# What is GmbH?

Country: Germany

GmbH (Gesellschaft mit beschränkter Haftung) is Germany's most common private limited company structure. It provides limited liability for shareholders, requires €25,000 minimum share capital (€12,500 paid up at formation), and must be formed by notarial deed and registered in the Handelsregister.

## Current rate (Steuerjahr 2025)

N/A (structure, not a tax rate)

## Example

A founder forms a Berlin GmbH with €25,000 share capital, pays €12,500 on day one, appoints herself as Geschäftsführerin, and the notary files the Handelsregister application. The company exists legally once registered.

## How GmbH works in Germany

The GmbH is Germany's workhorse corporate structure, equivalent to the UK's private limited company or the US LLC/S-Corp. It combines limited liability (shareholders are only liable up to their capital contribution) with relative simplicity and flexibility compared to an AG (Aktiengesellschaft).\n\n**Formation requirements**\nForming a GmbH requires:\n1. A Gesellschaftsvertrag (articles of association) executed before a German notary\n2. At least €25,000 share capital, with at least €12,500 actually paid up before registration\n3. Appointment of at least one Geschäftsführer (managing director)\n4. Registration with the Handelsregister at the local Amtsgericht\n5. Commercial register entry: the GmbH only exists as a legal entity from the date of registration\n\nA pre-registration entity (GmbH in Gründung, or GmbH i.G.) can operate in the interim but founders bear personal liability for its obligations.\n\n**Haftungsbeschränkte Unternehmergesellschaft (UG)**\nThe UG (haftungsbeschränkt) is a GmbH variant allowing formation with as little as €1 share capital. However, UGs must retain 25% of annual profit until cumulative retained earnings reach €25,000, at which point the UG can convert to a full GmbH. The UG carries less prestige with suppliers and banks and is typically a stepping stone.\n\n**Tax treatment**\nA GmbH pays:\n- Körperschaftsteuer: 15% + 5.5% SolZ = 15.825%\n- Gewerbesteuer: ~10.5–17.5% depending on municipality\n- Combined effective rate: typically 29–33%\n\nShareholders are taxed separately on dividends received (25% Kapitalertragsteuer + SolZ), or on salary paid to themselves as Geschäftsführer (subject to personal Einkommensteuer and social insurance).\n\n**Ongoing obligations**\nA GmbH must:\n- Prepare annual Jahresabschluss (financial accounts) under HGB rules\n- File accounts with the Bundesanzeiger (electronic disclosure)\n- Hold at least one shareholder meeting per year\n- Maintain a share register (Gesellschafterliste)\n- File annual tax returns (KSt, GewSt, USt) via ELSTER\n- Register changes (directors, shareholders, address) with the Handelsregister\n\n**Geschäftsführer compensation**\nThe managing director (who may also be the sole shareholder) can be paid a salary as Geschäftsführer. This salary must be at arm's length (market rate) and agreed in a formal Anstellungsvertrag before payment. The Finanzamt scrutinises Geschäftsführer salaries as a means of profit extraction: unreasonably high salaries may be reclassified as hidden dividend distributions.

Source: https://www.bmj.de/DE/Themen/WirtschaftundFinanzen/GmbH/GmbH_node.html

## Related terms

- [Körperschaftsteuer](https://accounts-os.com/de/glossary/koerperschaftsteuer-de)
- [Gewerbesteuer](https://accounts-os.com/de/glossary/gewerbesteuer-de)
- [Handelsregister](https://accounts-os.com/de/glossary/handelsregister-de)
- [Jahresabschluss](https://accounts-os.com/de/glossary/jahresabschluss-de)