The limited liability company (or GmbH in German) is the most popular legal formation for businesses in Germany. But when it comes to accounting, GmbHs are subject to strict requirements. In order to comply with legal regulations, business owners have to know the special rules and processes for bookkeeping at GmbHs inside and out.

In this article, we’ll discuss what makes accounting at GmbHs unique—including the double-entry requirement—and how to do it step by step. We’ll also explain the costs involved in accounting at GmbHs, and offer some practical examples to illustrate.

What’s in this article?

• What’s special about accounting at GmbHs?
  
• What does the double-entry requirement mean?
  
• How does accounting at GmbHs work?
  
• What are the costs involved in accounting at GmbHs?
  
• Accounting at a GmbH: Examples
  

What’s special about accounting at GmbHs?

Accounting at a GmbH comes with strict requirements regarding form, content, and deadlines. These requirements don’t just act as an internal control but also serve legal and tax compliance functions. Here are some of the areas in which GmbHs differ from other common business formations.

Share capital and statement of equity

A GmbH must demonstrate that it has share capital of at least €25,000 when it is founded (Section 5, paragraph 1 of the German Act on GmbHs [GmbHG]). This capital is stated on the opening balance sheet and must be correctly accounted for under equity. The principle of capital preservation is enshrined in the law, so as to secure the financial stability of the business and protect creditors.

Separation of company assets from private assets

GmbHs are independent legal entities. Their assets must therefore be kept strictly separate from the private assets of their members. As such, the business account must only ever be used for business transactions. Private expenses must never be posted on the account.

Double-entry and annual financial statement

GmbHs are obligated to perform double-entry accounting. They are not permitted to use simple cash-basis accounting to calculate their profits. They are also obligated to prepare a balance sheet and a profit and loss statement (P&L statement) at the end of the year. Depending on its size, a business might have to enclose notes and a management report with its annual financial statement, as appropriate. This is in order to provide a clear overview of the financial situation of the GmbH, taking into account profits, assets, and outstanding liabilities.

Tax obligations

The tax requirements for a GmbH are more complex compared to other types of companies. A GmbH must remit value-added tax (VAT), withhold payroll tax, and pay corporation tax on its profits. It is also subject to separate tax on its trading profits and might be liable for capital gains tax, real estate transfer tax, and property tax. The accounts must therefore be compiled in such a way that all types of taxes are calculated correctly and remitted on time.

Anyone looking to establish or manage a GmbH should ensure professional accounting structures are in place from the beginning—whether that means using in-house staff, a tax advisor, or a suitable software solution. Stripe offers a high-performance payments platform and can also help prepare financial reports. Businesses can automate and configure sales reports with just a few clicks. Plus, with Stripe Revenue Recognition, they can automate accounting for transactions to minimize the risk of omissions and errors.

What does the double-entry requirement mean?

The double-entry requirement applies to a GmbH from the moment it is established and entered into the Commercial Register. This requirement is implemented directly by Section 238 of the German Commercial Code (HGB). The GmbH must record all transactions systematically and without exception. This requires every transaction to be posted to at least two accounts: once to a debit account and once to a credit account. This ensures that both the source and disposal of funds are fully documented. Double-entry bookkeeping forms the basis of accounting at GmbHs, meaning it also serves as the foundation for preparing the annual financial statement.

Double-entry bookkeeping is significantly different to cash-basis accounting, which many freelancers and smaller sole proprietorships are entitled to use. Cash-basis accounting only records actual inflows and outflows of cash. That means earnings are measured against expenditures, and there is no need to prepare a balance sheet. In addition, changes in inventories or amortizations tend not to play much of a role in cash-basis accounting. This makes it less time-consuming, though it also means it’s not ideal for illustrating the assets of a business.

Another key aspect of accounting at a GmbH is compliance with the GoBD, also known as “principles for the proper keeping and retention of books, records, and documents in electronic form.” One of the stipulations of the GoBD is that entries must be reproducible, complete, correct, timely, and unchangeable. Failure to comply with these requirements can result in hefty fines imposed by the Tax Office. The Tax Office can also estimate a business’s tax base in the event of any shortcomings in its bookkeeping (Section 162 of the Fiscal Code of Germany (AO)).

How does accounting at GmbHs work?

Depending on the size and structure of the business, accounting at a GmbH can be an incredibly demanding task. A systematic approach can help you keep a clear overview and fulfill all obligations. Here’s what to do, step by step.

Establish the chart of accounts

Start by choosing an appropriate chart of accounts. The chart of accounts is a system for categorizing ledgers according to the class of account. It also establishes a unified structure for account numbers, laying the foundations for efficient posting and a structured annual financial statement. Two of the most well-known charts of accounts are SKR 03 and SKR 04. The primary difference between the two lies in the subdivision of individual accounts within each chart of accounts.

Record transactions systematically

Accounting at a GmbH requires every transaction to be recorded on at least two accounts—one debit and one credit—according to the principle of double-entry accounting. While the debit account indicates where a value comes from, the credit account shows where it is going. Typical postings include purchases of goods, material costs, sales proceeds, payroll, social security expenses, taxes, and amortizations of noncurrent assets. Contributions to the share capital, emoluments paid to managing partners, or even member loans must all be correctly accounted for.

Record and remit VAT

GmbHs are generally liable for VAT. This means they must indicate VAT on their outgoing invoices. The VAT that is collected is subsequently remitted to the Tax Office. At the same time, the GmbH is permitted to claim any VAT on incoming business invoices as input tax and to deduct this from the amount it owes. Neat, correct record-keeping is essential for monthly or quarterly preliminary VAT returns.

Perform payroll accounting

As soon as a GmbH hires employees, it must prepare correct payslips and paychecks on a monthly basis, and record these properly on the books. It’s not just a case of paying out employees’ net salaries; there are a number of legally mandated levies and deductions to be made. The most important of these are:

• Payroll tax, which is withheld from an employee’s gross pay and remitted to the Tax Office
  
• Solidarity surcharge and church tax, where applicable
  
• Social security contributions, including both employee and employer contributions to pensions, health insurance, nursing insurance, and unemployment insurance
  

Here, the GmbH acts as a collecting agency, by withholding, collecting, and passing on all amounts to the relevant bodies on time. The accounts must reflect these transactions transparently and be tamper-proof. It’s also a good idea to work with a payroll department, whether in-house or via an external tax consultancy. Businesses have to make sure to reliably fulfill the complex obligations of reporting to the Tax Office and social security bodies.

Prepare an annual financial statement

The accounts of a GmbH don’t just record ongoing transactions, they are also used specifically to prepare the annual financial statement. That means writing down assets according to schedule, creating reserves for contingent liabilities, and recording accruals and deferrals correctly, among other things. Regular account reconciliation, especially for bank accounts and cash, ensures clarity and prevents the need for retroactive corrections. A stock-take should be conducted on the balance sheet date and its outcome should inform the balance sheet. Structured preparations make it easier to work with tax advisors and also guarantee that the GmbH fulfills its disclosure obligations in the Federal Gazette on time.

Digitize bookkeeping

Nowadays, lots of GmbHs rely on digital accounting solutions to make their processes more efficient. Solutions include automated suggestions for posting, digital receipt management, optical character recognition on images and PDFs, and application programming interfaces (APIs) linking directly to tax advisors. For businesses with recurring revenue (e.g., from subscription models or digital services), a specialized tool such as Stripe Revenue Recognition can be particularly helpful. This tool eases the workload for a business’s accounting team by recognizing proceeds compliantly and in the correct period. At the same time, it lays the foundations for reliable monthly accounts and accurate annual financial statements.

What are the costs involved in accounting at GmbHs?

Managing the accounts of a GmbH incurs a variety of different costs, which businesses should take into account when planning their finances.

Personnel costs or external service providers

Personnel costs—meaning salaries for accountants or finance team members—are among the most important cost factors for businesses that manage their accounts in-house. A lot of GmbHs opt to outsource their bookkeeping to external service providers or tax advisors instead. Outsourcing usually incurs an hourly or flat fee, set according to the scope of the bookkeeping activities and the complexity of the business model. Typical pricing models are based on the number of posting records, amount of revenue, or a fixed monthly fee. Additional costs can also be charged for special services, such as preparing an annual financial statement or overseeing company audits.

Software costs and digital bookkeeping

Businesses that use digital bookkeeping systems can also incur software costs, including license fees for accounting software, costs for APIs with banks or tax consultancies, and expenses for digital receipt archiving.

Indirect costs for internal labor

Additional indirect costs can be incurred as a result of time spent on relevant activities by management or other employees. This can include managers dealing with accounting issues or coordinating with the business’s tax consultancy, for example.

On the whole, the costs for accounting at a GmbH vary greatly, and they depend on the size of the company, its volume of business, and the complexity of its transactions. For small GmbHs with only a few postings, the monthly costs are generally in the low hundreds, while larger businesses with more comprehensive accounting should anticipate a significantly higher outlay.

Accounting at a GmbH: Examples

Here are two typical examples of postings from a GmbH to help illustrate how accounting works.

Purchase of goods with deduction of input tax

Assume a GmbH purchases goods worth €10,000 net. The incoming invoice is €11,900, inclusive of VAT at a rate of 19%. This is posted to two accounts:

• On the debit account: €10,000 is posted to “Purchase of goods” and €1,900 to “Input tax.”
  
• On the credit account: €11,900 is posted to “Liabilities” because the invoice has not been paid yet.
  

Payroll with payroll tax and social security

Another example is running payroll. Assume an employee has a gross salary of €3,000. The GmbH must correctly post the net salary, as well as the payroll tax, social security, and employer contributions.

• On the credit account: the payout of the net salary of roughly €2,000 is posted to “Bank.”
  
• On the debit account: the GmbH posts the corresponding expenditure to “Payroll” and the withheld amounts (totaling the remaining €1,000) to “Payroll tax” and “Social security.”
  

These examples show how, with double-entry accounting, each transaction affects at least two accounts, making correct allocation of every amount key. It’s the only way the GmbH can keep an overview of its financial standing and fulfill its legal requirements to conduct proper bookkeeping.