Legal affairs and taxes

Self employment by foreigners

This information was prepared with extreme care. However, no liability will be accepted for the correctness of this information.
Status as at March 2018
Free access to work as a self-employed person in Germany is only guaranteed to German citizens, citizens of the European Union member states and citizens of Norway, Iceland and Liechtenstein. The freedom of economic pursuit according to the Gewerbeordung ( German Industrial Code), however, applies to everybody within the limits of the remaining legislature. Ausländerrecht ( German Aliens Law), in particular the Aufenthaltsgesetz ( German Residence Act), regulates certain exceptions and requirements that apply to foreigners.

1. Citizens of the European Union

Citizens of the European Union, even those from new EU member states, may enter and reside in Germany without meeting any specific requirements. No residence permit is required for such persons. However, they are subject to a general obligation to register with the competent Meldebehörden ( Registration Offices). A certificate granting the right of residence in the European Union is no longer required.
Based on the European freedom of establishment and free movement of services, citizens of the European Union have far-reaching opportunities to be self-employed in Germany. However, some limitations apply in certain areas.

1.1. Freedom of establishment

The freedom of establishment comprises the right of citizens of a member state to start and perform business activities as self-employed persons as well as to found and manage companies, company branches or subsidiaries in the territory of another member state of the European Union. The regulations of professional and trade law, which also apply to Germans, however have to be observed. For an establishment as defined in this context a fixed establishment such as a production site, warehouse or offices, which is intended to remain in long-term use, is required. A mere registration or application does not suffice.
Citizens from all EU member states as well as from Iceland, Norway and Liechtenstein enjoy full freedom of establishment in Germany without any restrictions. This freedom of establishment however does not mean that restrictions in other areas can be avoided. Self-employed people with the right to freedom of movement, for instance, have no right to freedom of movement as an employee during transitional periods, which means that they may not simply accept employment as a secondary occupation without further ado.

1.2. Freedom to provide services

The freedom of provision of services enables foreigners from member states to temporarily render services in Germany under the same conditions as German citizens, whilst maintaining their place of business or a subsidiary company in their EU country of origin. This freedom comprises the rendering of services under a service agreement as well as services in lieu of a contract for  work and labour as defined in German law. The minimum standards described at the end of this document however apply to all foreigners.
Citizens of member states, including Romania and Bulgaria, Iceland, and Norway are not subject to any restrictions, but enjoy full freedom of services in Germany. If the service to be rendered in Germany constitutes or corresponds to a German trade, a certification from the Handwerkskammer ( Chamber of Crafts) may be required. Since the transitional period for Croatia expired on 30 June 2015, Croatian citizens now also enjoy full freedom of services and may render services in Germany without any restrictions.  

2. Foreigners from third party countries outside the EU

2.1. Founding a business

As mentioned above, Art. 1 of the Gewerbeordnung ( German Industrial Code) permits anybody to run a business in Germany. Whether additional authorisation in terms of Alien Law is required for this purpose depends on the type of business activity to be exercised in Germany.
2.1.1. Individual entrepreneur / partnership
Individual entrepreneurs and shareholders of a partnership require, as a minimum, a temporary residence permit. This can already be applied for instead of a visa when the person first enters the country if he plans to stay in Germany for a prolonged period of time from the beginning.  Applications for residence permits for those entering Germany for the first time must be made at the German Embassy or the Consulate General in their home country. Foreigners who are in Germany already must approach the Ausländerbehörde ( Aliens Registration Authority) in the city of residence.
According to Art 21 Aufenthaltsgesetz (AufenthG – Residence Act), foreigners wishing to be self-employed in Germany require a residence permit.
In this context, self-employment means:
  • Individual entrepreneurs who have a business or work free-lance;
  • The general partner of a limited commercial partnership;
  • Representatives and managing directors of partnerships and coporations who have an equitable interest in the company.
In contrast, the mere contribution of capital to a company or the participation as a minority shareholder of a limited liability company does not suffice for a gainful independent activity.
A residence permit for the performance of self-employed activities may be granted if:
  • A superior economic interest or a regional need exists,
  • The activity is expected to have a positive effect on the economy, and
  • Financing has been secured.
These are not alternatives: all preconditions mentioned above must be met. Criteria for the assessment of these requirements are especially found in Art 21 Subsection 1(2) of the Residence Act.
Graduates of German universities have the possibility to pursue a self-employment activity in relation to the skills they’ve learnt during their studies. This does not depend on the abovementioned requirements in Subsection 1.
The Chamber of Commerce and Industry ( IHK) issues expert opinions to the Aliens Registration Authority ( Ausländerbehörde) as to whether the abovementioned conditions for commercial self-employed activities by foreigners have been met in a certain case. These opinions are for the competent authorities which, in turn, make the final decision.
For the assessment of the Chamber of Commerce the following documents may need to be supplied, if relevant:
  • Deed of association (Gesellschaftsvertrag)
  • Excerpt from the commercial register (Handelsregisterauszug)
  • Business registration (Gewerbeanzeige) with the Trade Office (Gewerbeamt)
  • Business plan (business concept, revenue feasibility, investment plan, capital requirement plan, budget plan)
  • Proof of available capital (own / borrowed capital)
  • Curriculum Vitae (including education certificates e.g. university diploma and confirmation of the hitherto exercised occupational activity)
  • Employment contract of managing director (Geschäftsführer-Anstellungsvertrag), with salary details
  • Rental contract, if already concluded
  • Proof of already existing business relationships in Germany and/or Europe
Free-lancers do not have a mandatory obligation to meet these preconditions.
Foreigners who are over 45 years of age can only be granted the relevant residence permit if they have an adequate pension scheme.
Based on the provisions in Art 21 Subsection 6 of the Residence Act, somewhat less stringent requirements apply to issuing a residence permit for the purpose of exercising self-employment activities to foreigners who live in Germany and already have a residence permit in some form. According to this provision, foreigners who already have a residence permit for a purpose other than self-employment can obtain a residence permit to exercise an independent business activity notwithstanding the strict requirements in Art 21 Subsection 1. A prerequisite is that a residence permit e.g. for studying or working in Germany already exists. The exceptional leave to remain ( Duldung) does not suffice. The decision about granting a resident permit for self-employment is made by the competent Ausländerbehörde ( Aliens Registration Office) after considering the expert opinion of the Chamber. Criteria that play a role in this regard are:
  • Compliance with the passport obligation and the absence of a reason to be repatriated
  • Sufficient command of the German language
  • Proof of business skills e.g. from previous activities
  • Living costs can be covered by the aspired activity
  • A residential restriction (e.g. to reside in a specific area) doesn’t have to be changed
  • The competent corporations (Chamber of Commerce and Industry or Chamber of Crafts) didn’t express any grave concerns e.g. regarding the economic feasibility of the planned business
Holders of a Niederlassungserlaubnis ( unlimited residence permit) are entitled to perform self-employed activities, irrespective of Art 21 of the Residence Act. They do not require separate authorisation. The residence permit can be changed into an unlimited residence permit after five years or, in the case of self-employed entrepreneurs, even after 3 years. For this purpose, foreigners must be able to earn their own living and have some command of the German language.
2.1.2. Incorporated companies
a) Representatives of a corporation
Foreigners, even those resident in a foreign country, can be appointed as managing directors. The question is however whether they require a residence or entry permit in order to be registered in the commercial register of companies. The managing director must be willing and able to perform his activities in practice and to fulfill the obligations which they involve, such as dealing with authorities and the obligation to keep accounts. The judicature seems to be getting more liberal in this regard.  
In any case, non-EU citizens who need neither a visa nor a residence permit to enter Germany can be appointed as managing directors. A list of the states from which no visa is required to enter Germany may be found on the website of the Auswärtiges Amt ( Federal Foreign Office).
b) Shareholders of a Corporation without Managing Authority
The participation in a company by purely investing capital is open to all foreigners.  For this purpose, they do not need to be resident in Germany. The participation of a foreigner however may not breach the provisions of Aliens Law or other provisions on the commercial activity of foreigners in Germany.

3. Services and work performance

The explanations below relate solely to Aliens Law. For information on the fiscal execution of cross-border services and deliveries, please refer to our webpages on Tax Law.

3.1. Service provider

a) Visa Requirements for employees from third countries
Persons from a third party country wishing to offer services in Germany require a visa for all employees who are not German citizens. It is possible to apply for a Schengen visa which applies to all signatories of the Schengen Agreement. The following states have signed this Agreement:
Belgium, Germany, France, Greece, Italy, Luxembourg, the Netherlands, Portugal, Spain, Austria, Denmark, Finland, Iceland, Norway, Sweden, Estonia, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, the Czech Republic and Hungary.
Holders of a Schengen visa may stay in these countries for the period of its validity, however for a maximum of 3 months per half-year.
Should a foreigner from an EU member state wish to offer services in Germany using his usual employees, he can do so irrespective of the citizenship of his employees provided that they have a valid residence permit from the EU-country in which the company is situated. This is a result of the free movement of services within the EU and a consequence of the “Van der Elst” case of the European Court of Justice. In its judgment the court found that citizens of third countries who are permanently and duly employed in an EU member state do not require a work permit in order to perform work for a limited time for their company of employment in another member state. The target country may however require an endorsement to be issued. In lieu of the judgment this kind of visa is called a Vander-Elst-Visa.    
b) Required Minimum Standards
The Arbeitnehmer-Entsendegesetz (AentG – Act on the Delegation of Employees) requires employers in certain industries to comply with certain minimum standards for the employment of staff in Germany. These provisions apply to employers with their domicile in Germany and abroad.  If a sub-contractor is appointed, the contractor is also liable for the sub-contractor‘s compliance with these standards! Further information can be found on the website of the Zollverwaltung ( Customs Administration). Should a contractor want to deploy employees in this field, the necessary notification has to be made at the Customs Administration (Bundesfinanzdirektion Südwest), which has to contain the following information:
  • Name, Surname and date of birth of the employees
  • Beginning and prospective period of deployment in Germany
  • Work location, for construction work the building site
  • Location in Germany where the documents prescribed in § 19 of the Act are being kept
  • Name, surname, date of birth and address of the responsible person in Germany
  • Industry or branch in which the employees are to be deployed, and
  • Name, surname and address of an authorised recipient of correspondence, should this not be identical to the responsible person
Additionally the employer has to keep records of the working times and further documents for the duration of the assignment and for a maximum period of 2 years. For further information please refer to the website of the Customs Administration.

3.2. Recipient of the services

Caution is also required when contracting other companies for the provision of services. According to Art 14 of the Act on the Delegation of Employees, an entrepreneur who appoints another entrepreneur to perform work or render services is also liable for the obligation of the other entrepreneur, of subcontractors or of a personnel leasing company appointed by the entrepreneur or subcontractor to pay the minimum net remuneration to an employee or to pay contributions under collective agreements. Whilst this liability is subordinate, the contractor can still be subject to a claim - like a surety who has waived his right to the benefit of discussion.
For an overview of the applicable minimum wages, please refer to the website of the Customs Department.
In the building industry a general contractor is liable for the social security payment obligations of its subcontractors like a primary obligor for orders with an order volume of EUR 275 000 and more (Art. 28e sec. 3 a, d SGB ( Social Security Statutes) IV).
This liability however does not apply if the general contractor can prove that it acted with the due care of a prudent and professional businessman in selecting the subcontractor. This for instance comprises the examination of the offer to ascertain whether the correct social security contributions have been calculated into the wage costs.
The general contractor is only liable for subcontractors’ subcontractors if the first subcontractor was only appointed as a tactic to avoid liability. The main entrepreneur’s liability is subordinate. It only finds application if the competent authority has sent out a written warning to the subcontractor and the grace period has lapsed.
Finally, a risk that is often overseen is the illegal supply of temporary/contractual employees. This can occur when, on paper, a contract for work or services was concluded, however the actual circumstances correlate with or equate to the supply of temporary employees (also known as personnel leasing), for which a special permit is required. This kind of situation can for instance arise when the employees are factually subject to the instructions of the principal entrepreneur because no supervisor, foreman or project manager is present on-site. This can be avoided by formulating the order as precisely as possible so that the contractor can exercise his own managerial authority over his employees. Further information about the formation and consequences of the illegal supply of temporary employees can also be found on the website of the Customs Administration.