Guide: Running a Business in Germany

• ●Einzelunternehmen (sole proprietorship) — the most common choice. No minimum capital, simple registration (only Gewerbeanmeldung), accounting via EÜR (simplified income/expense method). Taxes: income tax + trade tax. Full personal liability with private assets.

• ●GbR (civil law partnership) — for 2+ persons running a craft together. No minimum capital, full personal liability of all partners. Simple form, no notary, also uses EÜR.

What you need:

• ●ID card or passport (EU citizens: no additional permits required)
• ●Gewerbeanmeldung form (GewA 1)
• ●Entry in the Handwerksrolle (if your craft requires a Meister — see below)
• ●Fee: €20-60 depending on municipality

After registration, the Gewerbeamt automatically notifies:

• ●Tax office (Finanzamt) — you will receive a tax questionnaire
• ●Chamber of Commerce (IHK) or Chamber of Crafts (Handwerkskammer)
• ●Accident insurance (Berufsgenossenschaft)
• ●Statistical office

• ●Annex A — licensed crafts requiring Meisterbrief (53 professions). Construction examples: Bricklayers (No. 1), Carpenters (No. 3), Roofers (No. 4), Painters (No. 10), Plumbers (No. 24), Electricians (No. 25), Tilers (No. 42).

• ●Annex B1 — license-free crafts (no Meister required). Examples: Floor layers, Asphalters, Grouters.

• ●Annex B2 — craft-like trades. No Meister required.

• ●Steuernummer (tax number) — assigned by your local tax office. Format: XXX/XXX/XXXXX. Required on invoices (§14 UStG), tax returns, and correspondence with the tax office.

• ●USt-IdNr (VAT identification number) — format: DE123456789. Needed for intra-EU transactions (with companies from other EU countries). Not mandatory for domestic-only business, but recommended.

• ●Identifikationsnummer (IdNr) — personal 11-digit tax number assigned to every person registered in Germany. Do not confuse with Steuernummer.

The questionnaire asks about:

• ●Estimated revenue and profit in the first year
• ●Whether you want to use the small business exemption (§19 UStG)
• ●Bank details
• ●Form of taxation

Business account:

• ●Sole proprietors — legally not required to have a separate business account, BUT strongly recommended. Mixing private and business finances is a nightmare during a tax audit.
• ●GmbH/UG — separate business account is MANDATORY.
• ●Cost: €0-15/month (many banks offer free business accounts).

Mandatory insurance:

• ●Health insurance (Krankenversicherung) — MANDATORY for everyone in Germany. Self-employed: private (PKV) or voluntary statutory (GKV). Cost: €200-800/month depending on income and plan.
• ●Accident insurance (BG Bau) — statutory accident insurance, MANDATORY for construction companies. Must register within one week of starting operations.
• ●Business liability insurance (Betriebshaftpflicht) — not legally required but ESSENTIAL in practice. Without it, you won't get onto most construction sites. Protects against damage claims.

Additional (recommended):

• ●Pension insurance — mandatory for Annex A craftsmen for the first 18 years (§2 No. 8 SGB VI)
• ●Legal protection insurance
• ●Disability insurance

• ●EÜR (Einnahmenüberschussrechnung) — simplified method: income minus expenses = profit. For: sole proprietors, GbR, freelancers with revenue up to €600,000 OR profit up to €60,000 per year. Most craftsmen use EÜR.

• ●Double-entry bookkeeping (Bilanz) — full accounting with balance sheet. Mandatory for: GmbH, UG, companies in the commercial register, and businesses exceeding EÜR thresholds.

• ●Immutability (Unveränderbarkeit) — once saved, documents cannot be changed or deleted without a trace. Every change must be logged (who, when, what).

• ●Continuous numbering — invoices, documents, bookings must have sequential numbers without gaps. Gaps = red flag for the auditor.

• ●10-year retention — invoices, bookings, commercial letters: 10 years (§147 AO). Receipts and other correspondence: 6 years.

• ●Readability — documents must remain readable throughout the retention period.

• ●Procedural documentation (Verfahrensdokumentation) — you must describe HOW you manage your bookkeeping.

When to apply (§13b Abs. 2 No. 4 in conjunction with Abs. 5 UStG):

• ●Service = construction service (Bauleistung)
• ●Recipient = construction entrepreneur (≥10% of total revenue from construction services)

Required on §13b invoices:

• ●All 8 mandatory elements from §14 UStG
• ●Amounts NET (without VAT)
• ●Formula: „Steuerschuldnerschaft des Leistungsempfängers” (BMF letter 27.01.2023)
• ●Recipient's VAT ID

NOT allowed on §13b invoices:

• ●VAT rate, VAT amount, gross amount

• ●ZUGFeRD — hybrid: PDF/A-3 with embedded XML file (EN 16931). The recipient sees a normal PDF, the accounting system reads the XML data automatically.

• ●XRechnung — pure XML, EN 16931 standard. Required for invoices to public institutions (B2G) over €1,000.

Typical business expenses:

• ●Building materials, tools
• ●Fuel, vehicle costs
• ●Phone, internet (business portion)
• ●Business insurance
• ●Office/workshop rent
• ●Work clothing
• ●Professional training

§4 Abs. 5 EStG limits certain deductions:

• ●Entertainment expenses (Bewirtungskosten) — max 70% deductible
• ●Business gifts — max €50 per person per year

Requirements:

• ●Record every cash movement: date, amount, description, balance
• ●The cash balance must NEVER be negative
• ●Entries must be chronological and continuous
• ●GoBD: immutability — recorded transactions cannot be deleted

• ●Distance allowance (Entfernungspauschale) — from 2026, €0.38 per full kilometer of one-way distance between home and the first workplace (erste Tätigkeitsstätte, §9 Abs. 1 Satz 3 Nr. 4 EStG). The annual cap is generally €4,500, with exceptions including use of an own or provided car.

• ●Trip log (Fahrtenbuch) — document every trip: date, from, to, purpose, odometer start/end. This prepares the business-use share and vehicle costs for review.

• ●External activity/business trip (Auswärtstätigkeit/Dienstreise) — if there is no first workplace and the trip is tax-classified as external activity, a private car may use €0.30/km per driven kilometer or actual vehicle costs. German domestic meal allowances depend on absence time (€14/€28).

Correct ways:

• ●Cancellation invoice (Stornorechnung) — cancels the whole invoice with negative amounts; then issue a new one.
• ●Correction invoice (Rechnungskorrektur) — corrects individual items, referring to the number and date of the original.

B2B entitlements on late payment:

• ●Statutory interest: base rate plus 9 percentage points. The base rate changes every six months — since 1 July 2026 it is 1.52 %.
• ●A flat 40 € recovery fee, regardless of invoice size and without proof of costs.

• ●Winter (January-March, December) — 38h/week. Monday-Thursday 8h each, Friday 6h.
• ●Summer (April-November) — 41h/week. Monday-Thursday 8.5h each, Friday 7h.

Fixed dates:

• ●January 1 — New Year's Day (Neujahr)
• ●May 1 — Labor Day (Tag der Arbeit)
• ●October 3 — German Unity Day
• ●December 25 — Christmas Day
• ●December 26 — 2nd Christmas Day

Movable (dependent on Easter):

• ●Good Friday (Karfreitag) — 2 days before Easter
• ●Easter Monday (Ostermontag) — 1 day after Easter
• ●Ascension Day (Christi Himmelfahrt) — 39 days after Easter
• ●Whit Monday (Pfingstmontag) — 50 days after Easter

• ●Statutory minimum wage (Mindestlohn) — €13.90/hour gross (as of 2026). Applies to ALL employees in Germany, no exceptions.

• ●Construction industry minimum wage (Branchenmindestlohn Bau) — HIGHER than the statutory minimum. Set by collective agreement, declared generally binding by BMAS. Applies to ALL construction companies in Germany — including non-union ones.

What SOKA-BAU covers:

• ●Vacation fund (Urlaubskasse) — construction workers get 30 vacation days. Employer pays contributions, SOKA-BAU pays out vacation pay.
• ●Supplementary pension (Zusatzversorgung) — additional retirement provision for construction workers.
• ●Vocational training (Berufsbildung) — professional education and training.

Mandatory deductions from gross pay:

• ●Income tax (Lohnsteuer) — advance payment on income tax (amount depends on employee's tax class)
• ●Solidarity surcharge — 5.5% of income tax (only at higher incomes)
• ●Church tax — 8-9% of income tax (if employee is a church member)
• ●Health insurance — ~7.3% + supplementary contribution (split equally employer/employee)
• ●Pension insurance — 9.3% (split equally)
• ●Unemployment insurance — 1.3% (split equally)
• ●Care insurance — ~1.7% (split equally, higher for childless)

When you need it:

• ●You commission a subcontractor for construction work
• ●Subcontractor has NO exemption certificate — you MUST withhold 15% from their invoice and pay it to the tax office
• ●Subcontractor HAS a valid certificate — you pay the full amount

How it works:

• ●The subcontractor applies at their tax office
• ●The tax office issues the certificate with a validity date (usually 1-3 years)
• ●You can verify authenticity through BZSt (Federal Central Tax Office)

When to withhold:

• ●The subcontractor has no exemption certificate
• ●OR the certificate has expired

What to do with the withheld 15%:

• ●File a Bauabzugsteuer declaration with the tax office (by the 10th of the following month)
• ●Transfer the withheld amount to the tax office

• ●The invoice is NET (without VAT)
• ●It states „Steuerschuldnerschaft des Leistungsempfängers”
• ●YOU as recipient must declare the VAT in your UStVA
• ●At the same time you can deduct the same VAT (input tax deduction) — net effect = zero

• ●Written contract (Werkvertrag or subcontractor agreement) — scope of work, deadline, payment, terms
• ●Copy of subcontractor's business registration (Gewerbeanmeldung)
• ●Copy of exemption certificate §48b EStG (current!)
• ●Copy of liability insurance (Betriebshaftpflicht)
• ●A1 certificate (if subcontractor from another EU country)
• ●USt 1 TG (for §13b invoices)

Without these documents you risk:

• ●Liability for subcontractor's social security contributions (Nachunternehmerhaftung)
• ●Fines for illegal employment (Schwarzarbeit)
• ●Liability for construction withholding tax

Criteria:

• ●Being bound by instructions on time, place and manner of work
• ●Integration into the client organisation, working with their equipment
• ●No entrepreneurial risk of your own

Tax brackets 2026 (§32a EStG):

• ●Up to €11,784 — 0% (basic allowance, Grundfreibetrag)
• ●€11,785 - €17,005 — 14-24% (progressive)
• ●€17,006 - €66,760 — 24-42%
• ●€66,761 - €277,825 — 42%
• ●Above €277,826 — 45% (Reichensteuer)

Declarations:

• ●UStVA (advance VAT return) — monthly or quarterly preliminary declaration. Deadline: 10th of the following month. Can be extended by one month (Dauerfristverlängerung).
• ●Annual VAT return — annual declaration. Same deadline as income tax.

Monthly or quarterly:

• ●First year of business — ALWAYS monthly
• ●VAT liability > €7,500/year — monthly
• ●VAT liability €1,000-7,500 — quarterly
• ●VAT liability < €1,000 — exemption from UStVA possible (annual return only)

Requirements (§19 UStG):

• ●Revenue in PREVIOUS year ≤ €25,000
• ●Revenue in CURRENT year ≤ €100,000 (estimated)

If both conditions are met — you can opt out of charging VAT. Consequences:

• ●No VAT on your invoices
• ●No UStVA (advance returns)
• ●BUT: no input VAT deduction from purchase invoices (no Vorsteuerabzug)

Calculation:

• ●Base: business profit
• ●Exemption (Freibetrag): €24,500 — for sole proprietors and GbR. Earn less = no trade tax.
• ●Tax base rate (Steuermessbetrag): 3.5% of the amount exceeding the exemption
• ●Municipal multiplier (Hebesatz): varies by municipality (e.g. Hamburg: 470%, Berlin: 410%)

Church tax (Kirchensteuer):

• ●Paid by members of the Catholic or Protestant church in Germany
• ●Rate: 8% (Bavaria, Baden-Württemberg) or 9% (other states) of income tax
• ●You can leave the church (Kirchenaustritt) — then you don't pay
• ●For many foreign craftsmen: if you haven't joined a church in Germany — you don't pay

Solidarity surcharge (Solidaritätszuschlag):

• ●5.5% of income tax
• ●Since 2021: only at higher incomes. Most sole proprietors with typical craftsman income do NOT pay Soli.
• ●Threshold: income tax > €18,130 (single) / €36,260 (married) — below that: 0%.

• ●With MONTHLY filing a special prepayment (Sondervorauszahlung) of 1/11 of last year VAT is due, offset later in the annual return.
• ●With QUARTERLY filing there is no special prepayment.
• ●The application is filed electronically via ELSTER.

• ●GWG (§6 Abs. 2 EStG) — instant write-off of movable assets up to €800 net
• ●IAB (§7g EStG) — deduct 50% of planned investment before purchase (profit ≤ €200,000)
• ●AfA (§7 EStG) — straight-line or declining balance depreciation per official BMF tables

• ●Homeoffice allowance: €6/day, max €1,260/year
• ●Phone/Internet: 20% of the bill, max €20/month (simplified method)

How to prepare:

• ●Keep bookkeeping current — don't leave it to the last minute
• ●Archive ALL documents — invoices, receipts, contracts, correspondence
• ●Maintain continuous invoice numbering
• ●Cash book always up to date, balance never negative
• ●Procedural documentation ready (see below)
• ●Subcontractor documents complete (exemption certificate, A1, contracts)

• ●Income completeness — are all invoices recorded, do bank transactions match invoices
• ●Expenses — documented, business-related, not private
• ●Cash book — completeness, balance, consistency with deposits/withdrawals
• ●Invoice numbering — sequential, no gaps
• ●VAT — correctly calculated and remitted, Reverse Charge correctly applied
• ●Subcontractors — exemption certificates, construction withholding tax, A1
• ●Trip log — if vehicle costs are claimed
• ●GoBD — data immutability, change log, archiving

Content:

• ●Description of the bookkeeping system (which software, which modules)
• ●Procedures: how invoices are created, receipts archived, VAT calculated
• ●Access rights: who can access data, who can make changes
• ●Backup: how and where data is backed up
• ●IT security: description of protective measures

Three access levels (Z1/Z2/Z3):

• ●Z1 (direct access) — the auditor views data in your system
• ●Z2 (indirect access) — the auditor requests you generate reports
• ●Z3 (data carrier transfer) — the auditor requests data on a medium in a specified format

What must be exported:

• ●All invoices (issued and received)
• ●Bookings (EÜR)
• ●Cash book
• ●Customer and subcontractor data
• ●Change log (Audit Trail)