Hidden fears of registering a company in Germany
Investment opportunities in Germany
December 8, 2025
If you have decided to register a company in Germany, congratulations! However, you should familiarize yourself with the “three minefields of legal, tax, and administrative” on the path to company registration and residency in Germany before signing any document. Not being aware of these points can turn your profits into heavy fines. In this article from Wise Business Group, we will show you how to firstly overcome the hidden fears of registering a company in Germany. Then, you can start your business with open eyes in the heart of Europe.
Three hidden traps on the path to registering a company and residency in Germany
Tax nightmare or launching pad? Three hidden traps in Germany that entrepreneurs are unaware of!
To start a business in Germany, you need to know the rules of the game. We are here to keep you off the dangerous paths. Below, we will explain how to avoid tax, legal, and administrative pitfalls when starting a business in Germany.
Make no mistake! Registering a company is just the first step.
Most foreign investors focus solely on “getting a visa”. So, they neglect managing the company after registering it in Germany. Although, the most considerable risk is a lack of awareness of current legal and tax laws.
Three hidden traps on the path to registering a company in Germany
⚠️ 1. Legal trap: An employee disguised as self-employed!
If your business plan is based on providing services to only one company, the German government considers it false self-employment (Scheinselbständigkeit). It puts your stay in Germany at serious risk and makes you subject to employment tax. The solution is to diversify both the company’s customers and activities.
Contact us to prepare a comprehensive immigration business plan that will lead to approval of your German residence permit application. Our consultants will inform you of all the necessary points that are of interest to the German authorities.
💸 2. Tax Trap: The Complexity of Value Added Tax (USt/VAT) in Germany
Your international transactions within the European Union are under specific VAT rules. Failure to issue a correct invoice (with or without VAT) can result in heavy tax liabilities. Therefore, the key here is to understand the Reverse Charge mechanism!
What is the Reverse Charge mechanism?
The Reverse Charge mechanism in Germany is a key law used for international transactions in the European Union. When selling goods and services, it is usually the seller who must add value-added tax (VAT) to their invoice and pay it to the government. Under the Reverse Charge mechanism, this responsibility is reversed.
Click here to know more about VAT number in Germany.
For example, if your German company provides services to a company registered in another EU country, you will not collect German VAT from that company. Instead, the responsibility for paying VAT is transferred directly to the foreign buyer. This law prevents double taxation and facilitates tax flows within the European Union. However, it is mandatory to strictly follow the rules and mention the buyer’s VAT identification code (UID) on the invoice. Otherwise, you may face heavy tax penalties.
Example: Selling services to a French company and invoicing with Reverse Charge
Suppose in a transaction, your German company, as the seller, has provided management consulting services worth €10,000 to a French company (registered in the European Union). An example of a correct invoice is as follows:
| Invoice details | Correct mode (Reverse Charge) | Normal mode (common mistake) |
|---|---|---|
| 1. Net amount of services | €10,000 | €10,000 |
| 2. German VAT rate (19%) | 0% | €1,900 |
| 3. Total amount | €10,000 | €11,900 |
| 4. VAT Identification Code (UID) | The buyer’s UID (FRXXXXXXXXX) must be included. | The buyer’s UID (FRXXXXXXXXX) is usually not included. |
| 5. Key phrase | “Reverse Charge Procedure / Umkehrung der Steuerschuldnerschaft” | Usually, no specific phrase is included. |
🏠 3. Administrative Trap: The Difference Between a Company’s “Address” and “Place of Decision-Making”
Your company is registered in Germany, but all of your management decisions are made from another country, such as Iran. In this case, the tax authorities may consider your company as a “resident of Iran”. Therefore, you will be subject to double taxation. Thus, your active presence in Germany is vital.
✨ The secret to success: expertise alongside experience
These traps shouldn’t scare you; but also they should inform you. In conclusion, A specialist tax and legal advisor in Germany can make your business plan “risk-free” from the very beginning and protect you from possible fines in periodic reports.
Click here to know more about successful company registration in Germany.
Wise Business Group (WBG) experts are with you starting today!
Our expertise is in preparing approved business plans and providing business, tax, and legal advice for registering a company in Germany and beyond. We don’t just guide you to “get a residence permit”; Rather, we will be your partner for “sustainable success” in Germany.
Make your business in Germany risk-free with just one call! 🇩🇪
📞 Message us now and book a consultation to explore the potential of your business in Germany. It is your opportunity to ask all your legal and tax questions to our consultants before starting work. To contact us, click the WhatsApp button below.
