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

Contents

• What is an annual financial statement?
• Why prepare one?
• Who has to publish one?
• How to file it?
• Why does the publishing obligation apply?
• How are companies classified by size?
• What are the components?
• What are the publishing deadlines?
• Who signs the Jahresabschluss?
• What are the costs?
• Want to know?

Definition: What is an annual financial statement?

The Jahresabschluss (which literally translates to ‘year conclusion’ or ‘year close’) is part of the mandatory commercial accounting of a company. The Jahresabschluss is similar to an annual financial statement but are more accurately called ‘annual accounts’ as they differ in some ways.

Rechnungslegung (accounting) is the term used to describe the documentation of operational events – in a sense, it is the umbrella term for all company balance sheets.

With the Jahresabschluss, accounting and inventory are combined and therefore show the profit and loss a company has generated over a year.

The comparison of expenses and income is referred to as the profit and loss account – in German, this is the Gewinn- und Verlustrechnung (GuV) – and, again the name says it all, shows all profits and losses of the company during the past financial year. Together, the balance sheet and the profit and loss account form the annual financial statements.

An Eröffnungsbilanz (opening balance sheet) must be drawn up at the beginning of the commercial trade. This opening balance should already comply with the applicable annual accounts rules.

Purpose

The annual accounts give the reader an overview of the company’s financial situation. The Bilanz (balance sheet) provides information on where the company’s funds come from and how much it is in debt. The Gewinn- und Verlustrechnung (profit and loss account) then discloses how much money is left over at the end of the financial year.

There are two main reasons for preparing annual accounts:

• They are an annual financial statement that keeps all business partners and creditors informed. For example, the result of these annual accounts determines the distribution of dividends to shareholders.
• The annual accounts also form the basis for how much tax the company will have to pay.

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Which companies have to publish the annual financial statement?

There are clear rules in the German commercial code (Handelsgesetzbuch) regarding the accounting obligation, which also grants small businesses or freelancers simplifications in bookkeeping.

• According to the HGB, all merchants must prepare annual accounts. These include corporations and partnerships.
• An exception applies to sole traders (Einzelkaufleute) who, on the balance sheet dates of two consecutive financial years, do not have more than €800,000 in sales revenue and € 80,000 in net income for the year.
• Freelancers and small businesses only need to prepare a surplus revenue account (EÜR) for their annual accounting.

Filing your annual financial statement

Companies requiring a balance sheet must submit the annual accounts, including all components, electronically via the ELSTER portal. The digital annual accounts must also contain the so-called E-Bilanz (e-balance sheet).

Disclosure Rules for Annual Financial Statements in Germany

Under section 325 of the German Commercial Code, corporations are required to publish their annual financial statements in the Commercial Register and the Federal Gazette. This obligation ensures financial transparency for stakeholders such as investors, creditors, and the public.

The annual accounts must be submitted in German by a legal representative of the company. Failure to comply on time may result in enforcement measures by the Federal Office of Justice.

How are companies classified by size?

Before entrepreneurs grapple with the content of the annual accounts, the size classes according to § 267 of the German Commercial Code should first be explained, as some additions and extensions to the Jahresabschluss only apply to medium-sized and large companies.

• Small corporations generate a maximum of €12,000,000 in sales revenue, have a maximum balance sheet total of € 6,000,000 and do not have more than 50 employees.

• Medium-sized corporations meet the criteria that apply to small corporations, generate a maximum of €40,000,000 in revenues, have a maximum balance sheet total of €20,000,000 and have no more than 250 employees.

• Large corporations exceed at least two of the three characteristics that distinguish medium-sized corporations.

Components of the annual accounts

The following applies to every businessperson. The annual accounts must include the balance sheet (Bilanz) and the income statement (GuV). In addition, the balance sheet must always contain a Schlussbilanz (closing balance sheet) on which the opening balance sheet (Eröffnungsbilanz) of the following year is based. What the annual financial statements must contain depends heavily on the company’s respective legal form and whether it’s listed on the stock exchange or not:

• Corporations are obliged to supplement their annual accounts with annexes per §§ 284-288 HGB – meaning to prepare extended annual accounts. For medium-sized and large companies, the following applies: In addition to the annual accounts, a so-called Lagebericht (management report) must be added which, in contrast to the Jahresabschluss, does not only deal with past figures but also with forecasts, opportunities and risks. Small corporations generally do not require a management report.

• Listed companies must supplement the extended annual accounts by § 264 of the German Commercial Code with a capital outflow statement and a statement of changes in equity. In addition, they may add segment reporting voluntarily. For medium-sized and large companies, even listed companies must prepare a management report in addition to their Jahresabschluss.

In addition, the annual accounts must be accompanied by a declaration of completeness per § 4 para. 3 EStG. The purpose of this declaration is to prevent a tax adviser from infringing on the proper practice of the profession when working with him or her.

The German Commercial Code (§ 266 and § 275 HGB) also prescribes a classification scheme for entrepreneurs. This scheme ensures that the annual accounts are generally understandable and that the reader of the balance sheet can clearly see how the company is developing.

But wait there’s more to consider when it comes to the Jahresabschluss. We have an article about annual accounts to help you stay on top of your company’s finances.

Deadlines for publishing

According to the German Commercial Code, every business must prepare annual accounts within a reasonable period. Large and medium-sized corporations differ from small corporations and merchants, see also the size classes according to § 267 of the German Commercial Code.

• Small corporations have six months. If the type of enterprise does not count as a limited liability company, the annual accounts must be prepared after a period appropriate to the orderly course of business. As a rule, this period corresponds to six months (§ 264 para. 1 sentence 4 HGB).
• Medium-sized and large corporations are obliged to prepare their annual accounts within the first three months of the new financial year (§ 264 (1) sentence 3 HGB)
• Sole traders benefit from a generous regulation: the orderly course of business is extended to six to nine months (§ 243 para. 23 HGB).

Once the annual accounts have been prepared, the documents should be carefully reviewed before being sent for approval. Where this activity is carried out by an auditor, the latter shall participate in the negotiations for the approval of the annual accounts if one of the members so wishes. In the case of a GmbH, the shareholders otherwise take over the negotiations for the adoption of the annual accounts. If several shareholders have an interest in the company, a shareholders’ meeting must be convened for this purpose.

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Who signs the annual accounts?

In principle, all board members of an AG (stock company) and all CEOs of a GmbH must sign the annual accounts. If there has been a change of CEO in the meantime, the time of the final approval determines who is obliged to sign. If the new CEO is active at the time of the determination, he/she must sign the annual accounts, even if he/she was not yet CEO during the preparation period.

Costs

This one is a tough one to answer. How much you pay to prepare the annual accounts depends on the effort involved. Naturally, maintaining a clean accounting system fully attuned to the annual accounts makes things cheaper.

Although, your company’s annual accounts can be prepared in-house, given how complicated regulations in Germany are, finding a competent tax adviser is a worthy investment.