Timeline - What a startup needs to know Set up process – set up of the accountancy process/system Current compliance obligations Hiring employees

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Open Session 10.07.2013
Tax and Legal 101
 Tax Services  Accounting  Auditing  Legal Services

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Personal advice and interdisciplinary
solutions
global consulting firm
particular strength of
ECOVIS
core competencies
clients
 tax consulting
 accounting
 Auditing *1
 legal advice *1
*1 In cooperation with Members of the ECOVIS Group
 combination of personal advice at a local level
with the general expertise of an international
and interdisciplinary network of professionals
 it has over 4,000 people operating in over 50
countries




 Ecovis concentrates mainly on mid-sized firms
 both nationally and internationally, its one-stop-
shop concept ensures all-round support in
legal, fiscal, managerial and administrative
issues
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Contact person
Person
 Daniel Frischkorn, certified tax advisor, Partner
 E-Mail: daniel.frischkorn@ecovis.com
 Head of ECOVIS WWS Steuerberatungsges. mbH,
Berlin
Vita
 Certified Tax Advisor since 2006
 Previously engaged as
• Tax advisor/Manager with a leading international
advisory firm
• Tax Manager with an international media concern
 joined Ecovis in 2011
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Agenda
Timeline - What a startup needs to know1
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Timeline - What a start-up needs to know
Set up process
1. Understanding of the German tax system
2. Structuring
3. Establishment process
4. Registration
5. Set up of the accountancy process/system
Current compliance
Tax obligations, financial statements
Hiring employees
Financing, Exit
short-term
mid-term
long-term

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Reasons why you need to know it?
Extract of various reasons:
 taxes (and mistakes) can be very expensive
 VAT mistakes can kill your margin
 German tax authority is one of the most formal one
 Various tax compliance obligation exist (monthly, quarterly, annually)
 CEO and CFO are fully responsible, can lead to personal liability of the managing directors

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Agenda
Timeline - What a startup needs to know
Set up process – German tax system
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Set up process - German tax system
Most relevant taxes: taxation at three levels
 Taxation at company level – business taxes
• Corporate income Tax (CiT)
• Trade income Tax (TiT)
 Taxation at shareholder level
• personal income taxes on dividends or exit gain
• personal income taxes on income from partnerships
 Additionally, sales tax system at consumer level
• EU VAT (European Value Added Tax)
• common VAT system for all members of the European Union
• Real Estate Transfer Tax (RETT)
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Set up process - German tax system
Corporate income Tax (CiT)
 Taxable Person
• Corporate entities, e.g Unternehmergesellschaft haftungsbeschränkt (UG), GmbH, public
limited company
 Tax Rate
• CiT 15 % plus solidarity surcharge 5,5 % = 15,8 %
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Set up process - German tax system
Trade income Tax (TiT)
 Taxable Person
• Corporate entities, Partnerships, one-man business (in opposite to liberal professions)
 Tax Rate
• Trade income Tax rate is set by each municipality individually
• Berlin: 14,35 % ( bases amount 3,5% x multiplier Berlin 410 %)
 Particularities
• partners of a Partnership and entrepreneurs maybe able to credit the TiT against the
personal income tax liability
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Set up process - German tax system
Personal income Tax
 Taxable Person
• private person
 Tax Base:
• income, e.g. from:
• rent and lease
• income from employment
• income from Partnerships, one-man business, trading activities
• income from capital, profit distributions, dividends, exist gains etc.
 Tax Rate
• individuell with regard to the personal circumstances (progressiv 0-45 %)
• special withholding taxes 25 % on gross dividends contributed by corporate entities
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Set up process - German tax system
Value Added Tax (VAT)
 Consumption tax
• EU VAT taxes the consumption of goods and services in the EU VAT area
• key issue is where the supply and consumption occurs, thereby determining which member
state will collect the VAT and which VAT rate will be charged
• a business is generally able to recover input VAT up to the extent the expense is used to
make taxable outputs
• each member state's national VAT legislation must comply with the provisions of EU VAT
law as set out in directive 2006/112/EC, but does allow member states some degree of
flexibility in implementation of VAT legislation
 Particularities
• very formal
• very complex in cross border transactions
• various tax exemptions in place, e.g “small business owner” rule
• mistakes in the VAT treatment (input and output) can kill your margin
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Set up process - legal forms of business
Legal forms of business ->Corporate entity
 Main forms in Germany: AG, GmbH, UG haftungsbeschränkt
 (For tax purposes) similar to ….
• Italy Società per azioni (S.P.A.), Società a responsabilità (S.R.L.)
• United Kingdom Public company limited by shares (Plc), Private company limited by
shares (Ltd.)
• Greece Anonynos Etairia (A.E.), Etairia periorismenis evthinis (E.P.E.)
• Poland Spólka akcyjna (S.A.), Spólka z ograniczona odp… (Sp.z.zo.o.)
• France Société anonyme (SA), Société de responsabilité limitée (SARL)
• USA (Public) Corporation (Corp, Inc.), Closed Corporation(Corp. Inc.)
• Czech Republic Akiová spulecnost (a.s.), Spolecnost s rucen im (spol.s.r.o.)
• Portugal sociedade anonima (S.A.), sociedade com respons. Limitada (L.da)
• Denmark Aktieslskb (A/S), Anpartsselskab (Aps)
• Spain Sociedad Anonima (S.A.), Sociedad de Respons. Limitada (SRL)
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Set up process - German tax system
Taxation of a corporate entity
 Income taxes at company level
• CiT, TiT --- combined tax rate in Berlin approx. 31 %
 Income taxes at shareholder level on profit contributions and exit gains
• for corporations: tax exemption (5 % have to be treated as non deductible expenses)
• for private persons: 25% flat rate withholding tax or partially private income tax
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Set up process - legal forms of business
Legal forms of business ->Partnerships
 Main forms in Germany: GbR, KG, OHG
 (For tax purposes) similar to ….
• Italy Società a accommandita (S.a.)
• United Kingdom Limited Partnership, Partnership
• Greece Eterrorrythmos (EE), Omorrorrythmos (O.E.)
• Poland Spólka cywilna) (S.c.), Spólka komandytowa (Sp.K.)
• France Société en commandite simple
• USA Limited Partnership (LP, LLP), General Partnership
• Czech Republic Komanditi spolecnost (kom.spol.),
• Portugal sociedade civil, sociedade em comandita
• Denmark Kommanditselskab (K/S), Interessentskab (I/S)
• Spain Sociedad en Comandita (SC), Sociedad regular Colectiva Compania
(SrC)
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Set up process - German tax system
Partnership
General Rule: In Germany treated as a transparent entity
 Income taxes at company level
• (Only) Trade income Tax (excemption of the transparency principle)
 Income taxes at shareholder level
• personal income tax on the income of the partnership to be allocated to each shareholder
• paid Trade income Tax might be credited against the personal income tax relating to the
partnerships income
 In international comparison:
• Transparent : (company itself is no own tax subject but the shareholders)
• Germany, Denmark, Ireland, Italy, Luxembourg, Netherlands, Poland, UK
• Intransparent (own tax subject)
• Greece, Portugal, Hungary, Belgium
• Hybrid (it depends)
• USA, France
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Agenda
Timeline - What a startup needs to know
Set up process – Structuring
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Set up process - structuring
1. Single company vs. Holding structure
2. Legal entity vs. (mere) Permanent Establishment
3. Corporation or limited Partnership
4. Cross border structures

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Agenda
Timeline - What a startup needs to know
Set up process – registration
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Set up process - registration
 Registration requirement
• registration with the trade register (notary)
• registration with the trade office
• own company registration number / employment office
• registration for tax purposes with the German tax office
 Further registration obligations, for instance:
• employers' liability insurance association
• registration of the employees
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Agenda
Timeline - What a startup needs to know
Set up process – set up of the accountancy process/system
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Set up process – accountancy process/system
Who is doing your accountancy
 service provider
 tax advisor
 you
Software
Datev
Unternehmen Online
ECOVIS Onlinekasse
COLLMEX
other solutions, SaaS, shared software, cloud solutions

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Agenda
Timeline - What a startup needs to know
Set up process – set up of the accountancy process/system
Current compliance obligations
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Current compliance obligations
 Financial Statements
• annual financial statement according to the rules of the German HGB
• publishing the financial statement in the electronic ‘Bundesanzeiger’
 Tax Returns
• annual tax returns for TiT, CiT and VAT
 Preliminary Returns and self assessment
• advance VAT declarations on a monthly/quarterly basis
• self-assessment wage tax return to be filed by the employer on a monthly basis
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Agenda
Timeline - What a startup needs to know
Set up process – set up of the accountancy process/system
Current compliance obligations
Hiring employees
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Hiring employees
Various possibilities
 „ordinary“ employee
 marginal or small-scale employment
• students
• trainee
• temporary employment (Aushilfe)
• marginal employment (Minijobber <450 €)
 freelancer/ service Provider
• payed fees are deductible business expenses
• precaution: risk of treatment as „quasi-self-employment person“
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