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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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.
1. Micro companies:
2. Small companies:
3. Medium-sized companies:
4. Large companies:
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:
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 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.
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.
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.
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.
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.
In the case of late filing of accounts, the Federal Office of Justice imposes administrative penalties not exceeding 25,000 EUR.
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:
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:
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