If you want to do the accounting for your entrepreneurial limited liability company (UG) yourself, there are a number of things you have to stay on top of. Not only are you obliged to keep double-entry accounts, but you also have to prepare annual accounts every year.
What will you learn in this guide?
- The right way to approach accounting tasks
- General UG accounting/bookkeeping knowledge
Want to learn more about the UG?
Financial peculiarities of the UG
Although an entrepreneurial company offers a relatively large amount of flexibility when compared to partnerships, the special tax conditions must nevertheless be taken into account:
- A corporation tax (Körperschaftssteuer) of 15 % plus a solidarity surcharge (Solidaritätszuschlags) of 5.5 % is applied.
- If profit is distributed to the shareholders, a withholding tax (25%) is paid to the tax office (Finanzamt).
A pre-tax or VAT of 19 % is paid.
- If employees work for the company, income tax (Lohnsteuer), Solidaritätszuschlags and church tax (Kirchensteuer) must also be paid, if applicable.
Only cash contributions are used for the capital increase (German article). Unlike GmbHs, no contributions in kind may be used.
Although the UG has limited in liability in most cases, there are exceptional cases in which the shareholders are still liable with their private assets. If, for example, the mandatory addition of “(haftungsbeschränkt)” is omitted – which translated means limited liability – the shareholders are personally liable with all their private assets.
A further exception may occur if the accounting is so inaccurate that it is difficult for creditors to see the difference between private and business assets. Then the shareholders can be held liable.
Researching the UG?
We’ve got everything you need to get started as fast as possible.
On the opening day of the UG, an opening balance sheet is drawn up in which the contributions of all shareholders are recorded and an overview of capital and assets is given.
The profit distribution of the UG functions similarly to that of the GmbH. It’s based on the parts contributed by the shareholders to the capital contribution. This and the appropriation of retained earnings is generally determined in the shareholders’ resolution (Gesellschafterbeschluss).
Double-entry accounting for the UG
It’s not enough to use a simple cash method of accounting (German article) to determine profits. Since the UG is a capital company subject to the provisions of the German Commercial Code (HGB), it’s obliged to keep double-entry accounts including its balance sheet. Double-entry accounting, which is done in two books, is intended to reflect all commercial transactions involved and all assets.
The two books are:
- The day ledger (journal), or Grunbuch in German
- The general ledger (material costs), or Hauptbuch in German
In addition, there are subsidiary books for the support of the general and day ledgers. All business transactions are recorded with date, number, document and amount and posted to the account and offsetting account.
These are the characteristics of double-entry bookkeeping:
- Account management (Kontenführung): Each business transaction is recorded on two pages. In this way, accounting discrepancies can be detected more quickly. Thus, the payment from the current account to the business account requires a booking, although the funds only move within the company. In addition, each business partner receives its own account so that all payables or credit memos can be determined.
- Debit and credit (Soll und Haben): The business transactions are recorded on two sides, the debit side and the credit side. The use of funds is recorded on the first side and on the second page, the origin of funds is recorded. Both sides must always be balanced.
- Comparison of operating assets (Vergleich des Betriebsvermögens): To determine the profit (German article), a comparison of operating assets is made at the beginning of the year and at the end of the year. The business assets are calculated in this way: (fixed assets + current assets) – debts.
- Accounting obligation (Bilanzierungspflicht): At the end of each fiscal year, you must prepare annual accounts with a balance sheet and a tax return. It also includes an explanatory annex and a profit and loss account. In the balance sheet, you compare the assets with the debts. The accounting obligation (German article) is regulated in the German Commercial Code (Handelsgesetzbuch – HGB) or in the German Accounting Law Modernization Act (Gesetz zur Modernisierung des Bilanzrechts – BilMoG).
- Inventory requirement (Inventurpflicht): In the closing balance sheet at the end of the fiscal year, you must carry out an inventory.
- Annual accounts (Jahresabschluss): The financial statements include the balance sheet data and the related profit and loss account.
- Obligation to record all business transactions (Verpflichtung zur Aufzeichnung aller Geschäftsvorgänge): This data is used to check your company, which is carried out by the tax office.
Want to make costly mistakes when it comes to taxation?
Book a consultation session here
- Use professional accounting software that meets the requirements of your industry. Examples would be products like Lexware and Datev. Keep your accounting program up to date by keeping it up to date with the latest legal requirements.
- Create an organisational system for relevant documents (bank receipts, cash receipts, invoices, etc.) that is more sophisticated than stuffing them in a shoebox. This helps you to quickly access the required documents when you need them.
- Observe the legal retention periods for business records. Before you dispose of old accounting documents, you must ensure that they won’t be audited at a later date.
- If the shareholders have contributed a very low share capital, there is a very high debt risk. So make sure that you don’t spend too much in the first year in excess of the amount of the original investment.
- Within six months of the end of your UG’s fiscal year, the Jahresabschluss (annual accounts) for your UG must have been prepared. Stick to this deadline, otherwise you might find yourself with a € 2,500+ fine.
- If the UG makes a profit and doesn’t form a reserve (Thesaurierungspflicht), the Jahresabschluss (annual accounts) are null and void. The limitation of liability lapses and the distributed profit must be repaid. The company’s existing reserves must be used to offset losses to avoid the threat of insolvency.
- Annual profits may not be distributed in full. A quarter must be allocated to the statutory reserves (this rule is known as the Thesaurierungspflicht) until a capital of €25,000 is reached. Then you can convert the UG into a GmbH.
- An UG’s Jahresabschluss (annual accounts) must be published in the German Federal Gazette (Bundesanzeiger).
- Germany taxation law is maniacally complicated. Get a tax adviser to prepare your Jahresabschluss (annual accounts) because it’s very easy to mess up.
This advice will help you better organise your accounting as the owner of a UG. Be aware that accounting is strictly regulated and that even small errors can lead to legal problems. If you are unsure about certain aspects, make sure you consult a tax adviser (Steuerberater) who can answer your questions competently.
Obviously, if you have better things to do than accounting, you can use an accounting/bookkeeping service. Helping entrepreneurs find one that meet their needs is what we do.