How to Form a Company in Germany: GmbH and UG Guide for Foreign Founders
Germany is a major market for companies planning to hire locally, sign German customer contracts or establish a lasting presence in the EU. For many foreign founders, the first decision is whether to form a German subsidiary or register a branch of an existing company. This guide focuses on the two most common limited-liability company forms: the GmbH and the Unternehmergesellschaft (UG).
The right structure depends on your planned activity, capital, governance and tax position. A German company is not a shortcut to avoiding obligations in the country where its owners or management are based. Treat this as a practical overview, then confirm your particular case with a German notary and tax adviser.
GmbH or UG: which German company form fits?
| Point | GmbH | UG (haftungsbeschränkt) |
|---|---|---|
| Typical use | Established operations, investment, hiring or contracting at scale | Smaller start-up that wants limited liability with lower initial capital |
| Share capital | Minimum €25,000; for a cash formation, at least €12,500 must normally be paid in before registration | Can be below €25,000; contributions must be made in cash and fully paid before registration |
| Formalities | Notarised articles and commercial-register entry | Also requires notarisation and commercial-register entry |
| Profit reserve | No UG-specific statutory reserve rule | Generally must allocate one quarter of annual net profit to a legal reserve until share capital reaches €25,000 |
The GmbH is a separate legal person. Shareholders are generally liable only up to their contributions, but personal guarantees, unpaid capital and directors’ statutory duties can create exposure. A UG is a GmbH variant with lower capital; the “limited liability” label does not make it cost-free to operate or remove the need for a credible funding plan.
Before you incorporate
Choose the activity and location. The articles need a German registered office and a sufficiently clear corporate purpose. The place of business may affect the responsible register court, tax office and local trade-tax burden. Certain activities require a licence or professional authorisation, so check this before committing to a launch date.
Decide who owns and manages the company. One shareholder can form a GmbH or UG, and shareholders or directors do not generally have to be German nationals or residents. The company still needs a German business address and a managing director who can fulfil the role in practice. If a foreign parent company is a shareholder, expect the notary to request current corporate documents, evidence of existence and proof that the signatory may act for the parent. Foreign-language records may need certified translations or authentication.
Plan the capital and bank account. For a standard cash GmbH formation, the legal minimum is €25,000, with at least €12,500 paid in before the registration application. This is company capital, not a government fee; after registration, it can be used for legitimate business costs. The UG has no €25,000 minimum, but its capital must be fully paid in cash before registration. Choosing only the smallest possible amount may make it harder to pay formation and operating expenses.
How the GmbH or UG registration usually works
- Prepare the articles and formation documents. Agree the company name, registered office, business purpose, shareholders, share allocations and managing director. A simple standard protocol may suit a narrow set of formations; bespoke ownership, transfer or governance terms usually need tailored articles.
- Sign before a German notary. The notary certifies the articles and the appointment of the managing director. Online notarisation is possible for eligible cases and identification methods, but it is not available for every contribution or transaction.
- Open the company account and fund the shares. The bank performs its own identity and compliance checks. Pay the required cash contribution and keep evidence ready for the notary and register.
- Apply to the commercial register. The managing director signs the application, which is submitted electronically through the notary. The GmbH or UG becomes a legal person only when entered in the Handelsregister. Before that entry, contracts may carry different liability consequences.
- Complete tax and trade registrations. After formation, submit the tax registration questionnaire through ELSTER as required, register the trade with the competent local office where applicable, and assess VAT, payroll, social-insurance and sector-permit obligations before trading.
Germany Trade & Invest provides a step-by-step overview of company set-up in Germany. The statutory GmbH capital requirement appears in section 5 of the German Limited Liability Companies Act; the special UG rules are in section 5a.
Tax, VAT and ongoing compliance
A German corporation is typically subject to corporate income tax, the solidarity surcharge and municipal trade tax. The trade-tax component varies by municipality, so two companies with the same profit can face different overall burdens depending on where they are based. Germany Trade & Invest summarises the main elements of corporate taxation in Germany.
Tax registration is not the same as commercial-register registration. The company generally files its tax questionnaire electronically with the responsible tax office through ELSTER. Depending on the business, it may also need a VAT identification number, payroll registrations and local trade registration. Cross-border groups should separately assess permanent-establishment exposure, transfer pricing, withholding taxes and where management decisions actually take place.
Annual accounts, bookkeeping, tax returns and disclosure obligations continue after incorporation. Keep shareholder decisions and managing-director records organised, maintain a registered business address, and monitor filing deadlines. A dormant company still has duties; closing a GmbH or UG also involves a formal process.
Subsidiary or branch of a foreign company?
A subsidiary such as a GmbH or UG is a German legal entity with its own share capital and filings. A branch remains part of the foreign parent, which is generally responsible for its obligations. A branch may be less complex in some situations, but its tax and registration treatment depends on how independently it operates. For a broader comparison of a local company and branch model, see our guide to subsidiary versus branch registration in Estonia; the legal rules there are different, but the structural questions are useful for a cross-border group review.
Common planning mistakes
- Choosing a very low UG capital without a budget for banking, notary, accounting and initial trading costs.
- Assuming registration alone permits a regulated activity or completes tax and VAT registration.
- Submitting foreign shareholder records with missing translations, expired extracts or unclear signing authority.
- Ignoring the city-specific trade-tax impact when selecting the registered office.
- Assuming the German company automatically changes the owner’s personal tax residence or the parent’s tax obligations.
How Eesti Consulting can support your planning
If Germany is one part of a wider EU structure, Eesti Consulting can help you compare how an Estonian company, German subsidiary or branch fits the group’s actual operations and coordinate the Estonia-side company, address and compliance steps. For German incorporation, we recommend working with a German notary and tax adviser who can confirm local documents, fees and deadlines.
Contact us to discuss your cross-border company structure.
Frequently asked questions
Can a non-German founder own a GmbH?
Yes. Foreign individuals and companies can generally be shareholders. The notary and bank will need to verify identity, corporate authority and ownership information, and practical requirements can vary by country of residence.
How much capital is needed for a GmbH?
The statutory share capital is €25,000. For a cash formation, at least €12,500 normally has to be paid before applying for registration. A UG can start below that amount, but has different capital and reserve rules.
Can the whole process be completed online?
Some eligible formations can use online notarisation with approved electronic identification. A German notary should confirm eligibility before you rely on a remote process.
When does the company exist?
The GmbH or UG becomes a legal person when it is entered in the German commercial register. Activities or contracts made before registration can involve different liability rules.
Official sources
- Germany Trade & Invest — Company set-up in Germany
- Federal Ministry of Justice — GmbH Act (English translation)
- Germany Trade & Invest — Corporate taxation
- ELSTER — German tax administration portal
- German commercial register — Handelsregister
Reviewed 3 October 2026. This article is general information only, not legal, tax or accounting advice. Rules and fees may change and depend on your facts. Confirm current requirements with the responsible German authorities and qualified local advisers.
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