What is LLC in Germany, taxation, legal form, registration

If you are an entrepreneur or investor and would like to explore the possibilities of a Limited Liability Company (LLC) in Germany, you have come to the right place. Let's go through the most important aspects of this exciting topic together.

The LLC as a legal form in Germany

Imagine sitting in a cozy café in Berlin and dreaming of your own company. The LLC sounds tempting, but what does it look like in Germany? The fact is: the LLC as such does not exist in the German legal system. But don't worry! There is a great way to set up an LLC in the USA. LLC and to establish it in Germany to be recognized as a transparent partnership.

Forming an LLC in Germany? Here's how!

Imagine you want to bring your American recipe for success to Germany. Here's how you can go about it:

1. Form a Multi-Member LLC in the USA
   • Fill out the "Certificate of Formation"
   • Select the option "Member-Managed" in field 2
   • Deactivate taxation as a corporation (C-Corp or S-Corp) in field 6
2. Draw up a carefully drafted partnership agreement (operating agreement)
3. Register the LLC in Germany as a foreign partnership

It's like choosing the perfect outfit - it has to suit you and your goals!

What is an LLC in Germany?

Let's imagine you are explaining to a friend what an LLC is while walking through the English Garden in Munich. In Germany, you would say: "An LLC is like a flexible, protective shell for your company. It limits your personal liability and offers tax advantages. If it is recognized as a partnership, we can benefit from transparent taxation."

US-LLC with residence in Germany

Now it gets exciting: You have an LLC in the USA but live in Germany. In this case, you need to pay particular attention to the tax aspects. If the tax office actually recognizes the LLC as a partnership, a world of advantages opens up!

Residence USA, taxes Germany

Imagine you commute between New York and Frankfurt. Where do you pay tax? Basically, if you are resident in Germany (spend more than 183 days a year here), you are liable to pay tax here. The profits of your US LLC will then be regarded as your personal income in Germany and taxed accordingly.

Do I have to pay taxes in Germany if I work in the USA?

Here's a surprising fact: Even if you physically work in the US but have your center of life in Germany, you may be subject to tax here. The profits of your LLC are attributed directly to the German shareholders and are only subject to their personal income tax. But don't worry, it's not as complicated as it seems at first glance!

The double taxation agreement: Your lifeline

Germany and the USA have concluded a double taxation agreement (DTA). It is like a friendly handshake between the two countries, ensuring that you are not taxed twice on the same income. Here are the most important points:

1. Crediting instead of double taxation: Taxes that you pay in the USA can generally be credited against your German tax liability. It's like receiving a voucher for your German taxes.
2. 183-day rule: If you spend less than 183 days a year in the USA, your income is normally only taxed in Germany. Unless your employer is a US company.
3. Self-employed and LLC income: This is where it gets exciting! Your LLC profits are taxed in Germany, but you can claim a credit for taxes paid in the USA.

Exceptions and special features: The spice in the tax salad

Of course, there are a few exceptions and special features that can spice up your situation:

1. Exemption method for certain income: In some cases, certain income is completely exempt from German tax. This often applies to real estate income from the USA, for example.
2. Progression proviso: Even if some of your income is tax-free in Germany, it can increase the tax rate on the rest of your income. It's like browsing through a more expensive menu just because you got a free dessert.
3. Special rules for artists and sportspeople: If you work in these areas, special rules often apply. It's as if you had a VIP ticket to the tax concert.
4. Social security: The DTA also regulates in which country you have to pay social security contributions. You can often remain in the US system for a limited period of time, even if you work in Germany.

The trick with transparent taxation

If your LLC is recognized as a transparent partnership in Germany, you have a special advantage: the profits are attributed directly to you without the LLC having to pay corporation tax in Germany. It is as if you were taking a look behind the curtain and negotiating directly with the director (the German tax authorities).

Complicated, but doable!

The taxation of international income may seem like a confusing maze at first glance. But with the right knowledge and professional advice, you can navigate through it safely. Remember: it's always better to plan ahead and get advice than to be faced with nasty surprises later. With the right strategy, you can enjoy the best of both worlds - the American entrepreneurial spirit and German tax justice!

DBA - Double taxation

Double taxation (multiple taxation) is an important concept in tax law that can occur in different contexts. There are two main types of understanding:

1. double taxation at company and shareholder level

Definition: The same income is taxed twice - once at company level and a second time at shareholder level.

Example:

• A GmbH generates a profit of € 100,000.
• This profit is subject to 15% corporation tax (€ 15,000).
• The remaining € 85,000 is distributed to the shareholders as dividends.
• For the shareholders, these dividends are again subject to withholding tax of 25% (€21,250).
• A total of € 36,250 in taxes was therefore paid on the original profit of € 100,000.

2. double taxation in an international context

Definition: This occurs when the same income is taxed in two or more countries, typically due to different tax laws or definitions of tax liability.

Example:

• A German citizen works in the USA for a year and earns 80,000 $ there.
• The USA taxes this income with 30% (24,000 $) due to the Source country principle (ETBUS).
• Germany could also claim to tax this income (e.g. with 40% = 32,000 $) on the basis of the world income principle.
• Without countermeasures, the taxpayer would pay a total of 56,000 $ in taxes, which would correspond to an effective tax rate of 70%.

Read our Extended declaration on double taxation

LLC decree

There is no specific "LLC decree" in Germany. Instead, you need to focus on getting your LLC recognized as a transparent partnership. The key to this lies in your articles of association and the correct registration with the tax office.

The articles of association: the heart of your LLC

The Social contract (Operating Agreement) is like the recipe for your favorite cake - every ingredient has to be right! Here are the most important points you should consider:

• Specify that the LLC as a partnership (Partnership) is taxed
• Restrict the transferability of company shares
• List all shareholders (at least two are required)
• Regulate the distribution of profits, decision-making and possible dissolution

LLC taxation in Germany: The sweet part of the cake

If your US LLC is recognized as a partnership in Germany, the following advantages arise:

1. The profits of the LLC are attributed directly to the German shareholders.
2. There are no separate corporation or trade taxes for the LLC itself.
3. You can claim the profits in your personal tax return and benefit from the progressive income tax table.

Read the extended instructions here on how USLLC is recognized as a partnership in Germany

Living in Germany, LLC in the USA: Yes, it's possible!

As a German citizen with a US LLC, you can:

1. Living and working in Germany
2. Taxing the profits of your US LLC in Germany
3. Benefit from transparent taxation as a partnership

Steps towards recognition in Germany

To have your US LLC recognized as a partnership in Germany, follow these steps:

1. Fill out the form "Registration of a foreign partnership" (form St 1a)
2. Apply for a German tax number for the LLC
3. Provide the tax office with a written statement that the LLC should be treated as a transparent partnership
4. Submit the complete articles of association and all relevant documents

Conclusion

The world of LLCs in Germany is like an exciting journey through different legal systems and cultures. With the right knowledge and the right advice, you can realize your entrepreneurial dreams - whether in New York, Berlin or both cities!

Forming a US LLC and having it recognized as a partnership in Germany opens up a world of opportunities. It's like a bridge between two worlds, offering you the best of both. With the right preparation and advice, you can benefit from the tax advantages while taking your business international.

Remember: every entrepreneurial journey is unique. What works for one may not necessarily work for another. It is always advisable to seek expert advice to ensure that your LLC structure is best suited to your individual needs and goals.

So, what are you waiting for? The world of international entrepreneurship is open to you!

Sources:

• Federal Ministry of Finance: www.bundesfinanzministerium.de
• Federal Central Tax Office: www.bzst.de
• Chamber of Industry and Commerce: www.ihk.de
• Federal Foreign Office: www.auswaertiges-amt.de