Accounting obligations
Accounting obligations under commercial law
Under the provisions of the Commercial Code (Handelsgesetzbuch - HGB), "merchants" are always bound by the general obligation to keep accounts. Under German law, a merchant is:
- anyone who runs a business doing trade, or
- anyone who is entered in the Register of Companies (Handelsregister).
Any craft or industry of a nature and scope calling for a commercially organised business setup is counted as a trading business.
The accounts are meant to show the current status of the fixed and current assets as well as amounts of equity and dept capital, and to indicate any changes that have been made to these items. Apart from this, the accounts document all the business's revenues and expenditures. Supporting documents have to be collected and archived. On the basis of these records, the annual accounts are drawn up comprising a balance sheet and a profit-and-loss account. For stock corporations additional regulations apply.
Accounting obligations under tax law
Accounting obligations under tax law merely expand on the general accounting obligations under commercial law. Thus all taxpayers subject to the obligation to keep accounts under commercial law are also obliged at the same time to keep accounts for tax purposes.
Apart from this, businesses involved in trade or business and in agriculture and forestry - even if they do not satisfy the definition of "merchant" - may be obliged by the tax office to keep accounts if
- turnover in the calendar year exceeds EUR 500,000;
- the profit from the trade or business during the financial year amounts to more than EUR 50,000;
- the profit from agriculture or forestry during the calendar year amounts to more than EUR 50,000; or
- the economic value of the areas used by the business for agriculture and forestry exceeds EUR 25,000.
Taxpayers with income from independent personal services, in particular freelancers such as doctors, architects, tax consultants and lawyers, are not obliged to keep accounts. These professionals have to calculate their annual profit from a comparison of revenue and expenses (so-called net income method).
Businesses not obliged to keep accounts may do so voluntarily and draw up annual accounts.
For foreign entrepreneurs with a permanent establishment or an agency in Germany, the same provisions apply as to domestic entrepreneurs.
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