For many expats, starting a business in Europe is a dream. Germany is especially appealing because of its legal system, stability, and large markets. However, the bureaucracy is unforgiving — the wrong business structure or careless paperwork can lead to financial losses, unnecessary taxes, or fines.

I worked as a lawyer and tax consultant in Ukraine and Estonia for over ten years, and now I help people build their businesses in Germany. From my experience, most problems do not arise because of taxes, but rather because of a lack of understanding of basic accounting requirements.

Business form equals accounting form

GmbH, UG, and AG are capital-dependent companies. They always use double-entry bookkeeping, recording all income and expenses in two entries and drawing up a balance sheet to publish at the end of the financial year.

Freelancers (doctors, translators, lawyers, etc.) have the right to keep simplified tax accounting. This system resembles the accounting system used by Ukrainian individual entrepreneurs in that a book of income and expenses is kept without the obligatory publication of a balance sheet. However, keep in mind that even with this simplified system, requirements exist for accounting fixed assets and their depreciation.

For Gewerbe (commercial and industrial entrepreneurs) and partnerships, the accounting method depends on financial indicators. Simplified accounting is allowed if the annual turnover is less than EUR 800,000 and the net profit is less than EUR 80,000. Once these limits are exceeded, the company automatically switches to full double-entry accounting.

Have you exceeded the limits? Wait for a letter from the tax authorities

Important: Even if your business has achieved higher revenues this year, you are not required to change your accounting system immediately. You must wait for a notification from the Finanzamt (the German tax office). If they send a letter with new requirements by December 1, you must switch to full accounting by January 1 of the following year. Without an official letter, you have the right to remain on the old accounting system.

Registration: Mistakes can be costly

Another critical point is business registration. Gewerbe must submit documents to the trade register (Handelsregister), but Freiberufler are not required to do so. Regardless of the form, however, everyone must fill out a registration form at the Finanzamt. This is how you will be assigned a tax number.

One more detail to note is that you will indicate your planned annual turnover in this questionnaire. This figure directly affects the amount of your advance tax payments. Therefore, you should be realistic and neither underestimate nor exaggerate.

In some cases, freelancers are also required to provide authorization from a professional chamber (e.g., medical or architectural).

Advice

When choosing a business structure in Germany, don't rely solely on your intuition or experience in your country. The accounting rules, tax structure, and logic of regulation are all different. However, if you understand the key requirements from the beginning and carefully register your business, you can eliminate most of the risks at the outset.

Remember, each business structure has its advantages, but the level of responsibility varies. Accounting is not just a formality. It's about security, transparency, and peace of mind.