Being your own boss is the dream of many people. However, it often remains just a dream, because the desire is rarely put into practice. If you are one of those people who would like to change that, you should read on here.
Registering a small business can be the first step towards independence. If you want to register a small business, then you will find all the important information in this article. From the questions "What actually is a small business?" to concrete implementation steps, we have gathered all the necessary information for you here.
This is what you can expect today:
- Definition: what is a small business?
- When is it a trade?
- Where can/must I register my small business?
- Example of registration
Definition: What is a small business?
You would like to start a business, but you already know that your turnover will not exceed the rate of 50,000 euros two years in a row? Then your business falls under the small business regulation of the VAT rate. Thus, your business falls under the category of "small business".
If this is the case, you do not have to include sales tax on your invoice, for example, and you do not have to charge it. The term "small business" is a bit misleading, because officially there is no "small business", but only a "normal" business, which falls under the small business regulation.
In this context, you should also be familiar with the terms "small business" and "small trade". The advantage of a small business for you is mainly the accounting effort. This is by far less than in classic companies. One of the reasons for this is that there is no sales tax - and therefore no advance sales tax return.
Distinguishing small business, small entrepreneur & commercial enterprise
Although we have just addressed the point that small businesses and small entrepreneurs are very similar, there is one point that needs to be distinguished. You should take this into account when registering because small entrepreneurs no longer fall under the small business regulation from a profit of 22,000 euros. This means for you: You have to calculate sales tax.
The question of commercial enterprise can also arise as soon as you deal with the topic of registering a small business. Where is the difference at all?
Here there are no exact regulations because as Handelsgewerbe the trades are called, which "requires after kind and extent one in a commercial way furnished business concern (§ 1 exp. 2 HGB).
But who decides this? That is not quite simple, because officially there is no concrete regulation. This leads to the fact that in many cases the decision has to be made individually.
However, this also means that, in general, any trade can also be understood as a commercial enterprise. Often, however, a small business becomes a commercial enterprise if it steadily generates more turnover. At a certain point, this requires an entry in the commercial register. Once your business is registered there, it is officially a commercial enterprise.
Can I run a small business as a freelancer?
As a freelancer, it is not necessary to register a trade. This means that you can run a small business without any problems. This has even more advantages for you: You do not have to register with the commercial register, nor with the IHK.
On the other hand, you have other obligations. For example, you may have to register with the Standeskammer (Professional Chamber) or take out professional insurance.
When is it a trade?
In general, trade is deemed to exist when a self-employed activity is taken up that does not fall under the group of freelancers. It can also be the case that a trade is taken over, for example. Another case is when a current trade is relocated so that a trade registration is required, a new branch office is established or when the business situation changes.
If you want to run a business, you are obliged to apply for a Gewerbeschein (Trade license), this is in principle the official permission. In Germany there is also freedom of trade, so every citizen has the chance to open a trade. Depending on which trade you want to open, you will of course have to provide various proofs.
But what is a trade anyway?
A trade is a self-employed activity that aims to make a profit in the long term. The goal is actively pursued to generate a profit and to expand it permanently.
In addition, there is active participation in economic trade. For example, when you open a store, you have to order goods that will be delivered to you. In the next step, you sell them. By the way, economic activity does not depend on the amount of your profit. Even relatively small profit margins fall under it.
What can I register as a small business?
You can register any self-employed activity as a small business that does not fall under the group of freelancers. This means, for example, that you can open your own beauty salon or set up an online store for cell phone accessories.
Freelance activities, on the other hand, are
- or educational professions.
such as self-employed programmers, journalists, or musicians.
How often can I register a small business?
Of course, it can happen quickly that you open a business and want to bring your product to the man and woman. Maybe you realize during your business activity that there are other products that interest you and that you would like to sell.
Now the question is whether you need to register another business for the new product. And if so, how many you can register at all.
The solution is quite simple because officially you do not have to register a new business. The new product also runs through your small business and is also calculated as one at the end of the year. For example, to still fall under the small business regulation, the general profit must not exceed 50,000 euros. Here the profit of all your products is added together.
Who can register a small business?
In Germany, there is freedom of trade, so any citizen of the Federal Republic can register a trade. It may happen that you have to provide additional information and perhaps extra proof, but in general, anyone should be able to open their business.
At what point can I register a small business?
You may be wondering whether there are any specific regulations as to when you must register a small business. It could be that it depends on a certain minimum turnover or that other things have to be fulfilled before you can register a small business. The answers:
Do you officially have to reach a certain minimum turnover to register your business and get the trade license? The answer should please you. From a legal point of view, you have to register a business as soon as you start a self-employed commercial activity that is designed to make a profit.
It does not matter how much profit you make. As long as you pursue the intention of making a profit in the first place. This is a bit difficult at the beginning. That's why the legislator accommodates you and you don't have to reach a certain minimum turnover.
Your profit only plays a role when it comes to whether you have to additionally note the sales tax in your invoices or whether you fall under the small business regulation.
Advantages and disadvantages of a small business
Do you really want a small business? Is it even the right model for you? To help answer these questions, we've listed an overview of the pros and cons for you here.
- Quick registration
- Easy implementation
- Simplified bookkeeping through, for example, income surplus account
- Anyone can register a business
- Possible without starting capital
- No specific company name possible
- A small entrepreneur is liable for his business
Where can/must I register my small business?
In most cases, you can register your small business directly at the Gewerbeamt (Trade Office). Usually, there is a special office for this in your city or municipality. Either you register your small business there in person or you use the online registration - if that is possible.
Another possibility: You apply for a trade license at the Ordnungsamt (Public order office) of your city. In Berlin, for example, you can do this with a simple online registration. If you want to know how it is in your city or region, we recommend you to do some research on the web or simply call the trade office directly. In some cases, you can simply pick up the necessary papers at the office and submit them later.
How much will it cost me to register a small business?
It is impossible to give a general estimate of how expensive it is to register a small business. This is because the individual offices have very different prices. For example, online business registration costs just 15 euros in Berlin and 26 euros locally. In contrast, Göttingen is 40 euros for registration. Our tip: Just ask your local office for the current prices.
What do I need to register a small business?
For the registration of your personal small business, you usually don't need much. On the contrary. It is actually quite simple. When you go to your local trade office to apply for the license, you should have
- have the required fee ready
- and proof of identification (ID card or passport)
- the completed form
- possibly extra proofs like a certificate of good conduct or a residence permit for non-German citizens
- and also a domestic power of attorney in the case of foreign companies.
How long does the registration process take?
Also for the duration of the registration process depends on many different factors. Therefore, it is not possible to say in general how long it will take until your application is finally processed.
Our tip: To make sure that your registration is not delayed because you have made a mistake, you can do the following: check your information and documents several times and carefully even before you submit your registration to the relevant office.
Submission of a business registration
Depending on where you want to register your business, the paperwork for the registration may look different. The easiest way is to either download them online or pick them up at your local business registration office before you apply.
Can I register my small business online?
Depending on where you live in Germany, you can register your small business online. There are already trade offices, such as the one in Berlin, that make it easy for residents and allow online registration. However, this does not apply to all cities or regions. If you want to know how it is in your case, it's worth taking a look at the website or calling the relevant office directly.
Registration with the tax office
After you have registered your business, the tax office in your region will contact you and send you a questionnaire. The first thing they will do is to clarify your tax situation. This includes that you get a tax number if you don't have one yet. With this number, you can now officially write invoices.
If you also want to trade VAT-free in the EU, then you have to apply for a so-called VAT identification number through the Federal Central Tax Office (Bundeszentralamt für Steuern).
Registration with the employment office
If you are already planning to hire one or more employees, then you have to apply for a business number for the respective person at the employment office. You need this number for social security, as well as health insurance. This number is also necessary if you want to hire an apprentice or a 450-euro-jobber. If you subsequently decide to employ the person full time, you must apply for a new number.
Registration with the IHK/ HWK
If you are not a freelancer, farmer, or craftsman, you also need to register with the Chamber of Industry and Commerce (IHK). You must not forget this, because it is mandatory in Germany.
If you are planning to work as a self-employed craftsman, it is advisable to check whether you need to register your activity in the so-called Handwerksrolle (Register of Craftsmen) before applying for a trade license. The Register of Craftsmen is a register for certain crafts. If this applies to you, you will also need a handicraft card (HWK).
This may be the case, for example, if you have
- have passed the master craftsman's examination in the craft to be practiced
- have passed the master craftsman's examination in a related craft
- have passed a subject-related examination in Germany that can be regarded as at least equivalent to the master's examination
- is authorized to exercise the trade in accordance with § 7a HWO or § 7b HWO (old journeyman regulation)
- has an exemption permit in accordance with § 8 HWO.
- as an EU citizen, you have an exemption permit in accordance with § 9 HWO for the craft to be practiced or for a related craft.
Exemption from IHK / HWK amount
If you are registered with the IHK, 0.21% of your turnover will be deducted as the IHK amount. However, this does not have to be the case if you are exempt from this amount. You can be exempt if your annual turnover does not exceed 5.200 Euro. In addition, if you have not registered your business with the Chamber of Commerce, then you do not have to pay any contribution.
In addition, since 2004 there is a regulation that any person who registers a trade for the first time is exempt for the first two years. For this, you must not register in the commercial register and the annual income must be less than 25,000 euros.
Registration with the professional association
You are also required to register with your city's employers' liability insurance association within one week. The Berufsgenossenschaft regulates the health aspects of your activity.
What legal forms are available for registering a small business?
You have different options in terms of the legal form under which you want to run your small business. For example:
The GbR, i.e. the Gesellschaft bürgerlichen Rechts, does not have to be registered in the commercial register. Especially for the first start-up, this legal form is quite attractive, because you have less effort with it.
The same applies to the sole proprietorship. This also does not have to be recorded in the commercial register. The sole proprietorship is therefore also interesting for entrepreneurs who want to try it out for the first time.
The naming of a small business runs a little differently than, for example, a general enterprise formation. Because with a small business it must be obvious who is behind this small business. Therefore, the first name and last name must be part of the company name.
However, it is allowed to add an addition to the name, for example, "Kosmetiksalon Christina Bauer", instead of just "Christina Bauer".
There is an exception to this in the restaurant industry. If you open a restaurant, for example, your first and last name do not necessarily have to be represented in the restaurant name. It would also be permissible to use "Sigfelds Kantine". But: For invoices and official letters, you must use your correct first and last name.
Taxation of a small business
As a small business owner, you will also have to pay taxes, which you should consider before registering your business. These include income tax, trade tax, and sales tax.
Income tax and trade tax
The income tax is charged together with the trade tax. With the help of an online trade tax calculator, you can easily calculate this yourself.
However, if you have a very small business, you do not have to pay trade tax. For this, the income must be less than 24,500 euros per year.
All income above this exemption limit is taxed at a rate of 3.5%. But that is not all. Businesses must also pay the so-called assessment rate. This varies from region to region.
As already mentioned, most small businesses fall under the small business regulation. In this case, no sales tax is charged and therefore not passed on to the tax office.
However, if your trade exceeds a profit of 50,000 Euro per year, you have to show the 19% sales tax on your invoices. However, you are not allowed to keep the money but have to pass it on to the tax office. The sales tax is therefore also referred to as a so-called current item.
Small business regulation
The small business regulation has primarily nothing to do with small business, even if the term seems to suggest it. Rather, it is about smaller companies and their profit balance per year. This determines whether the company continues to fall under the small business regulation or whether, for example, sales tax must be calculated.
A very simple way to determine the profit per year is the EÜR or also Einnahmen-Überschuss-Rechnung (Income statement). Here the income is deducted from the expenses. What remains is the annual profit.
If your business does not fall under the small business regulation, you must calculate the sales tax in your invoices and pay it to the tax office.
If you do not want to pay the sales tax to the tax office before your customers have transferred it, you can use the so-called actual taxation. This has the advantage that you do not have to pay the sales tax to the tax office until your customers have actually paid.
Example of registration of a small business
If you want to know how to register a small business, here is an example for you:
Let's say you have decided to open a small beauty salon in Berlin. Since you don't know yet how it will run, you want to start your own business without hiring an employee. Since you live in Berlin, you can apply for the trade license and the registration of your small business either online or in person.
If you choose the online option, you can easily download and fill out the business registration form, which looks like this:
What's missing now is your ID and the fee. If you are a German citizen, you do not need any other documents.
However, you still need to think of a name. Once you have found one, you fill out all the necessary documents online and now you just have to wait for the confirmation.
After you have registered your business, you will receive mail from the IHK and the Finanzamt. Here you also have to register and fill out the forms. You will also receive a tax number so that you can now issue invoices.
At the beginning of your self-employment, it is not yet necessary to note the sales tax on your invoices. You only have to do this when you exceed the profit threshold.
In addition, you are exempt from the IHK contribution for the first two years and depending on how much income you have afterward. What you should not forget in any case is to register with the Berufsgenossenschaft (Professional association) after registering your business. In the event that you have an accident at work, you must inform the employers' liability insurance association.
Many people let the paperwork keep them from becoming self-employed.
After all, it usually seems as if registering a trade is a major hurdle on the path to self-employment. But it doesn't have to be that way. Depending on where you live, you can easily register your business from home. And the paperwork is generally kept to a minimum. Therefore: Don't be discouraged and just give it a try. Thanks to the small business regulation, you don't have to worry much about sales tax in the beginning - that's also a relief.