Setting up a GmbH or UG
Tax advice when setting up a German corporation, in particular a GmbH or Unternehmergesellschaft haftungsbeschränkt.
Corporations have their own tax obligations from the outset. Corporate income tax, trade tax, VAT, bookkeeping, annual accounts and managing director remuneration should be structured early.
Tax features of a corporation
A GmbH or UG is a separate legal entity. It is a taxpayer in its own right and files its own tax returns. The taxation of the company must be separated from the taxation of its shareholders.
Taxation of the company
The profit of a GmbH or UG is subject to corporate income tax. In addition, trade tax usually applies. The company must be registered and assessed separately for tax purposes.
No personal allowance
Corporations are deemed to carry on a commercial business by virtue of their legal form. The allowance under section 11(1) sentence 3 no. 1 GewStG does not apply to corporations.
Balance sheet obligation
GmbH and UG are subject to bookkeeping and balance sheet obligations under German commercial law. An Einnahmen-Überschuss-Rechnung is generally not available for the company.
Separation of company and private sphere
Payments between the company and its shareholders must be properly documented for tax purposes. Unclear withdrawals or private payments via company accounts can create significant tax risks.
Typical first steps
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Clarify legal form and company structure — Shareholders, management, participation ratios, share capital and planned activity are classified for tax purposes.
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Notarial formation and commercial register — The corporate-law formation is generally handled via a notary and the commercial register. Tax advice does not replace legal formation advice.
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Tax registration questionnaire — After formation, the company must be registered for tax purposes. Revenue and profit forecasts, managing director remuneration and bank details are particularly relevant.
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Set up bookkeeping structure — From the beginning, business bank account, document filing, invoicing, VAT and ongoing bookkeeping should be set up in an orderly manner.
Important tax topics
The company taxes its profit separately. The basis is the bookkeeping, annual accounts and corporate income tax return.
A GmbH or UG is generally subject to trade tax. There is no trade tax allowance comparable to the allowance for individuals.
Entrepreneur status, invoicing, input VAT deduction, filing period for VAT pre-filings and possible VAT-specific issues must be reviewed.
Remuneration paid to shareholder-managing directors must be clearly agreed, appropriate and actually implemented. Otherwise, hidden profit distributions may arise.
Loans between shareholder and company should be documented in writing, on arm’s length terms and in a traceable manner.
Profit distributions are taxed separately at shareholder level. Company level and shareholder level must be considered separately.
Bookkeeping and annual accounts from the outset
For corporations, orderly bookkeeping is not merely a practical aid, but a statutory obligation. Errors in the start-up phase often affect the annual accounts, tax returns and later shareholder-related issues.
Separation of private and business funds
The company’s payment flows should consistently run through the business bank account. Private payments through company accounts should be avoided or clearly documented.
Complete document filing
Incoming invoices, outgoing invoices, contracts, bank statements, payment evidence and shareholder resolutions must be retained in an orderly manner.
Managing director and loan agreements
Agreements between the company and shareholders or managing directors should be clearly agreed in advance and actually implemented.
Annual accounts and disclosure
Corporations must prepare annual accounts. Depending on the size category, disclosure or filing obligations with the Unternehmensregister may also apply.
Required information for the advice
For tax support with the formation, both economic planning data and company-related information are required.
Formation documents
Articles of association, commercial register data, notarial documents, shareholder list, participation ratios and planned management.
Business model and services
Description of the planned activity, customer structure, revenue model, places of supply, platforms and possible foreign matters.
Revenue and profit forecast
Expected revenue, costs, investments, financing need, liquidity planning and realistic profit estimate.
Managing director remuneration and financing
Planned managing director remuneration, capital contributions, loans, expense reimbursements and other payments between shareholders and the company.
Typical risks for GmbH and UG
Strictly separate company and shareholder
A common mistake is mixing private and company payment flows. Payments to shareholders, assumption of costs, loans or private expenses via the company must be clearly allocated for tax purposes. Otherwise, hidden profit distributions, non-deductible business expenses or further tax corrections may arise.