Starting a Business – Business Legalities

This page is all about the first and most general things to consider when contemplating opening a business and becoming self-employed after being employed. We will be introducing the difference between "trades" and "professionals (= professional service providers = freelancers)". Not considering this difference can become costly.

I want to start a business in Germany and while doing so; I want to live here, too. How can that be accomplished?

Since 2005, Germany has had explicit regulations on the working migration of self-employed persons to Germany. The big "wow" about this is that you now have rules and not only discretion. In 2012, the requirements were further reduced. Read more about the requirements for here: business owners aka investor's permit and the freelancer's permit on different pages.

What is it like to run a business? I have only been employed so far and was laid off just recently.

Let me take a deeeeeep breath. The Germans have a nice saying to answer your question. It is derived from the word “selbständig” itself. This word means independent, self-employed, and autonomous. The Germans like to say “Selbständig sein bedeutet sich selbst und ständig treten.” or Self-employment means to constantly kick oneself and that permanently. In fact, there is nobody else to do it, because you do not have a boss anymore telling you to do this or to do that.
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What do I need to start a business?

You only need three things: Money, more money, and even more money. As you know, “Money makes the world go around…” Okay, now honestly: an idea, money, and endurance paired with the drive to get it done. Starting from the conceptual perspective, there are two possibilities: you either have an idea or you buy an idea. Latter is called a franchise. Coming from the financial side, there are two ways to start: either you have assets or you buy assets – commonly referred to as a loan. Having your own fortune is the easiest way... It is not easy to obtain a bank loan or raise funds from risk capitalists!
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I want to start a business. Will I need any special – foreigner related – permits besides work and residence permit?

No. Needing any special permits depends very much exclusively upon the business you will be running. As a foreigner, you will generally not encounter any special restrictions concerning foreigners founding a business. Certain professions require special permissions for the company to provide these services, but they apply to Germans just as well. Keep reading. In other words, German constitutional law forbids legal rules that say “Indians may not open restaurants.” However, immigration will typically not accept an application for self-employment as the owner of a restaurant. Nevertheless, you may still have the business but you will have to run it from your home country. <a href="/en/aliens-in-a-company" hreflang="en"" target="_blank" title="Learn here of what aliens have to consider inside corporate setups !">When it comes to corporate issues, nothing else is true.
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Who is a freelancer?

In Germany, you have to keep in mind that every entrepreneur follows a business. Furthermore, German law distinguishes between “normal businesses”, so-called “Gewerbe”, and professional services so-called “freie Berufe”. The general differentiation between a normal business and a professional service provider can roughly be compared to the difference between a “blue collar” and “white collar” job. The law in §18 I 2 EStG describes professional services as such:

Professionals are the self-employed activities of:

• scientific, artistic, literary, instructing or educational activity, engineers,
• physicians, dentists, veterinarians, lawyers, notaries, patent attorneys, surveyors, sworn auditors,
• architects, trade chemists, accountants, tax consultants, consulting economists, and management experts, sworn-in auditors (vereidigte Buchprüfer),
• physiotherapists, journalists,
• picture reporters, interpreters, translators, pilots,
• and "similar professions".
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Some wording hints: "I render professional services." translates "Ich bin ein Freiberufler. [for men]" "Ich bin eine Freiberuflerin." [for women] or "Ich übe einen freien Beruf aus." Don't worry whatsoever if you mix them up or use the wrong version. This hint is strictly German legalese! Best when communicating to tax and/or trade office, you use the right wording to avoid confusion.

"I'm a tradesman." translates "Ich bin ein Gewerbetreibender. [for men]" "Ich bin eine Gewerbetreibende. [for women]" or "Ich übe ein Gewerbe aus."

Be aware, in daily life hardly everybody determines so strictly because "Jeder ist gewerblich tätig."

To qualify as a professional do I have to do all the work all by myself? May I not hire employees?

Having employees does hinder the qualification of a self-employed activity as long as it is performed with expert knowledge and at own responsibly. In other words, an artist may hire a secretary to take care of his fan mailings. This artist, however, will come into trouble if his secretary becomes too creative… 😉
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Anything else to consider?

You also have to be aware that there are “chambered” and “non-chambered” professionals. “Chambered” are such professions as attorneys, physicians, architects, and pharmacists. Not chambered professionals are e.g. translators, artists (singing, painting, drawing, etc.), and journalists. The chamber is an administrative office ruling on the professional's license to practice. Practically seen, there are only two legal differences between a business and a freelancer:

• first in tax law,
  and
• second in formal business (better business registration) law.

Making the right choice between both will be very cost-effective in the future.
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How are freelancers treated in tax law?

Generally, the normal rules apply to professionals as well as other companies. Only, if you are a self-employed person providing professional services, you will not be subject to trade tax (Gewerbesteuer). This is the typical exception to this rule.
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I learned that I have to register my profession. Where am I to do it?

As a professional, you do not have to register at the trade office (Gewerbeamt). Every other business must register his or her business!
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Overview of the Differences between freelancers and trades

Opening a Company

Get more info on opening a company here