Today, I’m going to discuss some of the issues of setting up a business in Germany as an English speaker. We’ll see if I can keep this interesting.
What’s up with Germany?
Germany is not exactly the most entrepreneur-friendly country. If I was geographically unrestrained, I would pick the US to startup. Germany suffers from high taxes, and high entry barriers, making it prohibitive to small entrepreneurs. This is a shame because Germany also has a very talented and highly educated work force, and Munich in particular appears to be a technology and media hub.
Why is the situation so challenging for small developers? I’m not exactly sure. I do see efforts to improve things, offer business services and funding, but the tide moves too slowly, and the country is still largely geared to protect and serve the interests of larger, classical established businesses.
So why create a start up in Germany? Well, it’s mainly a consequence of a personal situation, but originally, I wanted to set up an online company and figured I could operate out of anywhere. That changed once I decided to focus on a console title. The company needs to be registered in Germany (in the place I currently live) in order to get access to development hardware. I could not operate a company out of the US and expect to keep the hardware here without breaking all sorts of binding agreements.
Limiting Liability
In US and UK, one can set up a Limited Liability Corporation (LLC in the US, Limited in the UK) in a few hours with a couple hundred bucks. In Germany, setting up a limited liability company (known as a GmbH) takes two to four weeks, roughly costs 1000+ Euros and requires 25,000 Euros in assets deposited into the company. As a one-man operation trying to minimize costs and risks, I am unable to pour 25,000 Euros into the company. The GmbH is simply not option for me until I either sign a publishing deal, or find a lot of funding.
Because of the prohibitive cost of setting up a GmbH, a surprising number of German entrepreneurs register a UK Limited company. EU laws require that the German governments treat this corporate form with the same legal rights and protection as its own GmbH. A Limited is required to keep an address in the UK (easily provided by a variety of service companies) and manage tax fillings there as well. Aside from that, it operates the same way as a GmbH, paying taxes on income and profit here in Germany.
Due to EU legal requirements and the competition offered by the Limited, the German government introduced a new legal form casually referred to as a mini-GmbH. This corporate form was targeted at small entrepreneurs (like myself) and introduced a more stream-lined and cheaper registration process (which still takes a few weeks and costs a 1,000 Euros). More importantly, it requires a minimum investment capital of only 1 Euro. Unfortunately, instead of truly creating a fresh, modern legal form, the government only managed to produce a bastardized version of the GmbH. The mini-GmbH is still unknown to a lot of big companies and is apparently even less respected than the UK Limited. Good job Germany.
So with all these options, what did I go with? Well, since none of those forms appeal to me, and each of them require more administrative costs than I’m willing to spend until I have to. So I’ve stuck with another form available here: a fully liable one-man company. It’s the equivalent of a single-proprietorship LLC in the US without any of the liability protections. I’m pretty much fully exposed. This isn’t much of a concern until I am signing contracts. In those situations I can either limit my liability in the contract or through liability insurance. Regardless, when I reach that stage, I will convert my company to a full GmbH. Until then, I am focused on producing a demo.
Feel free to post any questions you may have, and I’ll answer them as best I can. In the unlikely event this topic proves popular, I may even do a follow-up post!
Work Done Last Week
I’ve completely reworked my contact management system, stripping dependencies from the avatar. It’s now been able to support all areas of the game. I’ve begun the work on the event manager layer above it. I’ve also looked at upgrading box2d to the latest version. The boys over there have been working on some major improvements to their contact system (which my system is built on top), but I am concerned with spending too much time trying to upgrade to their bleeding edge; they’re not due for an official release for a few months.
I continue to add refine certain elements to the gameplay, but again the work in this area is not moving as quickly as I would like it to. With the new contact stuff in place, it should pick up.
Thursday I spent the afternoon in meetings. I got the opportunity to meet some local Munich developers, including the indie startup Reality Twist. I also had another productive business meeting, and I hope to have more information on that very soon.
Work Planned This Week
I’m continuing to focus on the event management system, and some more improvements to the editor (exposing the components).
There’s one major core gameplay feature missing, and my goal is to have it in place this week so we can go back to building some new test levels.
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January 18th, 2010 at 6:50 pm
Hello Yac
Thanks for your post. I am the marketing manager for a small business here in the U.S. and we are trying to sell our products (photography & video equipment) on Amazon Germany. While it is very easy to set up an account with Amazon and use their fulfillment program, it it harder to get information on taxation in Germany. I wrote to Amazon Germany and they told me that we would not need to be registered in Germany, we just need a bank account in Germany or the U.K., and as of January 1, 2010, we also don’t need a “deutsche Umsatzsteuer ID” (German revenue tax I.D.).
It is hard to believe that in a country like Germany registration is not required.
Do you have any knowledge about doing online business in Germany from the U.S.? Are there tax agreements between the U.S. and Germany?
Thanks for your help.
Best regards,
Peter