Self-Employment by Foreigners

A. Citizens of the European Union
I. Freedom of Establishment
II. Free Movement of Services
1. Europeans from most EU Member States
2. Europeans from Bulgaria and Romania
B. Foreigners from Third Party Countries Outside the EU
I. Foundation
1. Individual Entrepreneur / Partnership
2. Capital Companies
a) Representatives of a Corporation
b) Shareholder of a Corporation without Managing Authority
II. Services and Works
1. Service Provider
a) Visa Requirement
b) Required Minimum Standards
2. Recipient of the Services

This information was prepared with extreme care. However, no liability will be accepted for the correctness of this information.

Status as at October 2011

Free access to work as a self-employed person in Germany is only guaranteed in German Basic Law to Germans, citizens of member states of the European Union and citizens of Norway, Iceland and Liechtenstein. Freedom of economic pursuit according to the Gewerbeordung (German Industrial Code), however, applies to everybody within the limits of other laws. Ausländerrecht (German Aliens Law), in particular the Aufenthaltsgesetz (German Residence Act), provides for some exceptions and sets certain requirements.

A. Citizens of the European Union

Citizens of the European Union, even those from new EU member states, may enter and reside in Germany without meeting any specific requirements. No residence permit is required for such persons. However, they are subject to a general obligation to register with the competent Meldebehörden (Registration Offices). In Stuttgart, citizens of the European Union must register with the Ausländerbehörde (Aliens Registration Authority) of the city of Stuttgart. They are then issued a certificate granting the right of residence in the European Union. For citizens from new EU member states, this certificate contains a note on their obligation to obtain a work permit.

Based on the European freedom of establishment and free movement of services, citizens of the Union have far-reaching opportunities to seek work as self-employed persons in Germany. However, some limitations apply in a few areas.

I. Freedom of Establishment

The freedom of establishment comprises the right of citizens of a member state to start and perform gainful activities as self-employed persons as well as to found and manage companies, branches or subsidiaries in the territory of another member state of the European Union. However, regulations under professional and trade law must be observed; these also apply to Germans. Furthermore, a fixed establishment such as a production site, warehouse or offices, which is intended to remain in long-term use, is required for establishment as defined in this context. Mere registration or application does not suffice.

Citizens from all EU member states as well as from Iceland, Norway and Liechtenstein enjoy full freedom of establishment in Germany without any restrictions. This applies also to citizens of the new EU member states, unlike for free movement of services and free movement of workers. However, freedom of establishment does not mean that restrictions in other areas can be avoided. For instance, self-employed people who have the right to freedom of movement have no right of freedom of movement as employees during transitional periods, which means that they may not readily accept employment as a secondary occupation.

II. Free Movement of Services

The Free Movement of Services enables foreigners from member states to temporarily render services in Germany under the same conditions as Germans. This comprises the rendering of services under a service agreement and contracts for work as defined in German law. However, the minimum standards described at the end of the document apply to all foreigners.

1. Europeans from most EU Member States

Citizens of all EU member states, of  Finland, Iceland and Norway are not subject to restrictions. They enjoy full free movement of services in Germany. If the service to be rendered in Germany corresponds to a German trade, certification from the Handwerkskammer (Chamber of Crafts) may be required.

2. Europeans from Bulgaria and Romania

Citizens of Bulgaria and Romania may in principle enjoy the right of free movement of services in Germany. However, restrictions exist for certain industries during a transitional period of up to seven years. Services in these industries may only be rendered by a company´s own personnel from the new EU member states under the provisions of the Arbeitsgenehmigungsrecht (German Law on Work Permits) or in the context of the Werkvertragsarbeitnemerverfahrens (Work Contract Employee Method). These restrictions apply to the following industries:

• The construction industry, including related lines of business
• Cleaning of buildings, inventory and means of transport
• The work of interior decorators

B. Foreigners from Third Party Countries Outside the EU

I. Foundation

As mentioned above, Art. 1 of the Gewerbeordnung (German Industrial Code) permits anybody to run a business in Germany. Whether authorisation under Alien Law is required for this purpose depends on the type of the business activity in Germany.

1. Individual Entrepreneur / Partnership

Individual entrepreneurs or shareholders in a partnership require, as a minimum, a temporary residence permit. This may even be applied for instead of a visa when the person first enters the country if, from the very beginning, he plans to stay in Germany for a prolonged period of time. Applications for residence permits for those entering Germany for the first time must be made to the German embassy or the Consulate General in their home country. Foreigners who are in Germany already must approach the Ausländerbehörde (Aliens Registration Authority) of the Stadtverwaltung (Administration of the relevant city).

According to Art. 21 Aufenthaltsgesetz (AufenthG – Residence Act), foreigners wishing to be self-employed in Germany need a residence permit.

In this context, self-employment means:

• Individual entrepreneurs who have a business or work free-lance;
• The general partner of a limited commercial partnership;
• Representatives and managing directors of partnerships and corporations.

These persons are granted a residence permit if they invest a minimum of EUR 250,000 and create five jobs. A residence permit for the performance of self-employed activities may also be granted in the case of lower investments if:

• A superior economic interest or a regional need exists,
• The activity is expected to have a positive effect on the economy
• and financing has been secured.

These are not alternatives: all preconditions mentioned above must be met.

The IHK issues expert opinions on the existence of these conditions for commercially self-employed. These opinions are for the competent authorities which make the final decision.

Free-lancers do not have a mandatory obligation to meet these preconditions.

Foreigners who are over 45 years of age can only be granted the relevant residence permit if they have an adequate pension scheme.

Holders of a Niederlassungserlaubnis (Unlimited Residence Permit) are entitled to perform self-employed activities, irrespective of Art. 21 AufenthG. They do not require separate authorisation. The residence permit can be changed into an unlimited residence permit after five years or, in the case of self-employed entrepreneurs, even after 3 years. For this purpose, foreigners must be able to earn their own living and have some command of the German language.

2. Capital Companies

a) Representatives of a Corporation

Foreigners, even those resident in a foreign country, can be appointed managing directors. However, the question is whether they require a residence or entry permit in order to be registered in the Commercial Register. The legal practice in this point is getting more liberal. The managing director must be willing and able to perform his activities in practice and to fulfil the obligations which they involve, such as dealing with authorities and the obligation to keep accounts.

In any case, non-EU citizens who need neither a visa nor a residence permit to enter Germany can be appointed as managing directors. A list of the states from which no visa is required to enter Germany may be found on the website of the Auswärtiges Amt (Federal Foreign Office).

b) Shareholder of a Corporation without Managing Authority

Foreigners are permitted to participate in a company in Germany by purely investing capital. For this purpose, they do not need to be resident or ordinarily resident in Germany. However, participation by a foreigner must not breach provisions of Alien Law or other provisions on the commercial activity of foreigners in Germany.

II. Services and Work

The explanations below relate solely to Alien Law. For information on the tax management of cross-border services and deliveries, please refer to our webpages on Tax Law.

1. Service Provider

a) Visa Requirements

Persons wishing to offer services in Germany from a third party country require a visa for all employees who are not German citizens. It is possible to apply for a Schengen visa which applies to all signatories of the Schengen Agreement. The following states have signed this Agreement:

Belgium, Germany, France, Greece, Italy, Luxemburg, the Netherlands, Portugal, Spain, Austria, Denmark, Finland, Iceland, Norway, Sweden, Estonia, Latvia, Lithuania, Malta, Poland, Slovakia, Slovenia, the Czech Republic and Hungary.

Holders of a Schengen visa may stay in these countries for the period of its validity, however for a maximum of 3 months per half-year.

b) Required Minimum Standards

The Arbeitnehmer-Entsendegesetz (AentG – Act on the Delegation of Employees) of 1996 requires employers in certain industries to comply with certain minimum standards for the employment of staff in Germany. In these industries, this provision applies to employers resident in Germany or abroad. If a sub-contractor is appointed, the contractor is even liable for the sub-contractor–s compliance with these standards! For further information, please refer to the website of the Zollverwaltung (Customs Administration).

2. Recipient of the Services

Caution is also required when companies are appointed. According to Art. 1a AentG, an entrepreneur who appoints another entrepreneur to perform work or render services is also liable for the obligation of this other entrepreneur, of the subcontractor or of a personnel leasing company appointed by the entrepreneur or subcontractor to pay the minimum net remuneration to an employee or to pay contributions under collective agreements. While this liability has a lower priority, the contractor can still be subject to a claim - like a surety who has waived his right to the benefit of excussion.

For an overview of the applicable minimum wage, please refer to the website of the Zoll (Customs).

In the construction industry, a general contractor will, like a surety as principal debtor, be liable for the payment obligations of its subcontractors under the Social Security Act, beginning with an order volume of EUR 500,000. (Art. 28e sec. 3 a, d SGB (Social Security Statutes) IV).

However, no liability applies if the general contractor is able to evidence that it acted with the due care of a prudent and professional businessman in selecting the subcontractor. This comprises, for instance, examining the offer to ascertain whether the correct social security contributions have been calculated in to the wage costs.

The general contractor is only liable for subcontractors– subcontractors if the first subcontractor was only appointed as a tactic to avoid liability. The main entrepreneur–s liability has a lower priority. It only applies if the competent authority has sent out a reminder letter to the subcontractor and the grace period has lapsed.