Sole proprietorship in Germany: what it is and how to start one

You want to start your own business quickly and without much effort? A sole proprietorship is the simplest form of self-employment in Germany. It can be set up quickly, requires no minimum capital, and gives you full control — but it also comes with personal liability. In this guide, you’ll get an overview of how the setup works, which steps are required, and what makes a sole proprietorship different from other legal forms such as a GmbH or UG.

If you want to discover the full range of  business structures available, see our main guide Business structures in Germany: your guide to making the right choice.

A sole trader is someone who runs their own business and takes full responsibility for it – from invoices to income. It’s a great choice for freelancers, tradespeople, and service providers. You do not need start-up capital, can begin trading straight away, and stay fully in control.

Your benefits:

1. Flexible and straightforward setup: Registration is quick, with minimal formalities.
2. Full control: You make all decisions yourself and don’t have to share profits.
3. Simple administration: Compared to limited companies, bookkeeping is often easier and more cost-effective.
4. Low startup costs: No minimum capital is required and fees are usually manageable.

Your risks:

1. Unlimited liability: You are personally and fully liable with all your private assets for any business debts.
2. Sole dependency: All tasks, decisions, and risks rest solely on you.
3. Limited financing options: Banks often prefer limited liability companies for loans, as risk is more contained.

A sole trader business includes various forms that mainly differ in legal requirements and obligations.

Small business (Kleingewerbe): Small, mostly part-time enterprises with simplified bookkeeping and few administrative duties. A small business is often the entry point for the self-employed with low capital needs.

Fully merchant sole trader (e.K. or e.Kfr.): Businesses requiring a commercial organisation must register with the commercial register (German equivalent of the Companies House) and are considered merchants. This entails expanded bookkeeping duties and business naming requirements (e.g., the use of "registered merchant" suffixes).

Freelancer (Freiberufler:in): Individuals performing certain self-employed professions (e.g., doctors, lawyers, artists) are not classified as traders but as freelancers. They are not required to register a business and benefit from simplified tax regulations.

Here’s a brief look at how the main legal structures compare – so you can decide what suits you best. 

Sole proprietorship: you start and run the business alone, no starting capital is required, you are personally liable, and the setup is quick and straightforward.

Entrepreneurial company (UG): suitable for a single founder, requires a low minimum share capital starting at €1, liability is limited to company assets, but the setup involves more formalities than a sole proprietorship.

Private limited company (GmbH): Requires a minimum share capital of €25,000, liability is limited to the company’s assets, and it is generally more suitable for medium to larger businesses. 

Clarify your business idea

The clearer and more specific you describe your activity, the easier the registration and customer communication will be. Instead of a general term like "consulting," specify your sector, e.g. "marketing consulting for small businesses." This helps the trade office categorise your business and clearly signals to customers what you offer.

Create a business plan

A well-structured business plan helps you solidify your business idea and plan the operational management. It is often required by banks or investors. Focus on key sections: business idea, market analysis, marketing strategy, financial planning, and objectives. Numerous free templates and examples are available online to simplify the process.

Choose your business name

As a sole trader, you can either use your personal name or a trading name. Important points:

1. For non-registered sole traders (e.g. small businesses), your full first and last name must be part of the official business name to ensure clear identification (e.g. "Paint services Anna Müller").
2. Trading names are permitted as a supplement to your personal name, for example, "Anna Müller – Creative design" or "Müller Electrical Services".
3. For advertising purposes, you may freely use a creative name, but your full name must appear on official documents like invoices.
4. If you are a registered merchant (sole trader entered in the commercial register), you may use a trading name as the company name but must add the suffix "e.K." or "e.Kfr." (e.g. "Müller Electrical Services e.K.").
5. Avoid misleading names that suggest incorrect company types or sizes. Purely fictitious names without name suffixes are not permitted without registration in the commercial register.

Register your business

Before starting, you must register your business with the appropriate trade office. Registration can usually be done in person or online. Fees typically range between €20 and €60. Check if your industry requires any special permits and arrange them in advance.

Tax registration and the ELSTER process

Shortly after registration, you will receive a tax registration questionnaire or you can submit it online via the tax office portal (ELSTER). Returning this form allows the tax office to issue your tax number, which you will need for invoicing and tax matters. If you do not have an ELSTER account yet, register online early, as verification can take several days.

Check commercial register entry requirements

Not all sole traders need to be entered into the commercial register. Registration is compulsory only if you are running a commercial enterprise or exceed certain revenue thresholds. Most small sole traders are exempt, reducing administrative effort.

Open a business bank account

For better financial overview, consider opening a separate business account. A business account facilitates easy bookkeeping by clearly separating personal and business finances. When choosing, consider security, fees, online banking features, and integration with accounting software.

Organise your bookkeeping

To keep track of income and expenses and prepare tax returns, use digital bookkeeping tools. Popular options like sevDesk, Lexware Office, or DATEV are user-friendly, automate recurring tasks and simplify data submission to tax authorities.

As a sole trader, you’re personally liable – meaning that your business debts aren’t legally separate from your personal assets. This structure gives you freedom, but it also means you take on all the risk. Consider carefully whether this suits your goals and circumstances.

Registration fees

The registration fee for establishing a business ranges from approximately €20 to €65, depending on the municipality. This is the official fee for registering the business locally.

Commercial register entry

Should a commercial register entry be required, it will typically cost you between €150 and €300. This step is compulsory solely for proprietorships under commercial management.

Tax and accounting 

For sole proprietors in Germany, tax and accounting costs consist of several components. These typically include professional tax advisory services (around €35–€210+ per month, depending on complexity), accounting software (€10–€30 per month), and built-in neobank features such as transaction categorisation and basic reporting, which are often included in the account plan or available at low cost (€0–€20 per month). 

Modern banks like Vivid Business often offer convenient exports and integrations, making transaction recording and reporting significantly easier.

Business bank account

Opening a dedicated business account is recommended but not legally mandatory. Account management charges for sole proprietors typically range from €0 to €50 per month, depending on the bank or provider.

Minimum capital

There is no statutory minimum capital required for setting up a sole proprietorship in Germany.

Liquidity planning and securities

Prudent liquidity planning is vital to avoid cash flow shortages. Having appropriate securities in place helps minimise potential business risks.

Here’s a rough cost overview:

As a sole proprietor in Germany, full personal liability applies – meaning all personal assets, including one’s property, savings, and possessions, may be used to settle business debts. Creditors are not restricted to business assets; they may pursue private wealth if necessary.

Statutory exemption limits (Befreiungsgrenze) safeguard a portion of income and assets from enforcement, ensuring a basic minimum level for subsistence. The exact height of  your individual threshold is calculated depending on individual circumstances, such as family obligations and dependents.

To restrict personal liability, it is possible to convert the sole proprietorship into a limited liability company—such as a UG (entrepreneurial company) or GmbH (private limited company). In these cases, liability gets limited to company assets. However, banks may still require personal guarantees for business loans, so residual risk can remain.

Insurance cover, such as business and professional liability insurance, is strongly advised to protect against operational risks.

Summary

• Unlimited personal liability for business debts, using private assets if business funds are insufficient.
• Statutory safeguards ensure a protected minimum for living expenses.
• Limiting liability requires conversion to a limited company.
• Insurance policies should be in place to manage business risks.

Depending on the size and turnover of your sole proprietorship, different bookkeeping requirements apply.

Income-expenditure accounting (EÜR)

Most small sole proprietors and freelancers can use a simplified accounting method known as income-expenditure accounting. This involves recording only income and expenses, reducing administrative effort.

Double-entry bookkeeping

Once your business reaches a certain size or if you are registered in the commercial register, you are required to keep full double-entry bookkeeping, which means preparing a comprehensive balance sheet.

Tax obligations for sole proprietors

Income tax

You must pay income tax on your business profits, calculated according to your personal tax rate.

Trade tax

If you engage in commercial activities and your annual turnover exceeds €24,500, you are also liable to pay trade tax.

Value added tax (VAT)

By default, you will need to charge VAT - unless you opt for the small business regulation.

Payroll tax

If you employ staff, you are responsible for withholding and paying payroll tax.

Small business regulation: conditions and benefits

If your turnover was under €22,000 in the previous calendar year and is expected not to exceed €50,000 this year, you may qualify for the small business regulation. This means you do not have to charge or remit VAT on your invoices, which significantly simplifies your tax filings. 

The downside of the Kleinunternehmerregelung is that you cannot reclaim input VAT on business purchases. That means that you can not get back the VAT that other businesses charge you. VAT on purchases like equipment, services, or software becomes an extra cost for you instead of being refunded by the tax office.

1. Register your business promptly – ideally, right when you begin trading.
2. Keep all receipts carefully and digitise them wherever possible.
3. Assess which insurance policies are necessary or mandatory for you (e.g., health insurance, professional liability insurance).

Please note: The legal information provided applies to the German market as of 2026. As this may change over time, make sure to check the latest information.