010