GmbH (Gesellschaft mit beschränkter Haftung) is a commonly chosen corporation in Germany with its own legal personality and limited liability for the shareholders. For freelancers and small businesses, a GmbH means that the business activity is legally separated from the private asset sphere — liability limited to the company’s assets — but it also entails specific accounting and tax obligations.
Legal form, formation and share capital
The GmbH is regulated in the GmbH Act (GmbHG). The minimum share capital is 25,000 EUR; for registration in the commercial register at least 12,500 EUR must be paid in cash or equivalent contributions in kind must be documented. Relevant for accounting are the accounts Share capital (subscribed capital) and Capital reserves (for overpayments or contributions in kind).
Important for founders: The GmbH is a merchant under the Commercial Code (HGB) and is therefore subject to the obligation to maintain double-entry bookkeeping and to prepare annual financial statements (balance sheet and profit and loss statement).
Accounting obligations and practical particularities
As a capital company the GmbH is subject to comprehensive bookkeeping obligations. Important rules stem from the HGB, the GoB and the GoBD regarding retention and electronic bookkeeping.
Key requirements
- Double-entry bookkeeping with maintenance of ledgers and journals.
- Retention obligations for supporting documents (generally 10 years).
- Monthly payroll accounting for employees (wage tax, social contributions).
- Separation between shareholder and company cash flows: private withdrawals are not permitted.
Typical journal entries
Practical, simplified examples:
| Transaction | Entry |
|---|---|
| Payment of share capital (cash/bank) | Bank to Share capital |
| Purchase of fixed assets | Fixed asset account to Bank |
| Monthly depreciation | Depreciation expense to Fixed asset account |
| Gross payroll | Wage expense to Liabilities to tax office / social security; then payment: Wage expense / Liabilities to Bank |
Taxes and levies
The GmbH is subject to corporate income tax and additionally to trade tax and VAT. Relevant provisions come from the Corporate Income Tax Act (KStG), the Trade Tax Act (GewStG) and the Value Added Tax Act (UStG).
Corporate income tax and trade tax
- Corporate income tax: Generally 15% plus solidarity surcharge on taxable profit.
- Trade tax: Depends on the municipal multiplier (Hebesatz); offsetting against income tax for partnerships does not apply — for a GmbH trade tax remains an operating expense or an additional burden to consider.
VAT and input tax
The GmbH charges VAT on supplies and services and may deduct input tax from purchase invoices. VAT advance returns are often filed monthly or quarterly. In accounting, VAT accounts are separated for VAT payable and input tax receivable.
Payroll tax and social security
For employees the GmbH is the employer and withholds and remits payroll tax as well as employee and employer social security contributions. Typical bookings: Wage expense, wage tax liabilities, social security contributions, payment of net wages.
Annual financial statements, distributions and practical cases
The annual financial statements of a GmbH consist of the balance sheet, profit and loss statement and, where applicable, notes and management report (depending on size). Small GmbHs can use reliefs under the HGB, while large GmbHs are subject to strict disclosure obligations in the Federal Gazette.
Profit distribution and reserves
Profit distributions to shareholders are made only after the annual financial statements have been adopted. Entry: Retained earnings / P&L to Liability to shareholder (on payment: Liability to shareholder to Bank). Observe capital maintenance rules: distributions must not jeopardize the share capital.
Practical examples
- Starting capital: If 12,500 EUR is paid in before registration in the commercial register: Bank to Share capital 12,500 EUR.
- Acquisition of a company car for 30,000 EUR (cash/bank): Vehicles to Bank 30,000 EUR; annual depreciation: Depreciation expense to Vehicles (straight-line e.g. 6 years).
- Payment of managing director’s salary: Wage expense to Bank (or Liabilities to Bank after withholding and remittance).
Conclusion: The GmbH offers limited liability and commercial credibility, but requires professional bookkeeping, strict separation of private and company assets and compliance with numerous tax obligations. For founders and small businesses early advice from a tax advisor is worthwhile to ensure booking processes, tax deadlines and distribution rules are handled in a legally compliant and liquidity-friendly manner.