Expanding into Berlin

[freddo]

Hi guys,

We've been running our business from the UK for around 6 years now with reasonable success and we now feel ready to expand our wings. I'm just looking for a bit of advice on expanding into Germany and what the best way of doing it for us would be.

Business background.

- We're a limited company based in the UK.
- Employees: 5
- Anual Turnover: £650,000


The plan:

To replicate our ecommerce business in Germany. We want to open a small shop front and rent premises with space for 4 employees and space to hold our stock. We will also be processing orders from our website within our premises. This involves holding stock, packing items and sending them via the postal service.

Advice needed:

- What form should our business take. I have looked into the GMBH, Mini GMBH and subsidaries/coop's but am still confused about what is best for us and why?

- Which is the cheapest to form? I understard we'd have to get a notary to witness us setting up the business. How much should we exptect to spend on legal costs and is it worth hiring a third party to get the business set up?


Any advice you can offer would be amazing.
Regards,

Sam

 

[Chris Ashdown]

I would be interested as to why you chose Germany for your next step, and also understand credit card use in Germany is the lowest in Western Europe

 

[The Byre]

I hope that you are aware of the tax and other regulatory implications of setting up shop in Germany! Roughly speaking, it costs 2.50€ to put 1€ into a person's trouser pocket.

Do you speak German and do you have a good knowledge of the German market?

Would it not make more sense to dip a toe in the water by having a dot-de and a German on-line shop that you ran from the UK first?

 

[freddo]

Thanks for the replies.

In terms of speaking German, we're currenty looking for a german speaking investor to get involved. One of our team is also learning at the moment, baring in mind we have a year until we set up.

The plan has changed to setting up a .de domain, translating our existing website and doing online marketing on German websites to build on our existing German customer base. Trading from the UK at first. We will then move over as orders increase.

@

I hope that you are aware of the tax and other regulatory implications of setting up shop in Germany! Roughly speaking, it costs 2.50€ to put 1€ into a person's trouser pocket.

Would you care to elaborate on the Tax system. I am seeking advice on German tax law as we speak, and whether it would be best to have a branch in Berlin and have our taxes done at our UK base. What are the advantages/dis-advantages of this. What is the process of getting this et up. Any advice is greatly appreciated!

 

[The Byre]

That's like asking 'Explain the UK tax system'!

At least the German tax system is finite. There is a book. There is a system and the system works.

You may find it best at the beginning, to employ someone as a freelancer in Berlin who already speaks German and set them up with a telephone to answer questions and emails and send the stuff out from the UK. Depending on size etc., you may find that postage / courier costs are lower UK-to-Germany than Germany-to-Germany.

I wouldn't be too fixed on Berlin - finding the right person would be more important if we are talking mail-order/on-line.

The other thing to watch out for is competition and competition laws. German companies love to sue one another and complain to the authorities about one another. They do it more or less as a sport. Even friends end up suing one another and then going to the pub together afterwards to have a laugh about it.

And if they find that one of your products contravenes some obscure law, they definitely will report this, regardless of the size or scope of your operation. You absolutely MUST find out about all the legal aspects of offering your product in the German market.

If you are selling liquids for e-cigarettes (as your logo implies) then take care! The law may change and there has been much legal movement here. Last year the regional courts in North Rhein Westphalia decided that they are not medicines and not regulated drugs but that they are 'Genusswaren' (things like foodstuffs, strictly translated as goods for oral consumption). This means they can be sold without undergoing the various laws governing tobacco and medicines.

Several tax authorities (remember, Germany is a federation, so each of the 17 states can think and act differently!) have tried to prevent the sale and import of these liquids and so far, all have failed.

However, the federal supreme court has not had the final word yet and the present government has yet to come up with any specific regulations here, so setting up an expensive sales structure may prove somewhat premature!

I would set up a presence with a German tax advisor. They are usually far cheaper than a UK accountant and can take care of stuff like VAT or Mehrwertsteuer as it is known in German.

If you are looking for more specific help and/or investor, you had better PM me.

 

[John_Multicountry]

All this is great advice. I'd add that the German tax system is much more complicated than the UK system, particularly in terms of payroll taxes. It is not just the tax rates that are different. Germany has many types of taxes, state filings and business regulations that are completely different from those you'll be familiar with in the UK. Also in my experience I have found it very difficult to find expert German knowledge of accounting and tax in the UK without going to one of the top end accounting firms.

For these reasons I would always advise you to use a local German adviser who can cover all your current and likely future needs in terms of accounting, tax and payroll. Your choice of adviser is really important. You should try to find someone who a) has good English skills, b) who will proactively warn you about all the compliance hoops you will have to jump through and c) can be trusted to be competitive. Advisers like this do exist but they can be hard to find

I can help you further on this if you want to PM me.

Good luck with your new German business!

 

[The Byre]

I deal with taxes in several countries, including the UK and Germany and the UK is by far the most complex, but payroll taxes are FAR higher in Germany. As I stated earlier, it costs about €2.50 to put a Euro cash into a person's trouser pocket!

The job of understanding the differences and relationships between UK and German taxes is the company's pigeon, not the accountant's. That means YOU, or your CFO if you have one, has to understand differences (and opportunities!) available.

But you will need a bog-standard German accountant (Steuerberater) if you are going to set up a company there.

But your Steuerberater will not and cannot advise you on any compliance issues outside of his core competence of taxes. Under certain circumstances, he or she might even be breaking the law to step outside of his field, though he/she can tell you who is the right person to give such advice.

"Also in my experience I have found it very difficult to find expert German knowledge of accounting and tax in the UK without going to one of the top end accounting firms."
Which is perfectly normal, as few people in the UK know (to be brutally honest) what is going on outside the UK and almost nobody can speak a foreign language. If you want to do business in Germany, you (or whoever is rowing your boat there) HAS to speak, understand and write fluent German. You have to file all forms in German, you have to sign all contracts in German and you will be audited in German. Any correspondence with any authorities and other companies will be in German.

The whole German system is simpler than in the UK, but it makes no allowance for things being different, or for people not understanding the German language and all legal implications and obligations.

 

[techielab.net]

I would suggest looking for an advice from the professionals. Personally i have used an SME business from Greece, which literally helped me a lot. (If you are interested Google "dataone greece").

Otherwise i would suggest looking for consultants in London and also in Munich.

 

[getitstraight]

Roughly speaking, it costs 2.50€ to put 1€ into a person's trouser pocket.

What taxes are you talking about here? Payroll + income?
it cost WAY less than that, taxes like that does not exist in any EU country, let alone Germany which is not the highest in the list:
http://www.statista.com/statistics/272440/payroll-taxes-in-eu-countries/
Germany 27% + income tax (progressive income of 0-42%). For salaries like shop attendants etc income tax would be 14% or so.. For better salaries 24% or so. So rouhly payroll + income is 40-50%.
Where do you get that ridiculous 2.50 for 1.00 is beyond me

 

[The Byre]

Where do you get that ridiculous 2.50 for 1.00 is beyond me

You obviously have never worked or employed someone in Germany!

Here are some words for you to look up - Arbeitgeberbeitrag, Sozialabgaben, Kirchensteuer, Krankenversicherung, Solidaritaetszuschlag, Pflegeversicherung, Sozialversicherungsbeitrag, Rentenversicherung.

None of these are employee income tax paid to the state. The employee and/or the employer still has to pay them though!

There are others! Just the Rentenversicherung (pension insurance) alone comes to nearly 10% for both employer and employee. Krankenversicherung (health insurance) comes to 8.2% for the employee and 7.2% for the employer. Then you have to add Weihnachtsgeld (Christmas money) - the employee gets a thirteenth paycheque at Christmas. Then there are the various rights that the employee enjoys, such as savings schemes that the employer must contribute to, pregnancy insurance, the right to holidays (obviously!) and the right to a canteen and rest area.

There are other gotchas such as Kururlaub (health-rest-holiday) in which the health insurance company may order the employee be given an additional few weeks extra holiday to be spent at a health spar as a result of stress, overweight or whatever.

By the time you have added that lot together and you have added the other costs that employees seldom, if ever, think about, such as insuring them against injury, insuring against prolonged illness and so on, the cost of putting 2,000 Euros into a person's trouser pocket at the end of the month, comes to nearly 5,000 Euros.

 

[getitstraight]

What you mention (10%, 8.2, 7.2 etc) those are included in those numbers in the link I posted.. I employ people in 2 EU countries which are higher cost of employment than Germany and it does not come even close. Those numbers are impossible, you got something VERY VERY wrong.

In MOST (ALL?) EU countries all taxes (payroll, social , health, income etc) combined comes out to something around 40-60%.
typically something like 20-40% on employers side, something like 8-10% on employee side + income tax on employee side. Numbers are rough, but to get the idea of how far away from your false numbers. And Germany is not even of the list of highest taxes in EU...
So 150% or whatever as you claim is ridiculous and is simply not true. not only the number is ridiculous, it doies not even make sense even for those who have no insight of tax system. Let alone for those who knows something about it.

 

[getitstraight]

Here are some calculators for you:
http://www.german-tax-consultants.com/content/tools/wage-tax-calculator.htm
http://www.spiegel.de/wirtschaft/se...n-lohn-und-gehalt-uebrig-bleibt-a-223811.html

 

[getitstraight]

http://en.wikipedia.org/wiki/Payroll_tax (See for Germany, comes out to something like 30% from both employers and employees). So that + income tax. Comes up to 40-50% etc. Like in most EU countries. Still nothing close to 150%.

 

[The Byre]

You still don't get it! In Germany the employer pays roughly as much again for all those various deductions as the employee! Add to that all the various other costs that just do not apply in the UK such as compulsory savings schemes, 13 months pay, not 12 and Kururlaub and you come to my figure.

Those calculators are for the employee only.

 

[globalguy]

Hi Sam, it was a pleasure speaking on the phone with you just now, happy to help in all aspects