Annual financial statement in Germany: How do to your annual accounts

Intro: What is an annual financial statement?

An annual financial statement 💬Jahresabschluss is part of a company’s mandatory commercial accounting. It brings together bookkeeping and inventory to show the profit or loss generated during the financial year.

The statement is made up of two core elements:

• The balance sheet 💬Bilanz
• The profit and loss account 💬Gewinn- und Verlustrechnung (GuV)

The balance sheet provides a snapshot of assets and liabilities at year-end, while the profit and loss account compares income and expenses over the year. Together, they form the annual financial statement.

At the start of trading, businesses must also prepare an opening balance sheet 💬Eröffnungsbilanz, which already follows the same accounting rules.

Purpose

The annual accounts provide a comprehensive overview of a company’s financial position. The balance sheet shows the origin and use of funds as well as the level of debt, while the profit and loss account reveals the profit or loss generated during the financial year.

Annual accounts serve two key purposes:

• They inform business partners, investors, and creditors about the company’s performance and financial stability.
• Among other things, they determine whether dividends or profit can be distributed to shareholders.
• They provide the basis for calculating the company’s tax liabilities.

Companies obliged to prepare annual accounts

The German Commercial Code 💬Handelsgesetzbuch (HGB) sets out clear rules on which businesses are obliged to prepare annual financial statements, while also granting simplifications for small traders and liberal professionals.

• All merchants 💬Kaufleute are required to prepare annual accounts. This includes corporations and partnerships.
• Registered sole traders💬Einzelkaufleute are exempt if, on the balance sheet dates of two consecutive financial years, they have not exceeded €800,000 in turnover and €80,000 in annual net income.
• Liberal professionals 💬Freiberufler and small traders 💬Kleingewerbetreibende are exempt.

Filing and disclosure of annual financial statements

Companies that are required to keep a balance sheet must file their annual accounts electronically via the ELSTER portal. The submission includes all components of the annual financial statements, along with the digital balance sheet 💬E-Bilanz.

In addition, corporations are subject to disclosure rules under section 325 of the German Commercial Code. They must publish their annual accounts in both the Commercial Register 💬Handelsregister and the Federal Gazette 💬Bundesanzeiger. This requirement ensures financial transparency for stakeholders such as investors, creditors, and the public.

The filing must be made in German by the company’s legal representative. Failure to comply on time may lead to enforcement measures by the Federal Office of Justice.

Company size classifications

Under section 267 German Commercial Code, corporations are categorized into three size classes: small, medium-sized, and large 💬klein, mittelgroß, groß. These classifications determine financial reporting obligations, including audit requirements, disclosure duties, and accounting rules.

A company’s classification depends on whether it meets two out of three of the following criteria on two consecutive balance sheet dates:

Small Corporations

• Balance sheet total: ≤ €6 million
• Annual revenue: ≤ €12 million
• Average employees: ≤ 50

Medium-Sized Corporations

• Balance sheet total: ≤ €20 million
• Annual revenue: ≤ €40 million
• Average employees: ≤ 250

Large Corporations

A corporation is classified as large if it exceeds at least two of the medium-sized thresholds.

Components of the annual financial statement

Under the German Commercial Code, the minimum components are:

• A balance sheet 💬Bilanz
• Profit and loss account or income statement 💬Gewinn- und Verlustrechnung

📌 The balance sheet closes with the year-end statement 💬Schlussbilanz, which forms the opening balance sheet of the next fiscal year.

Corporations

Per §§ 284–288 HGB, corporations must include:

• Notes to the financial statements 💬Anhang
• Management report 💬Lagebericht for medium-sized and large corporations (not required for small corporations)

The management report includes:

• Forecasts of future development
• Risks and uncertainties
• Opportunities
• Financial and non-financial performance indicators

Listed Companies

There are some additional requirements for listed companies 💬börsennotierte Unternehmen per § 264 and § 297 HGB:

• Must also prepare a cash flow statement 💬Kapitalflussrechnung
• A statement of changes in equity 💬Eigenkapitalspiegel
• Optionally, segment reporting per international standards (e.g. IFRS 8)

📌 These requirements apply to listed companies regardless of size, but size impacts whether they also prepare a management report.

Structure and Format

The layout of the annual accounts are standardized by:

• § 266 HGB → prescribes structure of the balance sheet
• § 275 HGB → prescribes allowable formats for the income statement (e.g., total cost method or cost of sales method)

Deadlines for publishing

The German Commercial Code sets different deadlines depending on company size:

• Small corporations: within six months of year-end (§ 264 (1) HGB)
• Medium-sized and large corporations: within three months of year-end (§ 264 (1) HGB)
• Sole traders: within six to nine months (§ 243 (3) HGB)

Once prepared, your annual financial statement should be reviewed and approved. In a GmbH, this is usually done by the shareholders’ meeting, with auditors involved if required.

Signatories

Annual accounts must be signed by all board members in the case of a stock corporation 💬Aktiengesellschaft and by all managing directors in the case of a limited liability company.

If management changes before approval, the decisive factor is who holds office at the time of final adoption. The current CEO is obliged to sign, even if they were not in charge during the financial year in question.

Costs

The cost of preparing annual accounts varies with the complexity of the business and the quality of its bookkeeping. A well-organised accounting system reduces the effort and keeps fees lower.

While annual accounts can technically be prepared in-house, the regulations in Germany are complex. In most cases, working with a qualified tax advisor is a worthwhile investment.