German company audit, financial statements, accounting, consulting in Germany

Germany is the world’s leading economy. Opening a business in Germany and entering the European and international market is an affordable option for non-residents. The advantages of Europe’s main economy are stability, a high level of financial services, including banking, and a well-developed legal and judicial system. Germany is the big logistics hub of Europe. The VAT rate is one of the lowest in Europe at 19%. Financial statements must be prepared annually for all registered companies and submitted to the authorities. The German Commercial Code contains strict rules on the disclosure of accounts. An audit is mandatory only for medium and large companies.

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100-350 EUR per hour

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100-350 EUR per hour

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General requirements

All German companies must keep accounting records and prepare financial statements to the extent that will make it possible to judge the company’s activity and that will reflect the company’s financial position. Companies’ obligations to file accounts depend on their legal form and size: micro, small, medium-sized or large company.

Classification of companies into micro, small, medium-sized and large companies depends on whether at least two of the three stated thresholds are not exceeded. A company changes its status when it exceeds or decreases two of the three criteria in two consequent years.

Micro companies:

Balance currency is up to 350 000 EUR;
Turnover is up to 700 000 EUR;
Average number of employees is up to 10.

Small companies:

Balance currency is from 350 000 EUR to 6 000 000 EUR;
Turnover is from 700 000 EUR to 12 000 000 EUR;
Average number of employees is from 10 to 50.

Medium-sized companies:

Balance currency is from 6 000 000 EUR to 20 000 000 EUR;
Turnover is from 12 000 000 EUR to 40 000 000 EUR;
Average number of employees is from 50 to 250.

Large companies:

Balance currency is over 20 000 000 EUR;
Turnover is over 40 000 000 EUR;
Average number of employees is over 250.

1. Micro companies:

Significantly condensed balance sheet;
Profit and loss statement.

2. Small companies:

Condensed balance sheet;
Profit and loss statement;
Balance sheet explanation.

3. Medium-sized companies:

Condensed balance sheet;
Profit and loss statement;
Balance sheet explanation;
Management report.

4. Large companies:

Full balance sheet;
Profit and loss statement;
Balance sheet explanation;
Management report.

A company must keep financial statements and relevant source documents for 10 years after the end of the reporting period.

The main pieces of legislation for German accounting are:

Stock Corporation Act of 1965 (AktG);
Commercial Code of Germany (Handelsgesetzbuch - HGB).

Annual financial statements must comply with the local accounting standards (German commercial GAAP), or the International Financial Reporting Standards (IFRS). IFRS are required for all national public companies and listing of foreign companies. The German Commercial Code contains strict rules for disclosure of annual financial statements of companies.

The following must file financial statements:

Limited liability company (GmbH);
Stock corporation (AG);
Open trading company (OHG);
Limited partnership (KG).

Limited liability entities (GmbH and AG), except for small companies, must publish annual returns and get them audited by external auditors.

Unlimited liability entities (except for KG) are not obliged to publish their returns or get them audited.

Audit of accounts

In accordance with paragraph 316 of the Commercial Code, annual financial statements must be audited by an independent external auditor. Audit of annual financial statements is compulsory for large and medium-sized companies. When drawing up an auditor’s opinion, the auditor must apply international auditing standards adopted by the European Commission in the manner prescribed by paragraph 3 of article 26 of Directive 2006/43/EC.

Upon completion of an audit the auditor draws up an objective written report and, if there are no objections, issues an auditor’s opinion.

Time frame for preparation and submission of financial statements

The duration of financial year shall be determined by a resolution of a meeting of shareholders; and a financial year must not last more than 12 months. The first financial year can be shorter.

In accordance with the Commercial Code, the time frame for the submission of accounts of micro and small companies is 6 months, for medium-sized and large companies it is 3 months.

Accounts must be in German and in euros and must be signed by the company’s representatives at a general meeting and published in electronic form in a federal gazette within 12 months after the end of the financial year. For listed companies and companies that have issued debt securities the time frame for publication is 4 months after the end of the financial year.

Time frame for preparation and submission of tax statements

Corporate tax

Tax period is a calendar year. Tax returns shall be filed in respect of the company’s financial year, which does not last more than 12 months, ending in the corresponding calendar year. The standard date of the filing of a tax return is 31 July of the year following the reporting year.

Value-added tax (VAT)

Companies whose taxable turnover does not exceed 17 500 EUR in the last calendar year and is estimated to not exceed 50 000 EUR in the current calendar year can choose a special scheme for small businesses with no VAT.

Preliminary VAT returns shall be filed monthly (if the tax amount for the last calendar year is over 7 500 EUR) or quarterly by the tenth day of the month following the reporting month. VAT must be paid by the same date. Every taxpayer must also file an annual VAT return.

In addition, if a company makes transactions of purchase and sale of goods and services with companies incorporated in other EU countries, it must register in the INTRASTAT and VIES systems and file information with the tax authority in the prescribed form.

Liability for late filing of accounts

In the case of late filing of accounts, the Federal Office of Justice imposes administrative penalties not exceeding 25 000 EUR.

Consolidated financial statements

Consolidated financial statements and a management report of a group of companies must be audited. If they have not been audited, consolidated financial statements cannot be approved.

A parent company is exempt from the obligation to prepare consolidated financial statements if:

On the closing date of the annual financial statements and on the previous closing date, at least two of the three following characteristics apply:

Total assets of the parent company and subsidiaries that must be included in consolidated financial statements do not exceed 24 000 000 EUR;
Sales of the parent company and subsidiaries that must be included in consolidated financial statements do not exceed 48 000 000 EUR for twelve months preceding the reporting date;
The parent company and subsidiaries that must be included in consolidated financial statements on average did not have more than 250 employees for twelve months preceding the reporting date.

2. At least two of the three following criteria apply on the closing date of consolidated financial statements that it must prepare and on the previous closing date:

Total balance amount does not exceed 20 000 000 EUR;
Sales for twelve months preceding the reporting date do not exceed 40 000 000 EUR;
The parent company and subsidiaries included in consolidated financial statements on average did not have more than 250 employees for one year preceding the reporting date.

Frequency Asked Questions

What accounting system does Germany use?

Germany uses a modified version of the International Financial Reporting Standards (IFRS) for financial reporting purposes, which is called the German Commercial Code (Handelsgesetzbuch or HGB). In addition to the HGB, some companies in Germany also use the German Tax Code (Abgabenordnung or AO) for tax purposes.

Who regulates accountants in Germany?

In Germany, the professional bodies responsible for the regulation of accountants are the Chamber of Public Accountants (Wirtschaftsprüferkammer) and the Chamber of Tax Advisors (Steuerberaterkammer). They are responsible for setting professional standards, regulating entry into the profession, and overseeing the conduct of their members.

Do German companies have to file accounts?

Yes, German companies have to file accounts. The specific requirements for filing accounts vary depending on the size and legal form of the company. Generally, larger companies are subject to more extensive reporting requirements than smaller ones. The relevant authority for filing accounts in Germany is the Federal Gazette (Bundesanzeiger), which is the official register for company information.

Is audit compulsory in Germany?

Yes, audit is compulsory in Germany for certain types of companies based on their size, legal form, and other factors. For example, large public companies, banks, and insurance companies must have their financial statements audited by a statutory auditor. Additionally, certain other entities such as partnerships and cooperatives may also be required to have their accounts audited. However, smaller businesses may be exempt from the audit requirement. The specific rules and regulations for auditing in Germany are set out in the German Commercial Code (Handelsgesetzbuch or HGB) and other relevant laws and regulations.

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