Self employment in Germany
The following should give you an initial overview of the most important questions of laws applying to foreigners in connection to starting a self-employed activity according to § 21 of the Law on Residence, Employment and Integration of Foreigners in the Federal Territory (Aufenthaltsgesetz – AufenthG).
Restriction of the freedom of trade
The economic system of the Federal Republic of Germany is characterized by the generally very liberal regulations of the Industrial Code (GewO). In principle, the principle of freedom of trade applies in trade law. Pursuant to Section 1 (1) GewO, the operation of a trade is permitted to anyone unless exceptions or limitations are prescribed or permitted by this law. The largely free access to the trade is not only aimed at German citizens, but also at citizens of the European Union (EU). They enjoy the same unrestricted freedom of establishment and services, and can engage in self-employment and provide services.
For nationals of countries outside the EU there are special rules and restrictions. The essential provisions on residence and self-employment in Germany are found in the Act on Residence, Employment and the Integration of Foreigners in the Federal Territory (Aufenthaltsgesetz – AufenthG). Non-EU citizens who want to pursue an independent activity in Germany need a residence permit according to § 21 AufenthG. The residence permit for the purpose of self-employment is granted as a temporary residence permit provided that certain conditions are met. The permit is limited to three years in accordance with § 21 Abs. 4 AufenthG. Following this, the foreigner can apply for the (unlimited) settlement permit in accordance with § 21 Abs. 4 AufenthG if he has successfully fulfilled his business idea and, moreover, the provisions for a secure livelihood are met. § 9 AufenthG regulates the requirements for a settlement permit.
In principle, every residence permit must indicate whether and which gainful employment is permitted. If there are any doubts as to whether the residence permit permits the taking up of independent activity, the foreigners authority will provide the corresponding information. If a foreigner pursues gainful employment in the Federal Republic without a residence title allowing him to do so, he or she acts in violation of the regulations or can make himself liable to prosecution.
Issuance of a residence permit
The issuing of a residence permit for the purpose of carrying out self-employment requires the submission of an application to the competent authority. Persons who are abroad, generally turn to the German Embassy or the German Consulate General for passport and visa matters in their respective countries, § 71 Abs. 2 AufenthG. The local jurisdiction is based on the habitual residence of the foreigner.
Self-employed activities include all activities that an entrepreneur carries out in his own name, in his own establishment, for his own account and at his own risk. The concept of self-employment is not defined by law. The jurisprudence has developed a number of criteria that allow a distinction between self-employment and employment.
Self-employment includes, for example:
- commercial activities such as wholesale and retail, import and export, broker, innkeeper
- Independent sales representative, who is entrusted by another entrepreneur – with free time allocation and extensive freedom of design – to conclude or mediate for these contracts.
Self-employment vs dependent employment
- in the case of an open trading company (OHG) every single shareholder
- Managing directors of limited liability companies (GmbH), provided that they hold significant shares in the company and exert a controlling influence in the company.
- Board members of public limited companies (AG) as authorized representatives of a legal entity.
- the mere participation of capital in partnerships, be it as a “silent partner” or as a limited partner of a KG
- the mere ownership of company shares in corporations (eg UG, GmbH, AG).
Conditions for a residence permit for self-employment
According to § 21 Abs. 1 AufenthG, a foreigner can be granted a residence permit for his / her self-employment if the following conditions are met:
- there is an economic interest or a regional need
- the activity can be expected to have positive effects on the economy
- the financing of the implementation by equity or a loan commitment is secured.
The various elements of Article 21 (1) are examined, according to the following:
- sustainability of the underlying business idea
- the entrepreneurial experience of the foreigner
- the amount of capital employed
- the impact on the employment and training situation
- and the contribution to innovation and research.
Foreigners over the age of 45 must have adequate retirement pensions or savings/real estate ownership securing their retirement in Germany; Section 21 (3) Residence Act.
Assessment of your project
In examining whether the requirements of § 21 (1) AufenthG are fulfilled, the competent authorities for the place of the planned activity, such as the Chambers of Commerce and Industry (IHK) will be implicated. The examination is based on the activity and whether it can be attributed either to the craft sector or to the industrial or commercial sector. The applicant has to clarify the founding or takeover project in an enterprise concept for the IHK. The assessment is based on comparable statements on the viability of starting a business in the context of public funding programs of the federal government and the state. Helpful if the applicant:
- shows with his CV and the start-up profile that he has the necessary professional and commercial qualifications to run a company successfully
- presents his business idea and clarifies with which products or services he wants to address his target group
- knows the market and competitive situations and describes the marketing strategy for customer loyalty
- expresses its staffing needs in the coming years
- explains whether and to what extent the products or services contribute to innovation and do research
- describes the premises and technical facilities necessary for self-employment
The aforementioned points do not constitute a conclusive list on the basis of which the IHK verifies compliance with the constituent elements of § 21 Abs.1 AufenthG.
The sales targeted by the applicant must lead to a secure livelihood. Using planning calculations, the financial side can be highlighted and the viability of the project can be shown. Capital needs and funding must be known and clarified. Many start-up projects fail because the need for capital is underestimated and financing is not guaranteed. An important calculation is the profitability forecast. It provides answers as to whether a viable existence can be established with the project and whether the foreign start-up founders will meet their financial obligations in the future.
Liquidity planning compares planned revenue and expenditure and provides information on solvency. The private financial need shows whether the targeted profits cover private expenditure.
After a detailed examination of the proposed start-up project, the Chamber of Commerce and Industry gives an expert opinion to the requesting immigration authorities. The applicant itself does not receive any information on the results of the IHK opinion. The immigration office has to make a discretionary decision in recognition of all circumstances. However, they are not bound by the opinion of the IHK in their decision.