Close a Business in Germany as a Freelancer or Gewerbe

Key Takeaways

• You must take certain steps when closing your business in Germany. Proper deregisteration of business (Abmeldung) is essential to avoid any penalties.
• The business deregistration process may vary slightly depending on your business type (freelancer or Gewerbe) and the city where your business is registered.
• You must retain business and tax-related documents for up to 10 years even after closing your business.
• You can also register your business as dormant instead of closing it permanently.

This Is How You Do It

• If you’re a freelancer, inform your local tax office (Finanzamt) about your decision to close your business. Gewerbe owners must officially deregister the business at the trade office (Gewerbeamt).
• File your final tax return. If applicable, report VAT and file the final trade tax return.
• If you employ staff, notify them in advance of the business closure. You should also inform the Federal Employment Agency.
• Inform your health insurance company.
• Close business bank accounts and terminate contracts such as leases, utilities, or subscriptions tied to your business. Keep the notice periods in mind to avoid unnecessary fees.

Table of Contents

What steps must you take to close a business in Germany?

Here are the things you must do to close your business in Germany.

1. Deregister your business with the local trade office (Gewerbeamt), if applicable.
2. Notify the tax office (Finanzamt) and file your final tax return.
3. Cancel your VAT registration if you are registered for VAT (Umsatzsteuer) and file your final VAT return.
4. Close your business bank account.
5. Inform your health insurance provider about your business closure.
6. Terminate any business-related contracts and subscriptions.
7. Retain records as required by German law for auditing purposes.

Let’s understand each step in detail.

Step 1: Deregister Your Business with the Trade Office (Gewerbeamt)

This step applies if your business legal form is Gewerbe. If you are a freelancer (Freiberufler), you have never registered with the Gewerbeamt. So, you can skip this step.

When you stop your business activities, you are legally required to deregister your business (Gewerbe abmelden) (§ 14 GewO). This must be done promptly.

How do you deregister a business at the trade office (Gewerbeamt)?

1. Find the Right Office: The deregistration must be filed with the same Gewerbeamt (Trade Office) where you originally registered.
2. Complete the Form: You will need to fill out the “Gewerbeabmeldung” form. This form is very similar to the registration form and asks for your business details and the date you ceased operations.
3. Submit the Form: You can usually submit the form in person, by mail, or sometimes online, depending on your local office’s procedures.
4. Receive Confirmation: After processing, you’ll receive a confirmation of your business deregistration (Bestätigung der Gewerbeabmeldung). Keep this document safe, as it is proof that your business is officially closed.

The Gewerbeamt will automatically notify other authorities, such as the Chamber of Industry and Commerce (IHK) or Chamber of Crafts (HWK), and the tax office (Finanzamt). However, you should still contact the tax office directly to ensure a smooth process.

If you hired employees, you should also inform the Federal Employment Agency about your business closure.

Step 2: Notify the tax office about your business deregistration

This is a critical step for both freelancers and individuals with the legal form Gewerbe. You must inform the Finanzamt that you have ceased your business activities.

For freelancers, this is the most important deregistration step. The reason is that you only registered with the Finanzamt.

What You Need to Do:

1. Send a Written Notification: Write an informal letter or email to your responsible Finanzamt. State your name, tax number (Steuernummer), and the exact date your business activities ended.
2. Submit Final Tax Returns: You must file final tax returns for the year your business closed. This includes:
   • Final Income Tax Return (Einkommensteuererklärung): This declares your total income for your final year of operation.
   • Final VAT Return (Umsatzsteuererklärung): A final annual VAT return is required, even if you filed advanced VAT returns throughout the year.
   • Final Trade Tax Return (Gewerbesteuererklärung): This applies only to sole proprietors (Gewerbe), not freelancers.

A tax advisor can also support you with deregistration and the filing of final tax returns.

Step 3: Handle Final VAT Obligations

If you were registered for Value Added Tax (VAT), you must correctly handle your final VAT obligations.

• Final VAT Return: As mentioned, you need to file a final annual VAT declaration for the year of closure.
• Sale of Business Assets: If you sell business assets as part of the closure, this transaction may be subject to VAT.
• Private Use of Assets: If you transfer business assets to your private ownership, this is also taxable. You must calculate the current market value of these assets and pay VAT on it.

Consulting a tax advisor is highly recommended to ensure you correctly handle the VAT implications of closing your business, as errors can be costly.

Step 4: Close Business Accounts and Cancel Insurances

Once the official deregistration is complete, it is time to wrap up your financial and contractual obligations.

• Business Bank Account: After all outstanding payments have been received and all tax payments have been made, you can close your business bank account. Don’t close it too early, as you may need it for tax refunds or payments. You can close the bank account either in person at a branch or online.
• Health Insurance: Inform your health insurance provider that your self-employment has ended. If you are insured with public health insurance, your contributions will be recalculated based on your income. If you have private health insurance, you can continue to be insured under it depending on your professional status (e.g., employed, self-employed, etc.). Most health insurance companies have an online form that you must fill out to notify them.

Who is eligible for private health insurance in Germany ->

How do public health insurance companies calculate the premiums ->

• Other Insurances: Cancel any business-related insurance policies, such as professional liability insurance (Berufshaftpflichtversicherung) or business legal insurance.

Step 5: Understand Your Record-Keeping Obligations

Closing your business does not mean you can discard your paperwork. German law requires you to retain business records for a specific period even after your business has closed.

The legal basis for this is the Fiscal Code (§ 147 AO).

• 10-Year Retention Period: You must keep all accounting documents, bank statements, balance sheets, etc., for 10 years.
• 8-Year Retention Period: You must keep all accounting documents, invoices, and any other tax-related documents for 8 years.
• 6-Year Retention Period: Commercial letters, offers, and other general business correspondence must be kept for 6 years.

The retention period begins at the end of the calendar year in which the document was created. You must store these documents securely and ensure they are accessible if the tax office requests them for an audit.

How and for how long to store your business documents in Germany ->

When do you have to deregister a business in Germany?

You must deregister your business (Gewerbeabmeldung) in Germany for three main reasons: 

1. You stop your business operations: This could be for personal or professional reasons.
2. You move your business to a new jurisdiction: This applies if you move to a different city in Germany or to another country.
3. You change your business’s legal form: For example, changing from a sole proprietorship to a GmbH.

When you register a business, you are legally required to report any changes. If you stop operating your business, you must deregister it immediately (§ 14 GewO). The reason for closing the business is not important to the authorities.

If you move your business to an area managed by a new local authority (Ordnungsamt), you must deregister it at your old location and re-register it at the new one.

How to register a business in Germany ->

Changing your business’s legal structure also requires deregistering the old company and registering the new one.

Different legal forms in Germany ->

Alternative to business deregistration: Inactivity notification

Deregistering your business is a permanent decision. You cannot reverse it.

An alternative to business deregistration is to register your business as dormant. This option lets you reactivate the business later. It could be after a few months or years.

How do you register your business as dormant in Germany?

To register your business as dormant in Germany, you need to notify the tax office (Finanzamt). This process is known as Ruhendmeldung.

You can do so by sending an informal letter to the tax office stating your intention to make your business dormant from a specific date. You can use the sample letter below for the same.

Anzeige der Geschäftstätigkeit als ruhend (Ruhendmeldung)

Sehr geehrte Damen und Herren,

hiermit möchte ich Sie darüber informieren, dass ich beabsichtige, mein Gewerbe ab dem [Date] vorübergehend ruhend zu stellen (Ruhephase).

Geschäftsdaten:
Firmenname: [Company name]
Steuernummer: [Tax number]

Während dieser Zeit wird mein Gewerbe keine geschäftlichen Aktivitäten ausüben. Bitte lassen Sie mich wissen, ob Sie weitere Informationen oder Unterlagen benötigen, um diese Meldung zu bearbeiten.

Vielen Dank für Ihre Aufmerksamkeit.

Mit freundlichen Grüßen,

Make sure also to notify

• Your health insurance provider,
• The Chamber of Industry and Commerce (IHK) (if applicable)
• The Chamber of Crafts (HWK) (if applicable).

While your business is dormant, you won’t pay taxes as there’s no income. However, you might still have to file a tax return. Check with your tax advisor to be sure.

English speaking tax advisor in Germany ->

What happens after deregistering your business in Germany?

• End of trade tax obligations: Once your business is deregistered, you are no longer liable for trade tax.
• No more bookkeeping or tax returns: After deregistration, you are no longer required to keep business accounts or file tax returns, except for the year in which the deregistration occurs.
• End of inspections: Regulatory authorities will be notified that your business operations have ceased, ending any monitoring or inspections tied to your trade.
• Cessation of business activities: Once deregistered, you can no longer conduct business or enter into contracts on behalf of your company.
• Return of permits and licenses: Any permits or licenses held by your company must be returned or invalidated.
• Less stress: If running your business felt overwhelming, this decision can bring relief. With fewer responsibilities, you might feel a renewed sense of freedom.
• Time for personal growth: Deregistering your business allows you to focus on self-reflection, new skills, personal hobbies, or life goals.
• Improved work-life balance: Spend more time with loved ones or focus on yourself without the pressure of running a business.
• Fresh opportunities: Closing one chapter can open doors to new career paths, interests, or passions.

Deregistering your business might feel like a tough decision, but it can pave the way for personal growth and new beginnings.

Practical Tips to Avoid Common Mistakes

• Don’t Miss Deadlines: Deregister with the Gewerbeamt and Finanzamt promptly. Delays can lead to questions and potential penalties.
• Communicate Clearly: Ensure your notifications to the authorities are clear and contain all necessary information, including your name, address, tax number, and the date of closure.
• Finalize All Taxes: Do not assume your tax obligations end on the day you close your business. You must complete all final returns and settle any outstanding liabilities.
• Keep Your Confirmation: Store the Gewerbeabmeldung confirmation and all correspondence with the Finanzamt safely.
• Seek Professional Advice: The process can be complex, especially regarding final tax calculations. A tax advisor (Steuerberater) can ensure you meet all requirements correctly and avoid costly errors.

Frequently Asked Questions (FAQ)

References

• Trade Regulation Act (Gewerbeordnung – GewO)
• Fiscal Code (Abgabenordnung – AO)
• Income Tax Act (Einkommensteuergesetz – EStG)
• Value Added Tax Act (Umsatzsteuergesetz – UStG)