German Bookkeeping and Accounting Guide
Launching a business in Germany means aligning with German bookkeeping (Buchführung) and financial reporting (Rechnungslegung) rules from day one. This guide explains who must keep books, what the GoBD require, who prepares annual financial statements versus an EÜR, when consolidated accounts are needed, and what to watch when reconciling HGB accounts to the tax balance sheet. Use the table of contents to jump to the topics most relevant to you.
Who is obliged to keep books (Buchführungspflicht)?
Merchants (Kaufleute) under the German Commercial Code (HGB) must keep orderly books and prepare accounts. This includes most commercial businesses and “form merchants” such as GmbH, AG, OHG, KG and GmbH & Co. KG—regardless of size. Small individual traders (Einzelkaufleute) can be exempt if they remain below statutory turnover/profit thresholds for two consecutive year-ends. Freelancers (Freiberufler) are generally not merchants and thus not obliged under the HGB, but tax law may still trigger bookkeeping when tax thresholds are exceeded. In all cases, records must be sufficient to determine taxable profit.
What are the GoBD?
The GoBD (“Grundsätze zur ordnungsmäßigen Führung und Aufbewahrung von Büchern, Aufzeichnungen und Unterlagen in elektronischer Form sowie zum Datenzugriff”) are the administrative principles that govern how electronic books and records must be kept for tax purposes. In practice: correctness, completeness, immutability (audit trail for all changes), timely recording (especially cash), system documentation & internal controls, machine-readable data access for auditors, and retention—typically 10 years for books/vouchers and 6 years for business correspondence.
Annual financial statements vs. EÜR
Annual financial statements (Jahresabschluss) under the HGB include at minimum a balance sheet and profit & loss account; capital companies (e.g., GmbH/AG and partnerships without a natural person as fully liable partner, § 264a HGB) add notes and possibly a management report, with scope depending on size. Filing/disclosure duties apply to capital companies (and § 264a entities) via the Federal Gazette.
Einnahmenüberschussrechnung (EÜR) under § 4(3) EStG is a simplified cash-based tax profit calculation. Who may use it? Freelancers and small traders not obliged to keep books under HGB/AO may opt for the EÜR. Incorporating as a GmbH/UG/AG places you firmly in HGB territory and excludes the EÜR option.
Who must prepare consolidated financial statements?
A parent that controls one or more subsidiaries prepares consolidated accounts under §§ 290 ff. HGB if it is a capital company (or a partnership within § 264a HGB). Size exemptions can apply where group thresholds are not exceeded on two consecutive reporting dates, and exemptions may apply if included in a higher-tier EU/EEA group. IFRS can be used for consolidation, but German filing/disclosure rules still apply.
Reconciling HGB to the tax balance sheet (Steuerbilanz)
German tax profit determination starts from the commercial accounts (Maßgeblichkeitsprinzip) and then adjusts for tax rules. When you bridge from HGB to the Steuerbilanz (or prepare a tax reconciliation), focus on the areas below.
Assets & depreciation (tangible assets)
Useful lives and methods can diverge between HGB and tax (standard tax lives; half-year conventions). Low-value assets and pooling rules may allow immediate tax expensing while HGB capitalization continues, creating timing differences.
Intangibles & R&D
HGB may permit capitalization of development costs (subject to conditions), while tax commonly disallows recognition—leading to add-backs. Purchased goodwill amortization schedules may differ between HGB and tax.
Provisions (Rückstellungen)
HGB recognizes broader categories (uncertain liabilities, pending transactions, onerous contracts); tax recognition is narrower and measurement often differs (including fixed discount rates for certain obligations). Expect significant measurement deltas.
Inventories & cost of sales
Lower-of-cost-or-market rules, write-down strictness and reversals, overhead absorption, and valuation methods (e.g., FIFO/LIFO) require alignment; tax acceptance depends on consistent commercial use and specific tax rules.
Leases & financing
Classification and embedded financing influence timing of expenses. Additionally, interest deductibility may be limited by tax rules (e.g., interest barrier), appearing only in the tax computation—not the HGB numbers.
Participations & distributions
HGB measurement is typically at cost subject to impairment; tax may exempt portions of intercompany dividends or gains under specific regimes, addressed via the reconciliation rather than changing HGB carrying amounts.
Deferred taxes
HGB requires recognition of deferred taxes on temporary differences; these do not exist in the tax balance itself. Maintain a clear mapping of differences for the notes and roll-forward.
Trade tax (Gewerbesteuer) add-backs & deductions
After deriving taxable income, apply trade tax adjustments (add-backs for interest, rents/leases, royalties, etc., and specific deductions such as for foreign permanent establishments) to arrive at the trade tax base.
Documentation & evidence
Keep a robust audit trail from the HGB trial balance to the tax computation. Document tax-only adjustments (non-deductibles, donations, entertainment, car-cost splits) and ensure GoBD-compliant process and system documentation.
Freequently asked Questions about German Bookkeeping and Accounting:
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Who is required to keep books under German law?
Merchants (Kaufleute) under the HGB—including GmbH/AG and most partnerships—must keep orderly books and prepare accounts. Small individual traders and freelancers may be exempt from HGB bookkeeping, but tax rules can still require records.
What are the GoBD and why do they matter?
The GoBD set audit-proof standards for electronic records: correctness, completeness, immutability, timeliness, system documentation, and machine-readable access. Non-compliance risks adjustments in a tax audit.
Can I use cash accounting (EÜR) instead of double-entry bookkeeping?
Yes, if you are a freelancer or a small trader not obliged to keep books under HGB/AO. Corporations (e.g., GmbH/UG/AG) cannot use the EÜR and must prepare HGB accounts.
When are annual financial statements required and what do they include?
Merchants must prepare a balance sheet and profit & loss account. Capital companies add notes and possibly a management report, with scope depending on size class.
Do I have to file and disclose my accounts publicly in Germany?
Capital companies (and partnerships within § 264a HGB) must file/disclose via the Federal Gazette. The extent of disclosure depends on size; small entities may disclose abridged information.
Who needs consolidated financial statements (Konzernabschluss)?
A parent that controls one or more subsidiaries prepares consolidated accounts unless a size exemption applies or it is included in a higher-tier EU/EEA consolidation that qualifies for exemption.
What retention periods apply to accounting records in Germany?
Typically 10 years for books, records, and vouchers, and 6 years for business correspondence. Electronic records must remain readable and exportable throughout the retention period.
Are scanned invoices and cloud accounting systems GoBD-compliant?
They can be, provided immutability, complete capture, process documentation, and audit-proof export (e.g., IDEA format) are ensured. Define roles, logs, and backup processes in your documentation.
Do I need a German chart of accounts (e.g., SKR03/SKR04)?
It is not legally mandatory to use SKR03/SKR04, but using a standard German chart eases HGB reporting, VAT returns, and audits. Most German software ships with SKR templates.
Which currency and language should I use for bookkeeping and invoices?
Euro is standard for accounting and tax filings; foreign-currency transactions require proper conversion. Records should be understandable to a knowledgeable third party; German is typical for filings and audits.
What are typical deadlines for preparing and filing accounts and returns?
Deadlines vary by entity size, audit requirements, and whether a tax advisor files your returns. Plan your closing schedule early to avoid late-filing penalties and disclosure fines.
When must I switch from EÜR to double-entry bookkeeping (HGB)?
If statutory thresholds are exceeded or your legal form changes (e.g., incorporation), bookkeeping and annual accounts under the HGB become mandatory from the following period.
How do HGB and tax rules differ on depreciation (AfA)?
HGB allows principle-based useful lives; tax follows standardized lives and conventions. Differences create timing effects that you reconcile in the tax computation.
Which provisions are deductible for tax purposes in Germany?
Tax recognition is narrower than HGB and measurement rules differ (including fixed discount rates for certain obligations). Each provision needs a clear legal/contractual basis and reliable quantification.
How are inventories valued for HGB and tax purposes?
Both apply lower-of-cost-or-market, but the strictness of write-downs, reversals, and overhead absorption can differ. Consistent methods and documentation are essential for audits.
Does Germany require e-invoicing for B2B transactions yet?
E-invoicing is being phased in for B2B. Check the current start dates and transitional rules for your size and industry, and ensure your system can produce compliant formats when required.
What is the role of trade tax (Gewerbesteuer) in profit determination?
After deriving taxable income, trade tax applies specific add-backs (e.g., interest, rents/leases, royalties) and deductions, resulting in a separate tax base by municipality.
How do IFRS and HGB interact for German subsidiaries or groups?
IFRS may be used for consolidated accounts, but statutory HGB separate accounts and German filing rules still apply. Reconciliations are needed where measurement bases differ.
What documentation should I maintain for tax-only adjustments?
Keep clear schedules for non-deductible expenses, donation limits, entertainment rules, car-cost splits, and interest limitations. Tie each item to the HGB trial balance and tax return positions.
Where can I get help setting up compliant systems from day one?
Our team sets up GoBD-compliant processes, chart of accounts, and reporting workflows aligned with German tax and HGB. For tailored support, contact us.
