Clever Geek Handbook

5 reasons to open an IT startup in Germany

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Developers of mobile applications, games, fintech startups and representatives of online businesses love to travel. Being in each of the new countries, they are interested in tax incentives, infrastructure and market conditions for the IT sector. In the modern world, they have the opportunity to quickly start and get a large company with seven-figure income. For this it is important to choose the jurisdiction of the new project.



In search of tax havens, our IT people are moving overseas to the countries that are blacklisted by the European Union and the United States, not thinking about the reputation of their startups. I suggest looking at closer neighbors. Germany has already become the birthplace of many popular startups in the world.



This year, The Local has already named Germany the best country in Europe for startups. She was ahead of past leaders in the UK, Ireland, Estonia and Switzerland.



Despite the fact that the situation is changing rapidly every day, let's look at analytics in recent years. There are several good reasons for why you should open an IT startup in Germany.



1. IT-startup in Germany: easy to attract start-up capital



The directions of migration of startups and their inspirers depend on tax benefits and the attractiveness of jurisdictions for venture investors. Germany is a leader on this side.



In the early 2000s, Germany was far from the top ten countries in the world for the development of the IT startup sector, but in recent years the picture has changed. According to Ernst & Young, the amount of primary investments collected from the 100 most expensive German startups is more than 5 billion euros. By the way, more than half of this list were launched between 2010 and 2015.



Since 2016, startups have been one of the drivers of the German economy. The government of Germany relies on them, providing certain benefits.



Berlin ranks second after London in the ranking of European cities for attracting investment in the IT sector. Every six months, Berlin startups attract more than 2 billion euros. Unsurprisingly, most startups opened in Germany have headquarters in Berlin. In the top ten of Europe are also located:





There are many international companies among venture investors working in Germany: DN Capital, DST Capital, Goldman Sachs, Index Ventures, JC Flowers & Co., Kleiner Perkins, TCV, Union Square Ventures, Victorypark Capital and Värde Partners. The most famous investor is Rocket Internet. He has a share of capital in such popular startups in Germany as: Delivery Hero, HelloFresh, Westwing and Zuhause24.



Stock activity in the German market is constantly growing. In recent years, German international funds with a capitalization of several billion dollars have begun to work actively. These are Atomico, Accel, BMW, e.Ventures, EQT, KKR, Partech Ventures, Rakete Internet, Sapphire Ventures, Siemens and Verdane Kapital.



The main exit channel for German startups is international venture capital firms. Directions are completely different. Over the past few years, IT projects from Germany were bought by Chinese, French, Australian and American companies. Technological startups and fintech projects are most likely to make an exit.



2. Open an IT startup in Germany: state support and grants



Concessional lending to startups is the best alternative to attracting investors. If the project becomes profitable and the loan is paid, it will remain the property of the founder. Attracting venture capital investments means selling a larger share to the side.



Ordinary banks in any country in the world will not give a startup credit with just one idea, without fixed and working capital.



In Germany there is a state program of concessional lending to small and medium enterprises, startups. It is conducted through the state bank KfW. The applicant only needs to convince the bank that his project is very promising. German start-ups without seed capital can receive up to 100,000 euro loan at a rate of 2% per annum. There are other programs that allow loans in the amount of half a million euros.



The German government has been running the Industry 4.0 program for several years now. It implies the widespread adoption of digital technology and artificial intelligence in the economy. The country has ambitious plans to become the first digital economy in the world in the next 5 years.



Therefore, many programs have been launched to support IT startups:





3. Open an IT startup in Germany: taxation and benefits



It is profitable to launch projects in the sectors of information technology and fintech. If, after registration, a company in Germany, for example GmbH, earns less than 8,000 euros per year, it is exempt from paying income tax.



All German companies pay the following taxes:





Finzamt - Germany's tax authority accepts payment of taxes by traditional bank payment systems. There can be no talk of paying taxes on PayPal.



Speculative cryptocurrency trading is subject to taxation. For these operations, the usual individual income tax rate is used. If a person has owned Bitcoins for at least a year, and then decided to sell them, then such a trade is exempt from taxes. Legal entities pay income tax on cryptocurrency trading at the corporate tax rate. Cryptocurrency trading is exempt from value added tax.



4. Open an IT startup in Germany, saving on cost of living



Berlin, as one of the most attractive European cities for the IT sector, boasts cheaper and affordable cost of living compared to London, Switzerland and California. And this means moderate costs at the initial stage before the startup startup.



Registration of a company in Germany involves the opening of an office. Office rental prices, as the office is called in German, range from 60 to 300 euros per square meter, depending on the choice: industrial zone or city center. Prices are much lower in comparison with the listed megacities. Berlin is profitable even in comparison with German Munich and Frankfurt, where rental prices start at 100 euros per square meter.

If you decide to move to Germany for permanent residence, then you will be surprised by the prices of transport and essential goods: food and clothing. They are lower than in Moscow. Also, due to its convenient geographical location, flights from Berlin will be more economical. After all, it is located in the geographical center of Europe. From him two and a half hours fly to Moscow and two hours to London. At the same distance are St. Petersburg, Kiev, Tallinn, Minsk, Rostov.



5. Open an IT startup in Germany: standard of living and security



We all want to live, work and build in a safe place where you do not have to fear in fear for our safety at every step. Despite the fact that over the past decade, Germany was flooded with migrants from North Africa and the Middle East, it has one of the best security situations. Even in small towns, police patrols can be seen everywhere.



German law protects property rights. Raider captures in this country are considered nonsense. Courts do not make unreasonable decisions. Law enforcement agencies do not “nightmare” entrepreneurs.



Corruption is at such a low level that it is not remembered. It is extremely difficult to negotiate with the police and officials, breaking the laws. On the one hand, it makes you live and act according to the law. On the other hand, you are always sure that if you have not broken the law, the truth will be on your side.



Germany’s highly developed economy is not afraid of global crises. She survived the crisis years of 2008-2009 with great success and even helped Greece bypass the default.



The Germans are quite pedantic and punctual. Therefore, all business processes in any company flow on the “clock” as a streamlined mechanism.



Although taxing startups in Germany is not the most profitable, you can benefit from registering your project in this jurisdiction due to its high reputation. German companies are attractive all over the world, and IT startups from Germany are more visible to international venture companies.



Write in the comments if you agree with this and did you consider this country for yourself?


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