In our glossary, we have tried to summarise the most important terms relating to the topic of “starting a business in Germany” and “self-employed in Germany” for you. Enter the term you are looking for in the search field or click in the search field, and the listed terms will appear in alphabetical order. If a term is not mentioned, email us, and we will give you feedback as soon as possible and expand our glossary.
Advertising material refers to print material with which you address a specific target group or the public. Advertising material is especially important to acquire new customers.
Classical advertising materials include, for example:
- newspaper adverts, flyers, posters, mailings
- online advertising, e-mails, own homepage, QR codes, social media
- advertising gifts like pens, lighters or bags with your company logo
SGB II (Social Code II) benefits, such as Arbeitslosengeld II welfare benefits, are generally accorded for six months. If you still need assistance after that time, you need to apply for continued approval. This is only approved from the date of the application. The application should therefore be submitted before the end of the last approval period.
If you want to found a company, you sometimes need special approvals from authorities or public bodies. Other terms for approval are authorisation or permit.
- If you want to open a restaurant, you need a health certificate and a trade certificate.
- If you want to establish a crafts business, you sometimes need a master qualification and a trade certificate.
- If you want to open a physician’s practice, you need the permission of the Medical Association.
You can find information online on the websites of the federal states about which approvals are required for your undertaking. You can also obtain information from the Chambers of Industry and Commerce, the Chambers of Trade and Craft or from lawyers.
You can also go to our map of counselling offices and ask a counsellor if you need specific approvals.
Arbeitslosengeld II (welfare benefits, also known as ALG II and Hartz IV) is a benefit unlimited in time that serves to ensure a minimum level of income for job-seekers and workers who cannot provide for themselves, or not in full, from their income, assets or other benefits (e.g. unemployment benefits). In contrast to unemployment benefits, ALG II is not paid from the unemployment insurance but from taxes.
Arbeitslosengeld II is paid by the job centre and can be applied for if:
- You are unemployed and have no right to unemployment benefits,
- Your right to unemployment benefits is about to expire and you require further assistance,
- You work but your income is not enough to provide for you and your family, and other conditions are met, including:
- You are at least 15 years old and have not yet reached the age of retirement.
- You live in Germany and your life is based here,
- You can work for at least 3 hours a day and
- You or members of your household are in need of assistance.
The amount of the welfare benefits is based on your needs to provide for your cost of living and the costs for accommodation and heating. How many people you live with also plays a role. This constitutes your household. For the calculation, the income and assets of the members of your household are considered.
If you receive welfare benefits and want to become self-employed, you can apply for so-called set-up funding (Einstiegsgeld). Even if you don’t receive any set-up funding, the job centre can help you on your path to self-employment: If, for example, you only have a few orders and do not yet earn enough money, you can receive the remaining money for your living costs, rent and health insurance from the job centre. Furthermore, you can apply to the job centre for grants or a loan, e.g. for small investments or expensive items up to an amount of 5,000 euros.
The articles of associationregulate the tasks and duties of management and shareholders, determine management representation and the payment and distribution of profits. In the case of a corporation, some content is required by law and a notary must authenticate it. It is best to consult an attorney beforehand if you need articles of association.
The Künstlersozialkasse (KSK), or Artists’ Social Welfare Fund, enables independent artists, journalists and musicians access to public health, care and pension insurance. In contrast to voluntarily insured independents, they only pay half of the due contributions. The other half of social welfare contributions is financed by the KSK through grants from the federal state and a contribution by the companies who exploit artistic and journalistic services. The monthly contributions paid by insured persons to the KSK depends on the amount of their work income.
Important: There is an obligation to be insured with the KSK.
A beneficiary is a person who receives welfare benefits from the state for their livelihood. This can have many reasons:
- No work may be carried out.
- Own income is insufficient to provide a livelihood.
- Rent too high.
Benefits in this context include:
- Unemployment benefits (Arbeitslosengeld)
- Arbeitslosengeld II (Welfare Benefits)
- Benefits based on the Asylum Seekers Benefits Act
- Housing benefits
- Child benefits
Book-keeping means the records of all the business events affecting your company (income and expenses), ordered chronologically and by subject and based on proof (invoices, till receipts, receipts). Business events include, for example, (i) the purchase of materials, (ii) the consumption of raw materials, (iii) the payment of salaries, (iv) the sale of finished products and much more. Book-keeping therefore reflects the financial situation of your company and is therefore an important source of information, e.g. to calculate profits and losses.
Founders (mostly) need additional money to finance their intended establishment: borrowed capital Borrowed capital, unlike equity, is a form of financing in which the capital is only provided for a certain amount of time. In exchange for providing the capital, the lenders generally receive interest and demand repayment after an agreed period.
A loan from the bank or a subsidy from the federal state, the individual states or the municipality are examples of borrowed capital. Money that you borrow from friends or family is also borrowed capital.
The business plan – also called a company plan, company concept or business concept – is the written expression of the idea with which you intend to become self-employed. You describe how you want to implement your idea and what you want to achieve following the foundation of your company. Besides the description of your idea, you also show the budgeted income and expenses.
A business plan should for example include:
- Who you are and why you want to be self-employed.
- What your idea is and where the site should be.
- Why your idea is good.
- How you can earn money through your undertaking.
- How you will finance your company. You have to calculate this in advance.
- Who your customers are.
- How you will handle marketing and advertising.
- Why you are better than the competition.
- You need a precise budget: with capital requirements, financing, own needs, cost planning, profitability estimate and liquidity plan.
A business idea is an idea for a new undertaking and the starting point of your establishment of an activity. It forms the basis for the business plan that you may have to write for the establishment. The business idea does not have to be innovative or represent a world novelty for you to be successful in starting your business.
Founders should think about what business insurances make sense for their company or business. The goal is to identify business-specific risks and to cover them with corresponding business insurances. This is aimed to counter (financial) damages that could arise to a company for example through other people, your own activities or unexpected events. For example, fire insurance pays in the event of a fire in your company, while a machine insurance steps in when machines used in your company break down.
Business liability insurance is one of the business insurances and is generally essential for self-employed persons and companies. The insurance covers damages arising from the business activities of you or your employees or from your products and for which you are liable as a company. Business liability insurance protects you from the costs that an injured party may claim.
The Chamber of Trade and Craft is an organisation for craftspeople. It works towards the interests of craftspeople, provides technological and commercial counselling and provides support in all economic issues through numerous services. If you establish a crafts business, you have to register your business with the Chamber of Trade and Craft. A list of all the Chambers of Trade and Craft in Germany can be found here: www.handwerkskammer.de.
A coach can support you with questions on establishing your company and help you prepare for self-employment or provide feedback on your business plan. At the start and after the founding of your company, a coach can also help give feedback on your activities and on possible improvements to your self-employment.
Every commercial company must be entered into the commercial register, with the exception of small businesses, civil law companies (GbR) and freelancers. However, they may register voluntarily. The commercial register is a public directory that contains information about the registered office, the sector, the branches, the legal form and the capital of the company. The competent courts are the district courts where the commercial registers are filed and can be viewed free of charge by anyone. The commercial register can be used to find information on registered companies. In the case of contracts and cooperation with other companies, this is particularly helpful for finding out about future partner(s) before collaborating. At the same time, you can prove your own business activities to your future partners by referring to the commercial register.
Competition analysis aims at assessing the competitive performance of companies in a delimited market. When conducting the analysis, you should identify the strengths and weaknesses, opportunities and risks of your competitors and of your own company. Based on the information obtained, you can compare your company to the competition and pick the best strategy for your undertaking.
Corporation tax is a tax that legal entities must pay based on their income. This includes joint-stock companies (GmbH and UG), associations, co-operatives and foundations. Corporation tax is comparable to the income tax paid by natural persons. Corporation tax is calculated from the taxable income of the legal entity and is 15% in Germany.
If you have decided to become self-employed, founder counselling could be helpful. During founder counselling, you will receive important information and necessary knowledge to support you in your founding phase.
You can find an overview of our counselling offerings in Germany here.
Daily sickness benefits insurance is a private loss-of-income insurance that can protect you in the event of lost income due to sickness or accident. The insurance is a voluntary additional insurance that through the daily benefit payments can equalise or reduce possible income losses in the event of an inability to work.
Who can benefit from such an insurance? In particular freelancers and self-employed persons who have private health insurance or are voluntary insured with a public health insurance provider without a claim to sickness benefits can assure their livelihood through the daily sickness benefits. However, the sickness benefits are not paid from the start of the inability to work but only following a so-called “Karenzzeit” or grace period. With self-employed persons, this time can be reduced to 4 days.
The right to welfare benefits (Arbeitslosengeld II) is determined by comparing the existing needs to secure one’s livelihood (usual requirements, any additional requirements, costs for lodging and heating) to the relevant income. The difference forms the claim to Arbeitslosengeld II welfare benefits. The relevant income is calculated by deducting so-called deductibles from earnings.
Deductibles include for example:
- Taxes paid on income
- Obligatory contributions to social insurance
- Contributions to legally prescribed insurances (e.g. car insurance, liability insurance for certain professions).
- Subsidised pension contributions (”Riester-Rente”)
- Free allowances with gainful employment
You are in dependent employment if you have an employment contract with a company. The company where you are employed takes care of the registration with the health insurance company and the tax and social security contributions. Your health insurance contributions, your taxes and your social security contributions are paid from your gross salary without you having to take care of it. Compared to many other countries in the world, the rights of workers – so-called dependent employees – are particularly well protected in Germany. This protection is an important component of the “social market economy” as the economic system in Germany is known. There are termination protection laws, sick leave and a statutory pension system. Employment contracts should clearly state for what amount of time you will be employed by the company. They can also be for an indefinite period. However, no one can make you guarantees for long and secure employment. In Germany too, this is dependent on economic, business and international developments.
These are countries that are member states of the European Union (EU). As of June 2021, 27 countries are members of the EU: Belgium, Bulgaria, Denmark, Germany, Estonia, Finland, France, Greece, Ireland, Italy, Croatia, Lithuania, Latvia, Luxembourg, Malta, the Netherlands, Austria, Poland, Portugal, Rumania, Sweden, Slovakia, Slovenia, Spain, the Czech Republic, Hungary and Cyprus.
In addition to job mediation and labour market promotion, the Bundesagentur für Arbeit (also referred to as employment office or employment agency) is in charge of, amongst other things, calculating and paying the money due to unemployed persons: the unemployment benefits. Unemployed persons can furthermore obtain information and counselling from their job centre if they wish to become self-employed. In addition, they can apply for a founder grant for their self-employment under certain conditions.
The entrepreneurial company with limited liability (UG) is a special form of limited liability company (GmbH) and belongs to the legal form of joint-stock companies. Unlike for a GmbH, as a founder you do not need 25,000 euros of starting capital, as the UG can be founded with just one euro. UGs are therefore especially suited for small business or service providers. The shareholders are not liable with their private assets; however, there are some exceptions: Shareholders are for example additionally liable with their private assets for personal loans or sureties.
The profits of the UG (limited liability) may not be paid out in full: 25 per cent of profits must be paid into a mandatory provision until the minimum share capital of 25,000 is reached. There is no time limit for this. If the company has no profits, it doesn’t have to pay anything into the mandatory provision. If the company increases its share capital to at least 25,000 euros, the restrictions are lifted. The company can transform into a “normal” GmbH or maintain the UG (limited liability) designation.
Equity is capital that belongs to the owner or shareholders of a company. Equity is needed to finance the initial investments when founding the company. Besides cash, objects can also fall under the definition of equity. For instance, a computer that belongs to you and that you need for your company is part of your equity.
False self-employment means that one only appears to be independent without actually being so. One does not fulfil all the criteria for self-employment.
Self-employed persons are (i) not bound by geographic, time and subject or content instructions, (ii) are continuously commissioned by several clients and (iii) have their own company organisation, i.e. they, for example, have entrepreneurial risk or their own visual presence in the market.
If these requirements and rules are not fulfilled, this constitutes “false self-employment”. A false self-employment frequently exists when the self-employed person continuously only has one client.
Important: False self-employment is forbidden in Germany and is a punishable offence – both for the falsely self-employed person and for the person who employs them.
Every person has the right to exercise a trade independently as long as this does not violate existing laws or is not subject to legal restrictions. The possibility of free entrepreneurial activity associated with the freedom to trade is a major feature of a market economy. In Germany, the freedom to trade is guaranteed by Article 12 of the Basic Law (Grundgesetz) and is regulated in detail in the Trades Regulations.
The freelance professions include academic, artistic, literary, teaching or educational activities carried out independently. Freelancers generally only provide services, which differentiates them from other self-employed who trade or manufacture products. Generally freelancers need a university degree or a special training. The tax obligations are also specific: no municipal trade tax is due on freelance activities. The proof to be provided to the tax authorities regarding income for the annual tax declaration is also simpler than for traders – a profit-and-loss statement is generally enough. Whether the self-employment activity belongs to the freelance professions is decided by the responsible tax authority, which is also where you register your freelance activity – in contrast to a trade that is registered with the trades licensing office.
If you enter self-employment with at least one other person, a Gesellschaft bürgerlichen Rechts (civil law partnership) is automatically formed. Special formalities are not required; a verbal agreement between the parties is enough. However, having a written contract is recommended. For a GbR you don’t need any initial share capital, but as a partner you are liable with your private assets for all liabilities of the partnership. If you register as as small business, then you may not exceed a certain annual turnover (in 2021, no more than 22,000 euros). With a GbR you are not obligated to keep accounts.
Incidental costs of monetary transactions are costs that your bank or other persons charge for concluding payments and financing for certain services and that are not interest payments. This includes, for example, account management fees, commissions, reservation fees, processing fees for a loan, etc.
Income tax is the tax that is collected on the income of natural persons and is paid to the state. As a self-employed person, you or your tax consultant must determine the amount of your income tax and transfer it to the tax authorities. The income tax table, which is newly created each year, shows you the amount of income tax deductions at a glance.
To prevent the tax burden from being too high at the end of the year, the tax authorities request advance payments to be paid by taxable persons (business owners and freelancers) over the year on 10 March, 10 June, 10 September and 10 December. However, these only need to be paid if they amount to at least 400 EUR in the calendar year and at least 100 EUR for the time of the advance payment. The amount of the advance payments is determined by the tax authorities based on the previously paid income tax.
After submitting the annual tax declaration, the tax authorities deliver a tax notice stating the amount of income tax to be paid. Should this be higher than the total amount of all already paid income tax advance payments, the remaining amount is then to be paid.
Deciding on the legal form has personal, financial, tax and legal consequences for you and your company. As every legal form has benefits and disadvantages, the right legal form depends on your company. The following questions can help answer what legal form is suited to your undertaking.
- Do you want to establish it alone or with others?
- Who should lead the undertaking?
- How much equity do you have?
- Is your undertaking risky?
- Should personal liability be limited?
- Should there be as few formalities as possible for the establishment?
- Should the undertaking have a strong creditworthiness?
- Is entry into the commercial register required?
- Do you wish to exercise the right to enter it into the commercial register?
An overview of the legal forms can be found here.
The limited liability company is a form of joint-stock company. It is particularly suited to founders who do not want to be liable with their personal assets. A limited liability company can be founded alone or with other shareholders. You need at least 25,000 euros of minimum capital (the 25,000 euros can also be partly in kind), but you only need to pay in half that amount immediately. Every shareholder must pay in at least 100 euros. For the establishment, you need articles of association certified by a notary. A GmbH is a legal entity and can, for example, conclude agreements. A GmbH has to pay corporate and municipal trade taxes. GmbHs are obligated to keep accounts (double accounting including an annual balance sheet).
Important: A GmbH must be entered into the commercial register.
Location analysis is the examination, assessment and selection of a suitable location for your company. A good choice of location should not be underestimated; depending on company-specific factors, it can affect the success of your company. This influence is not the same for every undertaking and varies from company to company. Which decision criteria apply for you therefore depends on the industry, your potential customers and other factors.
The various criteria include:
- Do you need a store?
- Who will be your customer, and do you need walk-in clients?
- Can your clients reach your business easily, and are there enough parking spaces?
- Where do you perhaps have social networks that could be important for your undertaking?
- How high is the rent?
- Are there competitors at your location?
Self-employed persons only have to keep a log book if the company car is also used privately. All business and private trips with the car are then entered into the log book. For business trips, the following information must be documented:
- Start and destination
- Purpose of the trip (for example which customer precisely you visited)
- Driver of the car
- Odometer status at start and end of trip.
- Any diversions, with reasons for them
For private trips, only the odometer status before and after the trip needs to be recorded. The log book is evidence for your tax declarations, as you list in the log book when you used the company car for your self-employed work. Only the trips covered for business purposes can be recorded as business expenses and deducted from your income. The private use on the other hand is an advantage in kind that is considered a business income.
The pension insurance is part of the social welfare insurances, together with health, care, accident and unemployment insurance. These insurances are mandatory. However, for most self-employed persons there is no mandatory insurance. If you are self-employed and are not bound to mandatory pension insurance, you may voluntarily pay into the public pension insurance and/or conclude a private pension insurance contract.
Self-employed persons with an insurance obligation are:
- craftspeople and cottage industry craftspeople
- teachers, midwives, educators and care workers
- artists and journalists
- self-employed persons with a contractor
- sea pilots and coastal captains and fishers
- some other self-employed professions.
If you are a craftsperson and want to become independent, you should first check what conditions need to be fulfilled for self-employment. Many crafts and trades have a “master requirement”. This means that you may only exercise this activity independently if your have the corresponding master certification.
However, for some of these professions requiring a master certification, a right to exercise (Ausübungsberechtigung) may be acquired that allows you to work independently in your trade even without a master qualification. The preconditions for acquiring it are: at least six years of professional experience in the relevant trade (not including apprenticeship time) and at least 4 years of these in leadership positions with corresponding decision-making authority.
You can check whether your profession belongs to the crafts with a master requirement in our Glossary of Professions, or get in touch with one of our counsellors.
A network refers to the contact or social interaction between you and other people, groups, organisations or companies. Contact to other self-employed persons can be especially valuable to exchange information and obtain tips on running a company. There are also special networks for founders that can support you with counselling, information, qualifications, coaching, contacts or exchange of experience.
You can find networks for founders in your vicinity here: www.gruenderinnenportal.de/bga_ifex/Netzwerke/index.php.
When you submit an application to an authority (e.g. the job centre or the employment agency), you receive a written reply. In bureaucratese, this written reply is called a “notice” (Bescheid). If the reply is positive, you receive a notice of approval; a rejection is in the form of a notice of rejection.
If you can no longer exercise your profession at all or for a longer period of time due to illness or an accident, an occupational disability insurance can provide financial support.
For example: A baker suddenly develops an allergy to flour dust and can no longer work as a baker. The occupational disability insurance pays the baker the contractually agreed amount over a defined period. The amount and the period are defined individually.
When one acts improperly and breaks a law, this constitutes an offence. One does not observe (and instead offendsagainst) applicable rules and laws. When the offence is of a significant or a criminal nature, an investigation determines whether a penalty, e.g. a fine or prison time, should be handed out. In this case, criminal proceedings are initiated.
Personal withdrawals are when you remove something from your business for your personal use in your household.
For personal withdrawals one distinguishes between:
- money that you withdraw from your company’s cash register,
- goods and products, when the owner of a hairdressing salon takes care products home, for example
- use, when the company car is, for example, used for personal business,
- services, when you, for example, use your cook to prepare your own meals.
The profitability estimate compares the expected turnover and the expected expenses for your company in the coming three years. This is intended to help you determine whether your undertaking is profitable and if perhaps you can determine deviations from budgeted and target figures for defined goals. The profitability estimate forms a part of the business plan and can contribute to convince your borrowed capital providers of the profitability of your undertaking.
The Einnahmen-Überschuss-Rechnung (acronym: EÜR) is a profit and loss statement and is a simplified way for taxable persons to determine their earnings. Income and expenses are compared and offset. What remains is the profit or loss. It is an important component of the annual tax declaration (financial statement) of companies and has to be submitted to the tax authorities.
In a recognition procedure, based on documentation, the qualifications and professional experience acquired in the country of origin are verified to see if they are equivalent to the corresponding German profession, the so-called reference profession. Sometimes several reference professions may be of relevance. In this case, get counselling on the best professional prospects. Ideally, a recognition procedure concludes with a full equivalence. But sometimes only partial recognition is granted. You can then obtain full equivalence following a qualification, a so-called adaptation measure and/or an examination. If the foreign qualification has almost no similarities with the German reference profession, it is not recognised. You can find further information and contact persons at www.anerkennung-in-deutschland.de.
If you want to work independently, you first need to register with an institution, an authority, an office or a professional association. Who you must turn to and what rules and regulations exist depends on your profession and your company: doctors have to register with the Medical Association, traders with the trades licensing office and freelancers with the tax authorities. Sometimes you also need special qualifications, approvals or authorisations. All these necessary requirements constitute the registration formalities.
With regulated professions, specific regulations prescribe what qualifications are required to exercise them. You must be able to provide proof of the respective qualification, for instance through an examination. Examples of regulated professions are many medical professions, or teachers at state schools. If you have a foreign qualification that is important for your intended self-employment, you need to know: In Germany, regulated professions may only be exercised if the foreign qualification is equivalent to the respective German profession. This must be officially recognised. This means that you have to submit an application for recognition of your foreign qualification to the responsible authority. You can find more information at www.anerkennung-in-deutschland.de.
Residence permits are issued for specific purposes, e.g. for the purpose of training (§§ 16-17 AufenthG (Residence Act)), for the purpose of gainful employment (including self-employment in Germany (§§ 18-21 AufenthG), for residence for international law, humanitarian or political reasons, (§§ 22-26, 104a, 104b AufenthG) and family reasons (§§ 27-36a AufenthG). Specific requirements must be met for the respective residence permits. These are described in the AufenthG (Residence Act). The residence permit, which is always limited, can be extended. However, the requirements in place for the first application must still be met, and other obligations may have been added - e.g., participation in an integration course. If you have a residence permit for self-employment, you can usually apply for a permanent residence permit (settlement permit, permanent residence in the EU) after three years (commercial) or five years (freelance) at the earliest.
In Germany there is the German Social Code, which consists of 12 volumes. The first volume of the Social Code defines the fundamental social rules. One important rule is that every person has the right that their social information, i.e. name, date of birth, address, postal address, e-mail address, health insurance number, telephone number, cannot be used or disclosed to third parties without their consent. One therefore speaks of a right to privacy. Authorities like the job centre may also not simply disclose this information.
The aim of risk analysis is to identify and assess the main risks for your company in a preferably organised process. During the risk analysis, possible decisions you could take are assessed based on their consequences for your undertaking and on the likelihood of these consequences occurring. This helps you decide if you want to stick to your decision.
The sales tax is always due when services or goods are sold. The tax is a percentage addition to the sales price and is borne by the customer. In most cases the sales tax is 19%. There are exceptions, for example, for foodstuffs or hotel stays, on which 7% are due, and for services of physicians, physiotherapists and insurance representatives, on which no sales tax is due. The earned sales tax must be paid to the tax authorities.
If you buy products for your company, you can offset the sales tax you paid for them against the sales tax paid to the tax authorities. Here is an example: You sell a printer for 119 euros. Your customer paid 100 euros for the printer and 19 euros for the sales tax. You now owe the tax authorities 19 euros. In the same period, you buy photocopy paper for your business from a wholesaler. You pay 70 euros for it: 58.82 euros for the paper, and 11.18 in sales tax. You can deduct the 11.18 euros from the 19 euros for the tax authorities. You are left with 7.82 euros that you have to pay to the tax authorities at the next sales tax due date.
Persons who want to take up a self-employed or freelance activity must register this with the tax authorities. This involves registering for tax, which includes being issued a new tax number that you will later have to state on your invoices. As part of this registration, the self-employed persons have to state the amount of expected income for the year of establishment and for the following year. This is of relevance to determine the sales tax obligation. Should the income not exceed the limit of 22,000 euros in the first financial year and not be higher than 50,000 in the current year, you can benefit from the small business rule. Under this rule, invoices do not have to collect sales tax. But if the income in the first financial year exceeds the limit of 22,000 euros, sales tax must be collected on all invoices.
SCHUFA stands for "Schutzgemeinschaft für allgemeine Kreditsicherung" and is called the General Credit Protection Agency in English. SCHUFA is a company tasked with providing its contractual partners with information on the creditworthiness of clients and so to protect them from losses. This information can be read, for example, by business partners, companies, insurance companies and banks. For instance, if you apply for a loan with your bank, the bank will first check your creditworthiness via a Schufa report. You can also obtain information on business partners. This information is also called a Schufa report. If you, for example, fail to pay your debts or settle your invoices too late, Schufa will place a negative entry in your file.
Important: Every person has the right to see the information that Schufa has pertaining to them. If this is incorrect, you can ask for it to be changed.
If you receive welfare benefits and want to become self-employed, you can apply for so-called set-up funding (Einstiegsgeld) from your job centre. It is a form of financial incentive to overcome your need for assistance and is paid as a grant for a maximum of 24 months. An important aspect is that the application for the subsidy is submitted to the responsible job centre before the start of employment and that a positive expert statement is present. The job centre then decides whether you can receive the set-up funding and in what amount. There is no legal right to it.
The set-up funding is a grant limited in time to overcome your need for assistance. A precondition is that you begin an employment that pays into social security funds or a self-employed activity. There is no legal right to it. The decision on whether the set-up funding is necessary to integrate you into the labour market lies with the responsible job centre. The grant can be paid for at most 24 months and on top of your welfare benefits.
A sole proprietorship arises automatically when you enter self-employment alone as a business owner or freelancer. This is the simplest (legal) form of a company and is well-suited for entry into self-employment. You are simultaneously the owner, manager and your own boss. Freelancers only need the tax number from the tax authorities. Small business owners or self-employed trading merchants have to register with the trades licensing office. Trading merchants also have to register in the commercial register. You are free to determine the amount of your starting capital. But you also need to repay debts from your private assets. You keep 100% of the profits.
If you wish to become self-employed, you will mostly not be able to start working immediately. You will first need any special approvals, authorisations or registrations from authorities or public offices, and you will generally have to pay for these.
For example: You want to open a business. First you need to register a trade. The registration incurs expenses. If you also want to, or have to, enter your business in the commercial register, you need a certification from a notary. You also need to pay a court fee for the entry into the commercial register.
Unemployed persons thinking of starting a company and who are receiving benefits may be subsidised by the Bundesagentur für Arbeit through start-up grants. The start-up grant is initially granted for 6 months in an amount of 300 euros in addition to the benefits. You can then receive 300 euros for a further 9 months if you demonstrate that your main occupation is as a self-employed person. The conditions for a subsidy are that
- You exercise your self-employment as your main source of income and so terminate your unemployment,
- You still have a claim to benefits for at least 150 days, and
- You receive an expert declaration certifying that your business model and your personal conditions enable starting a business and long-term success in self-employment. A well-argued business plan is especially important in this regard.
Important: There is no legal right to the grant, and you should get counselling as early as possible.
In Germany, a trade is almost any economically independent activity with which one earns money. It is also referred to as stationary trade, as opposed to travelling trade. One exception is independent persons who exercise a freelance profession or are active in agriculture or forestry – these are not trades. In Germany, freedom to trade applies. This means that in theory anyone can exercise any trade. In practice, however, this freedom to trade is not unrestricted, as some trades require certain conditions to be fulfilled.
Examples of a trade:
- Grocery store or snack restaurant
- Crafts business such as carpenter or tailor
- Services, such as hairdressers, transport drivers or insurance representatives
Important: A trade must be registered with the trades licensing office. The trades licensing office will issue you with your trade certificate confirming your registration. You also have to pay taxes for your trade: municipal trade taxes.
Self-employed trade professions are travelling trades under the following conditions:
- The activity of the independent worker takes place outside a business establishment, i.e. business premises for example, or the travelling tradesman has no business establishment. The trade establishment is defined in § 4 paragraph 3 of the Trade Law.
- Travelling traders go to their clients and offer their services and goods there, not the other way around.
To exercise a travelling trade, you have to apply for a travelling trade card at the local administrative office. Generally the travelling trade card is valid across the territory of the Federal Republic. However, a travelling trade card may be restricted in its contents, issued with an expiry date and associated with conditions. While some activities are released from the obligation to acquire a travelling trade card, others may not be exercised as travelling trades. You can find an overview in the download area.
Persons who do not come from an EU member state, Iceland, Liechtenstein, Norway, or Switzerland, generally require a permit to enter and stay in Germany. There are seven different types of permits: the residence permit, the EU Blue Card, the ICT card, the mobile ICT card, the EU permanent residence permit, the settlement permit and the visa. While the residence permit, the EU Blue Card, the ICT card, the mobile ICT card and the visa have time limits, the settlement permit and the EU long-term residence permit is unlimited. Before entering Germany, you must apply for a national visa at a German diplomatic mission. To get a visa, you must meet the requirements for the type of permit you want to obtain.
Unemployment benefits (also known as Arbeitslosengeld I or ALG I) are financed by the unemployment insurance and paid out by the Bundesagentur für Arbeit. Unemployment benefits are determined primarily by whether and for how long you paid into the unemployment insurance. You have a right to unemployment benefits if:
- You have registered as unemployed with the Agentur für Arbeit,
- You were employed and paid into unemployment insurance for at least 12 months in the 30 months before registering as unemployed, and
- You can exercise a profession with obligatory unemployment insurance contributions.
The amount of the unemployment benefits you will receive, and for how long you receive them, depends on your last average salary, the length of time you were employed and paying into unemployment insurance, and your age.
If you receive unemployment benefits, you can also apply for a founder grant.
A business person’s vehicle can be assigned either to the business assets or to the private assets. If the vehicle is assigned to the business assets, the costs can be deducted from taxes as business expenses. If a vehicle is also used privately, the private share of use must be determined using an estimate, a log book or the 1% rule. If the vehicle is assigned to the private assets, the costs cannot be deducted from taxes. However, a distance flat feel in the amount of 0.30 euros per driven kilometre can be deducted as a business expense.
A viability certification is needed when you want to apply for certain subsidies for your start-up. When founding an undertaking while unemployed, you need a positive expert statement to obtain the start-up grant or set-up funding: the viability certification. As the name implies, this serves to certify the viability of your business undertaking. The expert statement is issued by an expert office. The most important document you will need is your business plan.
Expert offices include for example:
- Chambers of Industry and Commerce
- Chambers of Trade and Craft
- Chambers for special professions: architects’ or medical associations
- Professional associations: for freelance professions, for example
- Banks and savings banks
- Tax consultants
- Business attorneys
- Business consultants
- Start-up associations
Important: An expert statement usually costs money: around 50-150 euros.
These are the contributions to welfare insurance that a company must pay for its employees. The entire welfare insurance sums are generally borne half by the employee and half by the employer monthly and transferred to the public health insurance with whom the employee is insured. They then transfer the respective welfare contributions to the remaining public insurance funds. The public insurance funds include unemployment insurance, health insurance, care insurance, pension insurance and accident insurance. On average, welfare contributions are about 20 to 21% of the gross salary.
Most self-employed persons only have to pay for a private or public health insurance. However, they can also voluntarily contribute to the other welfare insurance funds. But there are also exceptions: Craftspeople, for example, have to contribute to pension insurance, while artists, journalists or musicians have to be insured through the Artists’ Social Welfare Fund.