How to Set Up an Entity in Germany

Expanding into Germany offers businesses a gateway to Europe’s largest economy, a highly skilled workforce, and a well-structured legal environment. Setting up a legal entity in the country provides access to the broader EU market, limited liability, and strong investor protection—advantages that make entity formation in Germany particularly appealing for finance, legal, HR, and expansion professionals.

That said, while the process in Germany is well-defined and reliable, it is not entirely friction-free. Key challenges include navigating German-language documentation, certified notarisation requirements, local bank account setup, and meeting capital and tax compliance obligations.

Disclaimer: This content is for informational purposes only and does not constitute legal, tax, or financial advice. Always consult official sources before acting.

What does “opening an entity” mean in Germany?

In Germany, opening an entity means formally registering a legal company (for example, a subsidiary or local company) under German law, obtaining a German business address, banking arrangements, and tax registrations, thus giving the company full legal status to operate. The typical pathway is forming a local company or establishing a branch of a foreign entity.

Entity overview in Germany

Below is a summary of key features for entity formation in Germany.

Step-by-step guide: How to open an entity in Germany

Step 1: Choose the right structure

Both citizens and foreign investors can establish a GmbH or UG in Germany under the same conditions. The GmbH requires a minimum share capital of €25,000, with at least €12,500 paid in before registration. It’s the standard choice for established businesses and foreign investors seeking a stable, reputable structure with full limited liability.

The UG was introduced to make incorporation more accessible. It can be founded with as little as €1, though founders often contribute more for practical reasons. The UG must retain 25% of annual profits until its capital reaches €25,000, when it can convert into a GmbH. While cheaper to start, it is sometimes viewed as less established than a GmbH. A branch office is also possible, but liability remains with the parent company.

Step 2: Verify business name availability

You must select a unique company name that complies with German naming rules (must include legal form, must not mislead, must be unique within the local registry). You can search existing names online. The name reservation is typically done via the notary when drafting the articles of association.

Step 3: Prepare incorporation documents

You will need a set of documents for registration:

• Articles of Association (Gesellschaftsvertrag), notarised by a German notary
• Proof of deposit of share capital (bank confirmation), required before or at registration
• Managing director appointment and power of representation documentation for any foreign shareholder
• Registration application for the Handelsregister and trade office (Gewerbeanmeldung) as applicable

Step 4: Register with the commercial register

The notarized incorporation documents are submitted electronically by the notary to the local district court (Amtsgericht), which maintains the Commercial Register (Handelsregister). Once registration is approved, the company receives its registration certificate, becomes legally operational, and the entry is published in the Unternehmensregister.

Step 5: Register for tax and social security

After registration, you must register with the local tax office (Finanzamt) to obtain a tax identification number (Steuernummer) and VAT ID (Umsatzsteuer-Identifikationsnummer), if applicable. If you will hire employees, you must register the company with the social security authorities and obtain employer registration. Foreign-owned entities must also report beneficial owners to the German Transparency Register (Transparenzregister).

Step 6: Open a corporate bank account

You must open a bank account in the company’s name in Germany or, in some cases, an EU bank accepting German companies. The bank will require KYC documentation, verification of directors, shareholders, and business purpose, and may require proof of deposit of the capital. Opening can take several days to a few weeks, depending on the bank and whether the director is resident locally.

Step 7: Set up payroll and employment compliance

To hire employees in Germany, you must register as an employer with the social security system (Sozialversicherung), starting with a statutory health insurance fund (Krankenkasse), which collects all social contributions. You’ll also need to register with the Federal Employment Agency (Bundesagentur für Arbeit) for unemployment insurance, and with the relevant accident insurance association (Berufsgenossenschaft) for workplace coverage. Employers must additionally register for payroll tax withholding with their local tax office (Finanzamt), coordinated via the Federal Central Tax Office (BZSt). Employment contracts must comply with German labor law under the Federal Ministry of Labor and Social Affairs (BMAS), with accurate payroll reporting and adherence to collective bargaining or works council obligations where applicable.

Discover how Elemental Enzymes accelerated regulatory approvals and market entry with Deel.

Post-registration obligations

After incorporation, companies in Germany must remain compliant with ongoing obligations:

• Tax and financial reporting: Corporations must file annual corporate income tax returns, trade tax returns, VAT returns, and prepare financial statements under German GAAP (Handelsgesetzbuch, HGB).
• Corporate registers: Maintain up-to-date records of shareholders, directors, and beneficial owners, and report any changes to the Handelsregister/Unternehmensregister within the legally required timeframe.
• Compliance tracking: Monitor all tax, licensing, and corporate filing deadlines via a compliance calendar or automated system to avoid penalties.
• Licenses and renewals: If your business activity requires trade licenses (Gewerbeerlaubnis) or professional permits, ensure renewals are made at the indicated interval (often annually or biannually).
• Recordkeeping: Retain accounting, payroll, HR, and transaction records for the minimum period required under German law (typically 10 years for tax records).
• Employment law compliance: Adhere to German labor, benefits, social security, and data-protection regulations—including maintaining compliant employment contracts, payroll reporting, benefits contributions, and required insurance coverage.

Taxes and financial considerations

Here are the key tax and financial considerations for operating a company in Germany:

• Corporate income tax: The federal corporate income tax rate (Körperschaftsteuer) is 15% on taxable profits, plus a 5.5% solidarity surcharge on the tax amount (bringing the effective tax rate to 15.825%).
• Municipal trade tax (Gewerbesteuer): A base rate of 3.5% is multiplied by a municipal multiplier (Hebesatz) typically between 200% and 580%, resulting in an overall effective trade tax rate of around 8.75% to 20.3%. Combined with corporation tax, the effective total tax burden for many municipalities is around 30-33%.
• VAT: Standard rate is 19% and reduced rate is 7%. VAT registration thresholds apply, and the EU One Stop Shop regime may be relevant for intra-EU trade.
• Payroll/social contributions: Employers must withhold income tax and remit social security contributions (health insurance, pension, and unemployment) for employees; both employer and employee contributions are significant and regulated at the federal and regional levels.
• Accounting standards: German companies prepare financial statements under German GAAP (HGB) and may adopt IFRS only under certain conditions (e.g., listed companies). The tax base is derived from the HGB statements with adjustments.

Discover how Climate-KIC navigated complex restructuring with Deel.

Expand internationally with Deel

Whether you’re hiring through an EOR or establishing your own local entity, Deel’s all-in-one platform gives you everything you need to expand into Germany—quickly, compliantly, and with confidence. From market entry to ongoing operations, Deel helps you hire, onboard, and manage teams seamlessly from day one.

With Deel, you can:

• Test new regions using Deel’s local entities through our Employer of Record service—hire employees compliantly, delegate payroll and taxes, and access localized employment contracts.
• Open entities with Deel Entity Setup, where our team manages everything—from incorporation and tax registration to coordination with local experts.
• Centralize your compliance and records with Deel Entity Management, including automated filings, calendar reminders, and visibility across all entities.
• Integrate with Deel Global Payroll and Deel HR for compliant payments, benefits, and workforce oversight—all in one platform.

For companies transitioning from the EOR model to owned entities, Deel ensures a smooth handover and consistent compliance every step of the way. Enter new markets, onboard talent, and manage your global workforce—all through one unified platform.

FAQs

How long does it take to open an entity in Germany?
Typically, 2–6 weeks if all documentation is in order, though actual timing may vary based on bank account opening and municipal registrations. Find out how long setup takes with our Entity Setup Calculator.

What is the minimum capital required?
For a GmbH, the legal minimum is €25,000 (≈ US$27,000), of which at least €12,500 must be deposited before registration. For a UG, the minimum can be as little as €1.

Can foreign companies own 100% of an entity in Germany?
Yes. Foreign individuals or companies may own 100% of a German GmbH—the law imposes no nationality or residence restrictions for shareholders.

Do I need a local director or representative?
No legal requirement mandates that the director or managing director of a GmbH must be resident in Germany, though banks and trade offices sometimes prefer a local or EU-resident director for practical reasons.

How much does it cost to register an entity?
In addition to the share capital, you should budget several thousand euros (e.g., €1,000–€3,000) for notary, registration, and legal fees. Use our Entity Setup Calculator to estimate.

Can I hire employees before the entity is fully registered?
Typically no. You must be registered as an employer with the social security authorities before legally hiring and paying employees in Germany. However, Deel’s Employer of Record (EOR) service lets you hire and pay talent immediately while your entity setup is in progress.

Can Deel help me open an entity in Germany?
Yes. Deel Entity Setup manages the end-to-end process — from registration to payroll compliance—in over 100 countries, including Germany. Local specialists coordinate the documentation, filings, and legal requirements on your behalf.

Does Deel offer ongoing compliance and payroll support?
Yes. Deel offers both managed services and self-service tools to help you stay compliant.

If you’re using Deel Entity Management, Maintenance, EOR, or Payroll, our team handles payroll, benefits, filings, and compliance obligations on your behalf.

For teams managing their own entities, Deel Compliance Hub makes staying compliant simple by providing real-time regulatory updates, risk alerts, and workforce insights across 150+ countries. Proactively manage compliance with our Compliance Monitor, Workforce Insights, and an AI-powered Worker Classifier, staying ahead of changing employment laws.

Can I switch from Deel EOR to my own entity later?
Yes. Deel supports seamless transitions when you’re ready.