Just want to note that if you're not tied to Germany in particular, Netherlands is a much better option for US citizens looking to start a company, thanks to the Dutch-American Friendship Treaty. (yes, it's DAFT - https://en.wikipedia.org/wiki/DAFT). NL is a pretty easy place to business, at least as an entrepreneur. (Things get more complicated with lots of employees, like in most of Europe.)
The tl;dr version is US citizens can get a residency permit (2 years, renewable indefinitely, considered a non-temporary purpose of stay so you're eligible for permanent residency after 5 years) to start a business in the Netherlands with very few restrictions and very little in the way of capital requirements (€4500 in the business account.) Plenty of attorneys in the Netherlands can take care of the necessary paperwork for €1500, give or take, but lots of people manage it themselves too.
Will the Dutch actually let you manage your finances if you are a US taxpayer? Many countries will now limit US tax payers to checking accounts exclusively, sometimes blocking money transfers and stuff - thanks to FATCA.
Furthermore, US taxpayers have crazy FBAR/FATCA reporting requirements about any money you have signatory rights outside the US, even if it isn't their money - to the point that having e.g. a CFO with a US citizenship -- even if they never set foot in the US -- is becoming a serious liability for a company.
You should keep in mind though that having your company in such a small country might shut you off from some services.
E.g. I decided against Estonia for my SaaS business because Stripe is not available there (among other reasons), since that alone probably creates more hassle than founding the company there saves.
Have been seriously thinking about doing this, but the residency requirements give me pause. (You must always have a mailing, non-PO-box address in NL — essentially, your own place — and have to stay in the country 6 months out of a year, though apparently it’s not really enforced.)
In Europe right now and maybe 25-75 on just pulling the trigger... who knows if our so-called president ends up doing something stupid that blows up this treaty? No other easy paths to residency in the EU as far as I’m aware!
Well, there's always the whole "get a job" path. If you're single you might find a European partner which helps.
If you're a US citizen another temporary option (but among the easiest) is to get a working holiday visa for Ireland. I believe it's the only EU nation offering working holiday visas to the US. I probably wouldn't bother with it if the DAFT were an option - when I got one it was much earlier in my career.
Not sure how the residency requirement is a bad thing? NL is pretty nice as I understand it. Incidentally, this blogger did the DAFT and describes their experience: http://shawnindutch.com/
Yeah, I've read that blog! Very useful. I'm sure NL is wonderful, but I can't quite commit to living there full time. For one, all my friends and family live in California. It would be very hard to justify paying rent on an empty apartment for half the year just to keep qualifying, and I would surely get lonely in any case. (I guess I could Airbnb it out if there are services that can do the landlordy bits while I'm away, but it would be hard to ensure that this is possible without actually going through the DAFT process. Even finding a regular, un-Airbnb-able NL apartment without the NL SSN-equivalent is a bit of a Catch-22, since most apartments require the SSN but applying for DAFT is what gets you the SSN in the first place. And you can't apply for DAFT without a mailing address, as far as I'm aware. I think common advice is to stay with friends for a bit, but that doesn't work if you don't know anyone in NL...)
Well, the goal would be to spend 4-6 months out of the year in NL and work towards an eventual EU citizenship five years down the line. That would be totally fine. It's mostly the logistics and cost of keeping around an empty apartment for half the year that I'm concerned about.
It depends a lot on the country. Sometimes you're resident if you're present for (365/2)+1 days per year, but my understanding is that if you do that you're going to get some really tough questions about your intentions when time comes to naturalize. Tax authorities will likely be somewhat more willing to consider you resident.
Of course, you can also just buy your way in if you have cash. Malta sells EU passports.
Not only that, we are considered the best non-native English speakers of the world, so even if you aren't keen on learning Dutch (boo!) you'll manage pretty easily :)
Note also that fields are not all equal. In France I used to complain about the lack of English skills but I never found a programmer who could not at least read English and most business people will be able to communicate, maybe with a strong accent.
Now I live in Japan and most programmers I meet do not speak English at all (leading them to be pretty poor programmers).
Yep. They have Japanese translations of all documentations. They put comments in Japanese in their programs. I don't know if it is the sole factor but it probably explain partly why there is so little good Japanese software.
I question the validity of "global" rankings that don't include regions like East, West or South Africa, where countries like Kenya, Ghana, Nigeria, South Africa have very high English proficiency rates (especially given that it's also an/the official language in most cases).
It is quite the growth spurt, given how short the Dutch used to be:
"Today, the Dutch are on average the tallest people on the planet. Just 150 years ago, they were relatively short. In 1860, the average Dutch soldier in the Netherlands was 5-foot-5. American men were 2.7 inches taller."
Dutch is a difficult language to learn, and you'll manage fine with English; especially if you're located in large cities like Amsterdam. We went out dinner yesterday in Amsterdam and people start conversations in English even though both parties end up being Dutch (we're Dutch natives). Also, learning Dutch isn't very useful since it isn't spoken a lot throughout the world.
If you'd like to have yourself heard/understood in the EU, even though English should generally suffice, German is another contender. In Italy its quite well understood (esp the north) and many Eastern European countries as well. Though perhaps Russian even better, I don't know.
As for Germany, the Germans living in cities like Berlin and Munich speak excellent English.
Helpful, as my wife and I keep considering moving to Europe for a spell. It probably won't be so difficult as I am an Italian citizen and she is British; however with the UK leaving the EU, suddenly we may have to worry about her being an EU resident either as a guest from the UK, or as someone married to me (which means lots of paperwork in a language I don't understand).
Also, her job in a hospital means she needs to speak the local language "unless--" .. which probably means unless they have a specific need for a native english speaker who does not have to know the local language, or if it's an American military hospital, or...
Only in as far as our languages are similar (they are more closely related than either of them is to English). A lot of younger Dutch are quite limited in the languages they speak; often just Dutch and passable English. Don't expect people under 30 to be able to read a German newspaper comprehensively or hold a conversation beyond ordering beer in a Biergarten when in Germany. Older generations with a tertiary education degree often can speak and read at least either French or German at a more useful level though.
While this may be true, you will find quite a reasonable number of people who can speak non-English foreign languages quite well, and that excludes the foreign nationals that come to live and work in the Netherlands as well.
If you wanted to serve a largely German speaking clientele, then you could reasonably expect to get a decent number of applicants in the Netherlands in my experience, especially in the border regions. The kids here are still learning German and French in school, and while they might speak it less, there are still plenty that go there regularly.
Countries in Europe now offering start-up visas (without major capital requirements):
- Denmark
- France
- Italy
- Netherlands
- Spain
- Portugal
- Lithuania
- Estonia
- Austria
- Sweden
I'm currently applying for Denmark. Invest Denmark has offices all over the world (including Palo Alto) and will be more than happy to assist you through the process.
I've been in SV for 3 years, but never went for the green card. The US won't let me stay, so I guess I'll have to go suppress wages somewhere else.
Honestly I did a fair few days of research and whenever the UK is listed as an option, the figure 200,000 gbp also shows up.
Looking more into this, looks like there is a special 50k gbp if the money is coming from local VC's or government grant.
In my case I have a side product that is fielding licensing inquiries, and I'm looking to bootstrap (figure that's just as time consuming as fund raising).
I don't have 200k gbp in the bank, and I'm not willing to nor see the need to gamble with family and friends' money. So to me the UK scheme falls into the category of "major capital requirements".
To everyone else. If you care about your privacy, dont go to Denmark. That country is turning into a shitshow nazi dream.
Source: I helped the government build a database registering their citizen every move. Currently has 10000 A4 pages of meta data on average on every citizen of meta data alone. Just meta data.
Incorporating as a GmbH is the most common way to start a company in Germany (about 40%). The UG form is not very common (about 9%) and especially if you plan to do business with other companies in Germany I would not recommend it, because UGs are often frowned upon.
Founding a GmbH is not only relatively expensive, it also takes time. Many founders avoid incorporating themselves but prefer to buy a new GmbH. This is actually a business here, there are companies that keep a pool of fresh GmbHs and sell them to founders. Search for 'Vorratsgesellschaften' if you are interested in going that route.
What the article doesn't mention is the ongoing costs with a GmbH. The annual Bilanz is around 2000 EUR. Not to mention you pay lots of taxes and as a founder you can't get money out of the GmbH without getting taxed again (Abgeltungssteuer).
The taxes when you want money out of the GmbH are not the primary issue. They're structured in such a way that all earnings from the company are more or less taxed at the same rate as your normal income tax, for exampe you get to deduct the Gewerbesteuer etc. You can even use a GmbH to flatten your income and use it as a vessel to keep some money for when you want a longer holiday or for bad times. This may or may not be worth the extra effort.
The primary issue is that you can't just take money out of an GmbH/UG/AG (Kapitalgesellschaft). The act itself requires a shareholder meeting (easy if you're alone) and a balance sheet is required (less easy). You can't take money that would put the balance of the company below the required minimum, ... Basically, the money placed into the company is frozen, you mostly can only access the earnings.
You can, however, pay yourself a regular wage, but this wage needs to be treated like a normal wage: needs to be paid monthly, needs to be fixed, ... This will likely become an issue if the company has no established cashflow. You can also take shares of the earnings (Tantieme) as part of your wage, but that also requires a balance, so it's usually done when the yearly taxes are filed. They'd be taxed like your regular income and the company would not pay any extra tax on those (simplified, they're treated as wages paid, so regular costs that reduce the earnings).
Other reasons why you want to avoid a UG if possible:
- Sooner or later you will have to convert your UG into a GmbH anyways
- Most banks don't offer bank accounts for UGs, and those that do often under really shitty conditions
You don't have to convert your UG to a GmbH. You may once the capital reaches 25k EUR, but you're not obligated to. Until the Stammkapital of the UG reaches 25k you're obliged to keep 25% of the yearly earnings.
Bank accounts for UGs are available at the same conditions as for a newly formed GmbH (no credit line, no credit card, ...). Generally speaking, bank accounts for newly formed businesses have shitty conditions.
If you are bootstrapping, or just founding a small side business, it doesn't have to be so complicated. There is a special provision for small businesses [1]. As long as you expect to stay under 50000 € in sales in a given year, you can be treated as a private person - meaning you don't have to pay VAT to the government for sold goods, but you do have to pay it to vendors like regular customers. Once you've grown enough, you can register as a company. Note also that parts of the complications and expenses arise when you want to be a limited liability company - if you are just making websites on the side, this is probably not neccessary.
Germany has a strong culture of entrepreneurship - being not employed but "selbstständig" (occupationally independent) is held in high regards. In my experience, while burocracy can be complicated, officials are very willing to help (I haven't made the jump myself, but I know from others). And one thing that is nicer in Germany / Europe is that it seems less litigious than the US. I would be constantly afraid to get sued or to break some unknown law in another US state, whereas here if you get a good accountant and avoid a few common pitfalls, you are pretty safe.
Note that none of this has any connection with the legal form of the company, this is a tax matter which applies equally to all companies or freelancers.
> As long as you expect to stay under 50000 € in sales in a given year, you can be treated as a private person
This is false. The conditions is that business volume [1] including taxes has not exceeded 17500 EUR in the previous year and at the same time is not expected to exceed 50000 EUR in the running year. If you're a newly founded company you need to file an estimate of your business volume with the tax authorities and if the estimate exceeds 17500 EUR you can't take advantage of the Kleinunternehmerregelung. Also note that the 17.500 EUR limit applies to the sum of all companies you own, you can't have two companies with a volume of 17500 EUR each.
It's really only good for a side business and in some narrow circumstances where you sell mostly to private customers.
If you want to bootstrap, you're much more likely to benefit from filing your VAT (anything you buy will be discounted 19% effectively, you can have your VAT filed by an accountant from the saving of buying a single expensive computer).
I wouldn't say it is false, I was just simplifying.
If you take no outside money (yet), have no employees (yet), and don't buy many goods, you don't really have any benefit of either not paying VAT, or getting limited liability. This is for people who have a side-business of "making websites". You can register a simple business ("Gewerbe") when you have to write an invoice, or start making regular income.
Of course, if there is real capital investment involved, or once this is not just a side business, you have to do more.
No, it's false, it's actually dangerously false since you personally may be liable for the VAT not paid. The limit is actually a hard limit and it gets more and more dangerous the closer you creep to the edge. At the years turnover, when you write the next years first invoices, you need to know your tax status and you don't have at that time the previous years tax declaration. The tax authorities will not notify you of that change in status. If it turns out you had a total (vat)-taxable income of 17499 EUR, you're fine. If you miscalculated and had 17501 € and mistakenly already wrote your invoices thinking you'd be VAT-free then there's two options: if your customer is a company, you can correct the invoice and have them pay the VAT (their accounting department will absolutely love that if you come back half a year later on a paid invoice, trust me). If the customer is a private person, you get to pay the VAT. I've seen people fall in that trap and I can tell you, re-writing all your invoices for a year sucks, paying 20% of your income as VAT because you simplified the rules sucks even more.
You also need to file the registration with the tax authorities before you write your first invoice (you need a tax number for a correct invoice).
As a general rule of thumb: You don't simplify when it comes to taxes.
(Side note: This is still unrelated to registering a company or even registering with the Gewerbeamt which may or may not be required depending on what exactly you do. Members of the Freie Berufe for example don't need that.)
Don’t start a company in Germany if you don’t have to. Expensive and bureaucratic tax system (accountants and time wise), regular accountancy checks which you have to pay your accountant for, very hard to close down and insolvency is very complicated.
Meh... It's not quite as easy as one might wish, but I haven't seen any business where it had any significance. If you're small, it's about $300 to start and maybe around $500 for an accountant.
It get's more complicated once you have employees, but even that's not relevant compared to almost any other aspect of a business. I think we're paying EUR30 per quarter for managing the employees taxes and various benefits.
If you're doing GAAP accounting, you're 95% done with taxes as well. And since these standards have converged over the years, the only difference in bureaucracy that remains is people's enduring stereotypes.
Is this hearsay or your experience? "regular accountancy checks"... I even forgot when our last one was...maybe 5 years ago. And this seems is typical.
It's not any more bureaucratic than the US. With the significant difference that German bureaucrats usually stick to the law, while the US ones occasionally feel like making shit up. (Especially my friends at CBP.)
I'm not sure how often you intend to spin up LLCs and turn them down again? Every quarter? Your partners must be thrilled to work with you, standing before closed doors all the time without notice.
What does it matter if the paperwork takes 3 weeks (which doesn't mean "you have 3 weeks of work to do": it's a 1h meeting with a notary, mailing two form and one bank transfer) if the business runs for 10 years?
Which means that unless you're in the business of flipping LLCs, "way easier" seems like a made-up concern to me.
Yeah it is very bureaucratic indeed. If you want to raise money or add shareholders you need to make official appointments w/ lawyers and pay significant fees.
You can do that, but then you’ll have to deal with Irish Tax law and if you want to pay yourself a wage you’ll be employed by an Irish company. This will lead to it’s own set of complications. You’ll probably need a bank account in Ireland etc. If you’re selling things in germany you’d still need to collect German VAT depending on whether your customer is a company or a private entity, ...
Registering a British LtD used to be common when the UG didn’t exist and you’d need at least 25k for a GmbH to get limited liability, but it’s fallen a bit out of fashion since then.
Another shortcut, while still remaining in the EU is a Maltese Limited company. Very similar rules and structure to operating a UK based Limited company, but a much better corporate tax regime.
I went this route, using an accountant recommended by a trusted friend. Bought an existing "off the shelf" company and have a Maltese business bank account, all without leaving the comfort of my desk.
Have you physically been to Malta? Do you pay non Maltese taxes? Do you understand tax law? If no then it is likely you are committing tax fraud (perhaps without even realising it).
People need to understand this: there is no free lunch. If you think you can be classified as a Maltese company, sitting at a desk in <insert random European country here>, you are dead wrong in 99.9% of the cases. Get proper tax counsel (not an accountant, a lawyer -- accountants are generally sloppy with details, and details matter, e.g. a word in a contract can matter).
Technology and internet based businesses have some unique opportunities to optimise taxes, but the line between fraud and optimization is quite thin.. get good counsel, or prepare for a dispute where you take your (local) tax authority to court.
Source: a decent knowledge of corporate and tax law and plenty of tax disputes, which I've mostly won.
You’d also have to obey the bookkeeping requirements of the companies country of origin. For example in germany the line between paying yourself a wage and “verdeckter Gewinnentnahme” is important (you can’t just take money out of an LtD) and it’s important to understand the host countries law. When things start to go haywire you’d need to hire an expert in Maltese law and that may just be very expensive from the comfort of your desk. You might also in addition require an expert in German tax law on top of that. I’d avoid that.
There are also differences between pure emoluments and traditional board meeting or director fees, etc. You'll have to check the DTA between your country and Malta.
In addition, (Maltese) social security might be due on salaries received, or could be exempt.
If I am thinking about something like this (my reason so far is fairly contrived, but I would really like to use Stripe, that is available i.e. in Ireland, while in mz country, it mostly seems to be paypal/braintree), where would I be able to read-up on gotchas, before I consult a proper lawyer?
Thanks for your concern, but I am very happy with the professional advice I have received and am entirely confident that no tax fraud is being committed.
I read your comment, and the feedback you’re replying to.
I notice that you have not mentioned the word “lawyer”. Instead you said accountant and professional. I’m going to write the rest of this on the assumption you have not spoken to a tax lawyer.
You’ve set up a structure for years, and are likely investing tens or hundreds of thousands in equity.
A consultation with a good tax lawyer can be had for $100-$200 in most cases, or even free sometimes.
Your situation might be 100% correct! In which case, you have spent very little.
But if your situation is wrong? You risk the total destruction of your business, tens of thousands in penalties and legal fees, and possibly jail.
Speak to a lawyer, if you haven’t.
Incidentally, I had the same idea as you: Canadian business, international clients. Could I incorporate abroad and save? My tax’s lawyer’s answer was no, the local revenue authorities would not see it that way.
You’re in another jurisdicion, so the plan may work. But, you will spare yourself the possibility of ruin by checking with a tax lawyer in the jurisdiction you live in.
You're not wrong. I have a friend who used to work at PwC essentially handling tax avoidance tactics for clients, and she recently switched to a reputable accounting office due to unhealthy work pressure.
She's knowledgeable and is clearly aware that the advice being given by her current accounting office is much worse (and often incorrect) in comparison to the advice given by people at her previous job.
They're excellent at handling accounting, but not good at structuring (non local) things and avoiding tax.
Just make sure to have good legal counsel. Because something is "legal" for person X doesn't make it legal for person Y.
A wealthy family with a company that employs 1000+ people will generally get away with more than a lone wolf with no political connections (not that I'm saying you're a lone wolf, just saying it's not always clear cut). Best of luck!
I've found that it's always easier to follow "normal" routes until you know what you're doing. In the US, the equivalent is a Delaware corporation. Companies typically incorporate in the state they operate in when they are small and the owners are more concerned about running their business. Reincorporating in Delaware happens when companies are large enough to hire someone to handle the paperwork.
If you are based in Germany, you still have to pay German social insurances (health, retirement, care, occupational accidents) for yourself and all employees. These are probably a greater expense of money and time than having to set up a GmbH.
And the whole purpose of GmbH or LTD is to limit liability if something goes wrong - but I wouldn't want to have to defend myself or liquidate my company in a irish or maltese jurisdiction...
The UG was actually made just for this purpose. With the EU law it was easier to just create a LTD or LLC in the UK. The 25k EUR are not something you have in your pockets as a founder. Even though you only need to deposit half.
The Very Important Question is how much time and money it takes to close the company, not how to open it. Not all startups are successful, so it always makes sense to think about the shutdown.
You balance the sheets, close down the company and it remains in some "in liquidation" state for another year to make sure that the sheets are, in fact, balanced.
Makes the company more trustworthy for potential partners since they won't face closed doors from one day to the next, but otherwise makes little difference: a company in liquidation is really low maintenance if the paperwork is in order.
If you do a clean shutdown (= you have enough money to pay your accountant and any other debtors), you can close down a company at the end of your business year.
Isn't there a mandatory waiting period to collect claims from creditors, employees etc? If I decide to close the company few day before the end of the business year, that's unlikely to be possible to do it so quickly.
There's a one-year waiting period after the liquidation has been publicly announced in the Bundesanzeiger before the remaining assets can be distributed among the shareholders. See § 73 GmbhG http://www.gesetze-im-internet.de/gmbhg/__73.html
If you don't actively seek outside investment (yet) it's much easier to start off with a sole proprietorship or a partnership (GbR) in case of more than one founder.
The caveat is this though: You and your partners will be personally liable for the company's liabilities. In most cases however this doesn't matter as much as is often presumed. This is assuming you can 100% trust your partners (which should be a requirement when starting a company anyway) because a GbR implies that each of the partners is fully liable for the others' actions and decisions made with regards to the company, too. Creditors can recoup their assets from any of the partners.
First of all, as long as it's just you and potential partners, who put in their own time there usually isn't a whole lot of financial risk involved anyway. That changes once you decide to hire employees. At that moment you quite likely should incorporate.
Secondly, in many cases even with a GmbH or UG you will be held personally liable as a managing director anyway (for example when taking up a loan).
> This is assuming you can 100% trust your partners (which should be a requirement when starting a company anyway) because a GbR implies that each of the partners is fully liable for the others' actions and decisions made with regards to the company, too. Creditors can recoup their assets from any of the partners.
That level of risk is nuts. Most companies would never get started, or lots of founders would get screwed.
There's indeed a considerable level of risk but it's often also grossly overstated. There are plenty of partnerships and sole proprietorships and there have been for years. They're doing just fine.
I agree the system is far from perfect but in my experience the people who commonly complain about the risk of setting up a partnership on one hand or the high cost and the bureaucracy that comes with incorporating in Germany on the other hand often don't really want to found a company in the first place but rather find a convenient reason not to.
After all, it's a matter of risk assessment. If your proposed business is inherently risky, you have to hire right from the start or you're looking for equity financing then by all means do incorporate. Doing so is a one-time effort (or rather a once-per-year effort when including the additional requirements for annual accounts). In a company's lifetime that effort really doesn't matter all that much.
Germany and the EU in general is a civil law system (the UK and Ireland being exceptions). Suing a company for simple failure is not as easy as it might be in the US (though I doubt that's very common even in the notoriously litigious US legal system).
Misusing client data is a criminal offence under European data protection laws. Doing so not only makes you liable for damages no matter if you're a sole proprietor or 'merely' a managing director of an Ltd-style company but it can also land you in jail.
Finally, there are no software patents in the EU so if you run a software startup you're fine in that respect.
Because if you operate in any capacity in the US you are subject to US laws, presumably. I've worked now for 3 companies that are not US HQd but have been sued by patent trolls.
If you're the sole owner and CEO of the GmbH/UG, you're often not shielded from personal liability in these cases. Any of these actions could be considered (gross) negligence and that would pierce the limitation in many cases. Limited liability for single person GmbHs is often overstated and overrated.
Before setting up companies in a different countries than where you live: This can get very messy and you should either have the company in the country where you live or live in a country which is very tolerant (tax-wise) about having companies in other countries.
On a secondary note: Germany is the worst country to incorporate: bureaucratic, expensive, tax offices are expensive and stuff is complicated, worst privacy regulation to come (from a company perspective), Labour is expensive compared to their skill level and English skills.
One good thing though: since share transactions are done with state notaries there is more safety when doing them and less need for lawyers for simple transactions. For more complicated transactions with higher funds it gets expensive again. The Articles of Association must be German, the rest can be in English.
A few cents from my side, setting up a company like GmbH or UG helps when you target a German market.
Germans are like that, they love to see the GmbH after the name of the company that they own or they buy / collaborate with.
Now an UG is young in comparison to GmbH, it is slowly being accepted.
It is not a fee you have to pay, you have to guarantee this amount of capital, sort of as a signal to other companies in the market what solvency to except at least :-)
You can actually spend the money on things after the court verified the capital is present with your corporate bank.
This is the same as an AB. Many start by having €5000 and then selling things they own such as computers to the AB, to get the funds "back". I think Sweden changed from €10000 to €5000 a couple of years ago.
If the UG or GmbH goes belly up, am I in any way personally responsible?
The point where you’re selling private property to your company is the moment you really really really want to talk to a good tax accountant in germany. If you sell above reasonable price it’s considered tax fraud (verdeckte Gewinnentnahme) and the reasonable price is likely to be a point of contention between you and the tax authorities. Unless you haven very valuable machinery you want to place into the company it’s usually not worth it and in this case you’d want a third party to certify the price. You can, however, pay yourself a reasonable wage and there are pretty clear guidelines on what’s considered reasonable. Much cleaner and easier.
Personal liability is a bit a complicated topic. If you’re a pure shareholder, your liability ends with the value of the shares. If you’re at the same time the only shareholder and the CEO and only employee you can be liable for quite a few things. (Social security, taxes, damages for your personal actions, anything that constitutes fraud, ...)
This is simple and applies to most (Western) jurisdictionS: don't sell anything to a company you own or control, at an above market rate.
Now, there are many ways to value something, and there is generally some room for interpretation on how much to charge exactly. But you will need to find a way to justify the price at which a transaction was concluded.
With IP it gets a bit blurry (e.g. you might own some trademarks you want to transfer to your new company), but again, there are a ton of perfectly acceptable ways to value something and not face the wrath of your local tax collector. Just make sure you have a reasonable valuation, based on objective facts, and you'll (mostly) be fine.
This is a deceivingly simple and dangerous assertion.
Some people form a GmbH/UG as a sole owner/ceo with the goal that it shields them personally from liability, but never intend to take on investment or have employees. Personal liability tends to creep in in a lot of places, piercing the shield. Many rental contracts for example will stipulate a personal liability for the owner/ceo in such a case. A credit line for the company might as well, even something as simple as a credit card for the company does. The CEO is personally liable for quite a few things that are not as clear cut as it seems at first glance: You may be liable for correct tax filing and in taxes, many things are judgment calls with a thin line between what's considered a valid way to reduce taxes and tax fraud. Personal liability may creep in from declaring insolvency too late in the hope that the next contract will save the company. Haven't filed the taxes because you need to bring in money? Company can't pay the taxes right now? A common thing when companies go down, but personal liability. It might creep in by entering contracts that the company cannot reasonably fulfill and the CEO should have known, but looked the other way because they hoped that things will just work out fine.
True, if you did everything lawfully, then you're probably shielded, but despite best efforts, most people and companies slip up sooner or later.
There are many reasons to form an LLC, but the hope of shielding yourself personally as a single developer/consultant is often in vain.
I didn't mean to make it sound simple. Thank you for expanding on that.
The ones dictated by law are certainly tricky, because those apply to you by default and you might not know about them. I wouldn't throw credit line/rental into that same mix though, since those are contracts you enter willfully and those contracts explicitly state that you are personally liable if the company can nlt meet its obligations.
The ones you contractually enter into are certainly more obvious in hindsight (and easier to avoid by just not having a credit line for example), but I'd still throw them in the same mix because people do not think of those when they plan to form an LLC. My general point is that personal liability in small companies tends to creep in through the cracks one way or another.
Just to be clear, you don't pay the gov't €5000 to start a Swedish AB, but you need a minimum of €5000 share capital.
If you want to be a sole trader (enskild näringsidkare/enskild firma) you need zero capital and the registration cost is zero (costs about €100 to register a company name but that's optional) and everything can be handled online, although if you're not a Swedish resident you'd need a temporary personal number from the tax agency first.
That is not true at all. You need to have that initially in the bank but you can absolutely spend it on whatever the company needs - services, wages, things. You can absolutely have a GmbH or UG without any cash left.
You need to file an end of year statement (Bilanz) with the register court the year after and these can be obtained for a moderate fee. The exact details on what needs to be filed depend on the size of the company, details (in german) are in this article https://www.gmbh-guide.de/jahresabschluss-bundesanzeiger.htm...
You have to submit your balance sheet each year, and with a short lag it is available online on https://www.handelsregister.de where you can buy the info on any GmbH incl. persons who own it.
German business owner here. The accountants and tax lawyers here have all told me the UG is looked on with suspicion by the tax authorities.
Don't start a company in Germany. Don't take it from me, take it from the World Bank, which ranks Germany 114th in the world for ease of starting a business. Just narrowly edging out the Dominican Republic.
Dunno, I know a happy owner-employee of an IT consulting GmbH and I'm currently setting up my own, 2/3 of the way through. It doesn't seem like a big deal. I kind of expected more bureaucracy tbh ;)
Bureaucracy in Germany is an interesting meme. Everybody complains about it, I did as well.
Then I encountered the bureaucracy in the US. It's even more forms, more officials that get a say about everything (Different sales tax at all levels down to the county, wtf?), they're slow to deal with even for non-complex matters (the reason why Zootopia's DMV employs sloths totally went over the heads of most of my [German] acquaintances), and with little organization.
On a tangent (since it's not "public" bureaucracy per-se): You get a corporate bank account with credit line within a day in the US. That's wonderful. Now try to send money to an account at a different bank within the country, within a day. I'll wait.
So yes, Germany has a huge bureaucracy. But work with them and they'll work for you (I got tons of useful advice, for free, when I asked them how to approach whatever it is I went to them in the first place) - and compared to many other places bureaucracy seems highly efficient here.
This needs explanation: You only need to deposit half of the 25k up front, the rest... really only when the limited liability is invoked in a bankruptcy.
I wouldn't call setting up a GmbH especially difficult or complicated, just slow (2-4 weeks). Your tax advisor/accountant and notary can help and advise you in case there are questions.
Yes totally, what I was trying to say is that instead of founding an UG where you have to put 25% aside until you hit the 25k, it makes much more sense to simply found a GmbH with 12,5k that comes with its prestige and it will make it much more easy to do business with others.
But why do this instead of setting it up somewhere in the US? Having an office there - if you already have HQ or something in the US - might have benefits. But I doubt choosing most places in EU would have benefits over the US.
I thought the way that one Apple subsidiary avoided taxes was pretty clever. The USA taxes corporations by their headquarters location, and Ireland taxes companies by their physical presence. So apple created a headquarters in Ireland, but did physical business in the USA. So the USA didn't tax it because it's HQ was in Ireland, and Ireland didn't tax it because it's physical presence was in the USA. So that subsidiary paid absolutely zero taxes, they didn't even file. It saved Apple a good 5 billion dollars.
> But why do this instead of setting it up somewhere in the US?
Because then you have an LLC in the US.
The article opens with "A quick google search of 'How to setup a company in Germany' yields numerous results". Its target audience is likely the sizable expat community in Berlin.
I'm selling my empty gmbh ready setup (as shutting down a gmbh costs 3000 euros and setting up one is equally expensive this is a win-win even if it sells just for a few euros) contact me if interested. contact gmbh_selling@ntr.io
A GmbH would need to have proper accounting, all liabilities would have to be in the books. Anything else would be fraud and that’s one of the things that suddenly pierces the veil of the limited liability for the CEO (whether you can extract any money from the seller is a different, albeit related question) Do your diligence. You could also make the personal liability part of the sale. On the upside, buying a used GmbH may come quite a bit cheaper if the company owns no assets: the initial 25k are not a minimum that needs to be kept, they can be spent on things the company needs, so you might be able to pick up an empty shell for far less than that amount.
I’d not buy a GmbH from a random person on the Internet, but if you’re in a hurry to get a GmbH set up, there are notaries and lawyers that specialize in selling ready-made GmbH shells.
You’d still have to get the sale notarized and probably need to jump through a few hoops to rename the company to something suitable, but there are a few reasons that may be attractive, primarily that it offers limited liability from day one. Quite a few people forget that in the intermediate phase between notary and confirmed registration (GmbH in Gründung) the shareholders are personally liable for all businesses and contracts that the company enters into.
Normally you would have an accountant you trust, (i would highly advice against trying to do GmbH paperwork yourself) he/she would get directly in touch with the company that does the current tax and accounting work for my GmbH and do the vetting for you. Germany has very strict publication and documentation laws for GmbH's so there is not really some hidden liability possible, if there was that could get me to jail even if i wasn't trying to sell the company...
The tl;dr version is US citizens can get a residency permit (2 years, renewable indefinitely, considered a non-temporary purpose of stay so you're eligible for permanent residency after 5 years) to start a business in the Netherlands with very few restrictions and very little in the way of capital requirements (€4500 in the business account.) Plenty of attorneys in the Netherlands can take care of the necessary paperwork for €1500, give or take, but lots of people manage it themselves too.
A few blogs and guides of the many out there:
https://daftvisa.wordpress.com/step-by-step-guide/ https://survivingdaft.tumblr.com/ http://passthesourcream.com/daft/
Furthermore, US taxpayers have crazy FBAR/FATCA reporting requirements about any money you have signatory rights outside the US, even if it isn't their money - to the point that having e.g. a CFO with a US citizenship -- even if they never set foot in the US -- is becoming a serious liability for a company.
E.g. I decided against Estonia for my SaaS business because Stripe is not available there (among other reasons), since that alone probably creates more hassle than founding the company there saves.
In Europe right now and maybe 25-75 on just pulling the trigger... who knows if our so-called president ends up doing something stupid that blows up this treaty? No other easy paths to residency in the EU as far as I’m aware!
If you're a US citizen another temporary option (but among the easiest) is to get a working holiday visa for Ireland. I believe it's the only EU nation offering working holiday visas to the US. I probably wouldn't bother with it if the DAFT were an option - when I got one it was much earlier in my career.
Not sure how the residency requirement is a bad thing? NL is pretty nice as I understand it. Incidentally, this blogger did the DAFT and describes their experience: http://shawnindutch.com/
If you want to spend 4-6 months a year there for kicks just go as a tourist; you can spend up to 90 days at a time in Schengen twice a year.
Of course, you can also just buy your way in if you have cash. Malta sells EU passports.
https://www.ft.com/content/6f98892e-fbf3-11e5-b3f6-11d5706b6...
Essentially all you need is a normal IT job above a certain threshold
Now I live in Japan and most programmers I meet do not speak English at all (leading them to be pretty poor programmers).
Proficiency is not equally distributed.
"Today, the Dutch are on average the tallest people on the planet. Just 150 years ago, they were relatively short. In 1860, the average Dutch soldier in the Netherlands was 5-foot-5. American men were 2.7 inches taller."
https://www.seattletimes.com/nation-world/why-the-dutch-beca...
If you'd like to have yourself heard/understood in the EU, even though English should generally suffice, German is another contender. In Italy its quite well understood (esp the north) and many Eastern European countries as well. Though perhaps Russian even better, I don't know.
As for Germany, the Germans living in cities like Berlin and Munich speak excellent English.
Also, her job in a hospital means she needs to speak the local language "unless--" .. which probably means unless they have a specific need for a native english speaker who does not have to know the local language, or if it's an American military hospital, or...
If you wanted to serve a largely German speaking clientele, then you could reasonably expect to get a decent number of applicants in the Netherlands in my experience, especially in the border regions. The kids here are still learning German and French in school, and while they might speak it less, there are still plenty that go there regularly.
I've been in SV for 3 years, but never went for the green card. The US won't let me stay, so I guess I'll have to go suppress wages somewhere else.
Looking more into this, looks like there is a special 50k gbp if the money is coming from local VC's or government grant.
In my case I have a side product that is fielding licensing inquiries, and I'm looking to bootstrap (figure that's just as time consuming as fund raising).
I don't have 200k gbp in the bank, and I'm not willing to nor see the need to gamble with family and friends' money. So to me the UK scheme falls into the category of "major capital requirements".
Source: I helped the government build a database registering their citizen every move. Currently has 10000 A4 pages of meta data on average on every citizen of meta data alone. Just meta data.
Founding a GmbH is not only relatively expensive, it also takes time. Many founders avoid incorporating themselves but prefer to buy a new GmbH. This is actually a business here, there are companies that keep a pool of fresh GmbHs and sell them to founders. Search for 'Vorratsgesellschaften' if you are interested in going that route.
The primary issue is that you can't just take money out of an GmbH/UG/AG (Kapitalgesellschaft). The act itself requires a shareholder meeting (easy if you're alone) and a balance sheet is required (less easy). You can't take money that would put the balance of the company below the required minimum, ... Basically, the money placed into the company is frozen, you mostly can only access the earnings.
You can, however, pay yourself a regular wage, but this wage needs to be treated like a normal wage: needs to be paid monthly, needs to be fixed, ... This will likely become an issue if the company has no established cashflow. You can also take shares of the earnings (Tantieme) as part of your wage, but that also requires a balance, so it's usually done when the yearly taxes are filed. They'd be taxed like your regular income and the company would not pay any extra tax on those (simplified, they're treated as wages paid, so regular costs that reduce the earnings).
- Sooner or later you will have to convert your UG into a GmbH anyways - Most banks don't offer bank accounts for UGs, and those that do often under really shitty conditions
Bank accounts for UGs are available at the same conditions as for a newly formed GmbH (no credit line, no credit card, ...). Generally speaking, bank accounts for newly formed businesses have shitty conditions.
Germany has a strong culture of entrepreneurship - being not employed but "selbstständig" (occupationally independent) is held in high regards. In my experience, while burocracy can be complicated, officials are very willing to help (I haven't made the jump myself, but I know from others). And one thing that is nicer in Germany / Europe is that it seems less litigious than the US. I would be constantly afraid to get sued or to break some unknown law in another US state, whereas here if you get a good accountant and avoid a few common pitfalls, you are pretty safe.
[1]: https://de.wikipedia.org/wiki/Kleinunternehmerregelung_(Deut...
> As long as you expect to stay under 50000 € in sales in a given year, you can be treated as a private person
This is false. The conditions is that business volume [1] including taxes has not exceeded 17500 EUR in the previous year and at the same time is not expected to exceed 50000 EUR in the running year. If you're a newly founded company you need to file an estimate of your business volume with the tax authorities and if the estimate exceeds 17500 EUR you can't take advantage of the Kleinunternehmerregelung. Also note that the 17.500 EUR limit applies to the sum of all companies you own, you can't have two companies with a volume of 17500 EUR each.
It's really only good for a side business and in some narrow circumstances where you sell mostly to private customers.
If you want to bootstrap, you're much more likely to benefit from filing your VAT (anything you buy will be discounted 19% effectively, you can have your VAT filed by an accountant from the saving of buying a single expensive computer).
A fairly good summary (in german) with a handy flowchart at the bottom is here http://www.kleinunternehmer.de/kleinunternehmerregelung.htm
[1] minus VAT-free services etc. ...
If you take no outside money (yet), have no employees (yet), and don't buy many goods, you don't really have any benefit of either not paying VAT, or getting limited liability. This is for people who have a side-business of "making websites". You can register a simple business ("Gewerbe") when you have to write an invoice, or start making regular income.
Of course, if there is real capital investment involved, or once this is not just a side business, you have to do more.
You also need to file the registration with the tax authorities before you write your first invoice (you need a tax number for a correct invoice).
As a general rule of thumb: You don't simplify when it comes to taxes.
(Side note: This is still unrelated to registering a company or even registering with the Gewerbeamt which may or may not be required depending on what exactly you do. Members of the Freie Berufe for example don't need that.)
It get's more complicated once you have employees, but even that's not relevant compared to almost any other aspect of a business. I think we're paying EUR30 per quarter for managing the employees taxes and various benefits.
If you're doing GAAP accounting, you're 95% done with taxes as well. And since these standards have converged over the years, the only difference in bureaucracy that remains is people's enduring stereotypes.
My business has been around for 10 years this year, so who knows wtf you’re on about.
Which means that unless you're in the business of flipping LLCs, "way easier" seems like a made-up concern to me.
You can also sign up for taxes online in a few clicks.
Can't they simply set up an LTD in Ireland and "use" it in Germany?
I know some Germans who did this for tax reasons, but I could imagine that Ireland formalities are easier to understand for English speakers.
Registering a British LtD used to be common when the UG didn’t exist and you’d need at least 25k for a GmbH to get limited liability, but it’s fallen a bit out of fashion since then.
I went this route, using an accountant recommended by a trusted friend. Bought an existing "off the shelf" company and have a Maltese business bank account, all without leaving the comfort of my desk.
People need to understand this: there is no free lunch. If you think you can be classified as a Maltese company, sitting at a desk in <insert random European country here>, you are dead wrong in 99.9% of the cases. Get proper tax counsel (not an accountant, a lawyer -- accountants are generally sloppy with details, and details matter, e.g. a word in a contract can matter).
Technology and internet based businesses have some unique opportunities to optimise taxes, but the line between fraud and optimization is quite thin.. get good counsel, or prepare for a dispute where you take your (local) tax authority to court.
Source: a decent knowledge of corporate and tax law and plenty of tax disputes, which I've mostly won.
In addition, (Maltese) social security might be due on salaries received, or could be exempt.
I notice that you have not mentioned the word “lawyer”. Instead you said accountant and professional. I’m going to write the rest of this on the assumption you have not spoken to a tax lawyer.
You’ve set up a structure for years, and are likely investing tens or hundreds of thousands in equity.
A consultation with a good tax lawyer can be had for $100-$200 in most cases, or even free sometimes.
Your situation might be 100% correct! In which case, you have spent very little.
But if your situation is wrong? You risk the total destruction of your business, tens of thousands in penalties and legal fees, and possibly jail.
Speak to a lawyer, if you haven’t.
Incidentally, I had the same idea as you: Canadian business, international clients. Could I incorporate abroad and save? My tax’s lawyer’s answer was no, the local revenue authorities would not see it that way.
You’re in another jurisdicion, so the plan may work. But, you will spare yourself the possibility of ruin by checking with a tax lawyer in the jurisdiction you live in.
She's knowledgeable and is clearly aware that the advice being given by her current accounting office is much worse (and often incorrect) in comparison to the advice given by people at her previous job.
They're excellent at handling accounting, but not good at structuring (non local) things and avoiding tax.
A wealthy family with a company that employs 1000+ people will generally get away with more than a lone wolf with no political connections (not that I'm saying you're a lone wolf, just saying it's not always clear cut). Best of luck!
right, all $200/yr worth of work.
anyway, Europe is full of little hamlets that offer convenient incorporation services.
And the whole purpose of GmbH or LTD is to limit liability if something goes wrong - but I wouldn't want to have to defend myself or liquidate my company in a irish or maltese jurisdiction...
Makes the company more trustworthy for potential partners since they won't face closed doors from one day to the next, but otherwise makes little difference: a company in liquidation is really low maintenance if the paperwork is in order.
The caveat is this though: You and your partners will be personally liable for the company's liabilities. In most cases however this doesn't matter as much as is often presumed. This is assuming you can 100% trust your partners (which should be a requirement when starting a company anyway) because a GbR implies that each of the partners is fully liable for the others' actions and decisions made with regards to the company, too. Creditors can recoup their assets from any of the partners.
First of all, as long as it's just you and potential partners, who put in their own time there usually isn't a whole lot of financial risk involved anyway. That changes once you decide to hire employees. At that moment you quite likely should incorporate.
Secondly, in many cases even with a GmbH or UG you will be held personally liable as a managing director anyway (for example when taking up a loan).
That level of risk is nuts. Most companies would never get started, or lots of founders would get screwed.
I agree the system is far from perfect but in my experience the people who commonly complain about the risk of setting up a partnership on one hand or the high cost and the bureaucracy that comes with incorporating in Germany on the other hand often don't really want to found a company in the first place but rather find a convenient reason not to.
After all, it's a matter of risk assessment. If your proposed business is inherently risky, you have to hire right from the start or you're looking for equity financing then by all means do incorporate. Doing so is a one-time effort (or rather a once-per-year effort when including the additional requirements for annual accounts). In a company's lifetime that effort really doesn't matter all that much.
I only hope you don't fail to deliver and get sued, misuse client data and get sued, get accused of patent infringement et al.
Seen all of these happen.
Misusing client data is a criminal offence under European data protection laws. Doing so not only makes you liable for damages no matter if you're a sole proprietor or 'merely' a managing director of an Ltd-style company but it can also land you in jail.
Finally, there are no software patents in the EU so if you run a software startup you're fine in that respect.
On a secondary note: Germany is the worst country to incorporate: bureaucratic, expensive, tax offices are expensive and stuff is complicated, worst privacy regulation to come (from a company perspective), Labour is expensive compared to their skill level and English skills.
One good thing though: since share transactions are done with state notaries there is more safety when doing them and less need for lawyers for simple transactions. For more complicated transactions with higher funds it gets expensive again. The Articles of Association must be German, the rest can be in English.
Now an UG is young in comparison to GmbH, it is slowly being accepted.
I think the registration cost another ~€150.
You can actually spend the money on things after the court verified the capital is present with your corporate bank.
If the UG or GmbH goes belly up, am I in any way personally responsible?
Personal liability is a bit a complicated topic. If you’re a pure shareholder, your liability ends with the value of the shares. If you’re at the same time the only shareholder and the CEO and only employee you can be liable for quite a few things. (Social security, taxes, damages for your personal actions, anything that constitutes fraud, ...)
Now, there are many ways to value something, and there is generally some room for interpretation on how much to charge exactly. But you will need to find a way to justify the price at which a transaction was concluded.
With IP it gets a bit blurry (e.g. you might own some trademarks you want to transfer to your new company), but again, there are a ton of perfectly acceptable ways to value something and not face the wrath of your local tax collector. Just make sure you have a reasonable valuation, based on objective facts, and you'll (mostly) be fine.
Not as long as you did everything lawfully.
Some people form a GmbH/UG as a sole owner/ceo with the goal that it shields them personally from liability, but never intend to take on investment or have employees. Personal liability tends to creep in in a lot of places, piercing the shield. Many rental contracts for example will stipulate a personal liability for the owner/ceo in such a case. A credit line for the company might as well, even something as simple as a credit card for the company does. The CEO is personally liable for quite a few things that are not as clear cut as it seems at first glance: You may be liable for correct tax filing and in taxes, many things are judgment calls with a thin line between what's considered a valid way to reduce taxes and tax fraud. Personal liability may creep in from declaring insolvency too late in the hope that the next contract will save the company. Haven't filed the taxes because you need to bring in money? Company can't pay the taxes right now? A common thing when companies go down, but personal liability. It might creep in by entering contracts that the company cannot reasonably fulfill and the CEO should have known, but looked the other way because they hoped that things will just work out fine.
True, if you did everything lawfully, then you're probably shielded, but despite best efforts, most people and companies slip up sooner or later.
There are many reasons to form an LLC, but the hope of shielding yourself personally as a single developer/consultant is often in vain.
The ones dictated by law are certainly tricky, because those apply to you by default and you might not know about them. I wouldn't throw credit line/rental into that same mix though, since those are contracts you enter willfully and those contracts explicitly state that you are personally liable if the company can nlt meet its obligations.
If you want to be a sole trader (enskild näringsidkare/enskild firma) you need zero capital and the registration cost is zero (costs about €100 to register a company name but that's optional) and everything can be handled online, although if you're not a Swedish resident you'd need a temporary personal number from the tax agency first.
Don't start a company in Germany. Don't take it from me, take it from the World Bank, which ranks Germany 114th in the world for ease of starting a business. Just narrowly edging out the Dominican Republic.
It sucks.
Then I encountered the bureaucracy in the US. It's even more forms, more officials that get a say about everything (Different sales tax at all levels down to the county, wtf?), they're slow to deal with even for non-complex matters (the reason why Zootopia's DMV employs sloths totally went over the heads of most of my [German] acquaintances), and with little organization.
On a tangent (since it's not "public" bureaucracy per-se): You get a corporate bank account with credit line within a day in the US. That's wonderful. Now try to send money to an account at a different bank within the country, within a day. I'll wait.
So yes, Germany has a huge bureaucracy. But work with them and they'll work for you (I got tons of useful advice, for free, when I asked them how to approach whatever it is I went to them in the first place) - and compared to many other places bureaucracy seems highly efficient here.
I wouldn't call setting up a GmbH especially difficult or complicated, just slow (2-4 weeks). Your tax advisor/accountant and notary can help and advise you in case there are questions.
Because then you have an LLC in the US.
The article opens with "A quick google search of 'How to setup a company in Germany' yields numerous results". Its target audience is likely the sizable expat community in Berlin.
Simpler advice; buy a ticket to Bratislava and take it from there.
I’d not buy a GmbH from a random person on the Internet, but if you’re in a hurry to get a GmbH set up, there are notaries and lawyers that specialize in selling ready-made GmbH shells.
You’d still have to get the sale notarized and probably need to jump through a few hoops to rename the company to something suitable, but there are a few reasons that may be attractive, primarily that it offers limited liability from day one. Quite a few people forget that in the intermediate phase between notary and confirmed registration (GmbH in Gründung) the shareholders are personally liable for all businesses and contracts that the company enters into.