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Accounting & Controlling in Germany |
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 For a foreign corporation intending to set up in Germany, accounting is
fundamental to the success of the operation.
When contemplating coming
to Germany, one of the first things which must be done from an
accounting point of view, is to consult with a German tax advisor to
ensure the set up of the company structure does not cause unexpected
tax problems.
The kind of accounting and German taxation regulations of the German
engagement are affected by the choosen forms: liason office; permanent
establishment (branch office) with or without registration; GmbH (legal
entity); partnership; and function (market introduction, buy and sell
operation, commissionaire, soliciting agent and service entity). Good
tax and legal advice in that stage is imperative.
In addition, intercompany agreements (for transactions between
affiliated structures), which meet the arm's length test and the
transfer pricing principles need to be put in place as soon as possible
to avoid unpleasant tax risks.
Accounting in Germany involves many regulations which may seem
complicated but if they are established and observed at an early stage
they are manageable:
1. The first step is to set up a bank account.
2. Next, you need a company to do your accounts. It is better to
outsource this so that your German tax advisor can concentrate on tax
advice, you do not incur unnecessary costs, or have the conflict of
changing advisors if you form a GmbH and have the auditing and
accounting with the same person.
3. Next, the German engagement must be announced and registered at the
local tax office. A tax number will be issued and with this monthly VAT
returns must be filed.
It is important to have your accounting company cooperate with your tax
advisor at an early stage, so that the setup is watertight. Also the
tax advisor can assist you in making the best of the German Chart of
Accounts, so that monthly reporting is not too cost intensive.
The regulation that a governmental tax auditor should be able to find
receipts or invoices for a booking within five minutes combined with
the fact that the auditor is not required to speak English would
indicate that accounting in the German language is at the very least of
advantage to your company. Please note, that the result of proper
accounting is the basis for all possible taxes (VAT, trade tax and
corporate tax, if applicable) and can be audited by tax inspectors.
The key to professional accounting is solid and complete documentation,
especially original receipts, intercompany invoices and proper
intercompany agreements for all transactions. It must be noted that
regulations for travel costs are different in Germany compared to other
countries. It is advisable to get information on these regulations from
your German tax advisor before or while bringing in the first employee.
Salaries can be handled easily if the correct documentation is
submitted to your payroll company on time for the monthly salary
bookkeeping. For the initial stages, it is important to know that in
Germany payroll payments are made by bank transfer. If the bank
transfer is made from abroad this can take up to 5 days, and therefore,
payroll preparation must be handled in a timely manner. Payments to the
authorities (tax and social security tax authorities) should be made
with German language descriptions. Bank fees, which are deducted, lead
to a non-fulfilment of the deadlines, so it is imperative to ensure
that no bank fees are transferred to the authorities. Please note, that
an employer is obliged to withhold the monthly wage and social security
tax from the salaries and submit it just in time to the respective
authorities.
The key is to have a local accounting and payroll company along with a
German tax advisor manage this for you and to contact them at an early
stage so that they can give you good advice on how to set up and to
meet all legal and tax requirements. If this is done, fines and
problems can be avoided.
 Ernst Altweger
Attorney-at-Law and Tax Consultant
AuditJurTax
www.AuditJurTax.de
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