The income statement plays a central role in financial reporting for limited liability companies (GmbHs) in Germany. The statement provides an account of the business’s economic performance within a specified period of time. This article will explain what you need to know about creating and filing an income statement for your GmbH. We will also explain the legal requirements, deadlines, and components of the income statement, and explore whether and how it must be published.
What’s in this article?
- What is an income statement?
- Who must file an income statement?
- What is the deadline for filing an income statement?
- The components of an income statement
- The legal framework and rules you need to follow
- Does the income statement need to be published?
- The advantages for GmbHs of having a correct income statement
What is an income statement?
The income statement is an important financial document that shows the economic performance of a GmbH across a certain period of time, which usually covers a financial year. According to Section 242 Paragraph 2 of the German Commercial Code (HGB), every business must prepare an income statement at the end of the financial year. This shows how the profit or loss of the GmbH came about during its business activities by comparing income with expenses.
Who must file an income statement?
The requirement to prepare and file an income statement stems from the German Commercial Code (HGB). In general, it applies to all businesses, including GmbHs. According to Section 242 of the HGB, every business must prepare a balance sheet and an income statement at the end of the financial year. This requirement serves to document the business’s financial transactions and results, making them available to the tax office and, in certain cases, to the public.
The Federal Ministry of Justice (BMJ) manages the Company Register, which is a platform for the publication of certain business documents. A key aspect of this requirement to disclose results is the publication of the income statement in the electronic Federal Gazette. Classification of GmbHs into small, medium, or large businesses is based on criteria defined in the German Commercial Code (Section 267 of the HGB). These criteria include total assets, sales revenue, and the average number of employees.
Practical experience has shown that complying with these requirements is not only a legal requirement, but also beneficial for the business. A detailed income statement can provide valuable insight into the business’s financial situation and performance. It enables responsible stakeholders to make well-informed decisions, increase efficiency, and ultimately ensure the business’s long-term success.
What is the deadline for filing an income statement?
The deadline for filing an income statement for a GmbH in Germany depends on the business’s financial year as well as the tax regulations. In general, the income statement must be filed with the tax office along with the annual financial statements by July 31 of the following year at the latest. However, this deadline can be extended under certain circumstances, perhaps by engaging a tax advisor. In this scenario, the deadline can be extended until the last day of February in the year after the following year.
The income statement can be filed electronically via the ELSTER portal or via your tax advisor. Digital submission is efficient and makes the process much more straightforward.
The components of an income statement
According to the German Commercial Code (HGB), there are two methods that a GmbH can use to prepare its income statement. First, there is the total cost method (Section 275 Paragraph 2 of the HGB). Second, there is the cost of sales method (Section 275 Paragraph 3 of the HGB). While the total cost method provides a breakdown of all expenses according to cost types (e.g., material costs, personnel costs), the cost of sales method allocates each expense to the services produced. The choice of method depends on the business’s preference and the industry-specific circumstances.
Regardless of the chosen method, the income statement consists of various components that come together to provide a comprehensive picture of the business’s financial activities.
At the top of this list is revenue, which includes income from the sale of goods or the provision of services during the normal course of business. Closely related to sales revenue are the manufacturing costs. These include all direct costs of producing those goods or services, including expenses for materials and manufacturing.
At a glance: Distribution costs, interest income, and depreciation
Another significant line item are the distribution costs, which cover all expenses arising during the sales process, including, for example, marketing activities and salaries of sales staff. Equally important are the general administrative costs, which represent the basic organizational expenses and management of the business, inclusive of salaries for administrative staff.
In addition to these defined categories, the income statement also takes into account other operating income and expenses that cannot be directly assigned to the categories mentioned above. These include, for example, income from interest or expenses resulting from the business’s financial activities.
Depreciation of fixed and current assets over the course of their useful life is also a key component of the income statement. This reflects the depreciation that occurs over time due to usage or changes in the market. Finally, tax expenses arising from the business’s profits are recorded in the income statement. These include corporation tax and business tax.
The legal framework and rules you need to follow
Preparing and filing an income statement for GmbHs in Germany is a process that involves a dense network of legal regulations and frameworks that require precise compliance. At the center of these legal requirements are the German Commercial Code (HGB), the Corporation Tax Act (KStG), the Income Tax Act (EStG), and the Publicity Act (PublG). Together, these form the basis for financial reporting and the transparency of corporations.
The HGB plays a key role in this by stipulating in Sections 242 ff. the obligation to prepare annual financial statements, including the income statement. For further details, refer to Sections 275 ff. on the options for structuring the income statement.
The tax framework, which is shaped by the KStG and the EStG, supplements the requirements outlined in commercial law regarding profit determination and distribution. Therefore, it indirectly influences how the income statement is designed, and what information it must contain.
The importance of the Publicity Act and the principles of proper accounting for an income statement in a GmbH
For certain GmbHs, the German Publicity Act (PublG) may also play a role. Depending on the size of the business, this may require the income statement to be published in the electronic Federal Gazette. This requirement for transparency helps protect the interests of business partners, investors, and the public.
Furthermore, the importance of the principles of proper accounting (GoB) should not be underestimated. These principles play an overarching role and ensure that accounting processes—and therefore the income statement—are designed to be transparent, comprehensible, and comparable.
Additionally, GmbHs are advised to monitor ongoing case law and announcements from the tax authorities. These can contain important interpretations and clarifications on specific issues around accounting and valuation, and therefore they can have a direct impact on the creation of the income statement.
Does the income statement need to be published?
In Germany, the question of whether a GmbH needs to publish its income statement is closely linked to the size of the business. The HGB, specifically Section 325 ff., stipulates that GmbHs are required to publish their annual financial statements in the electronic Federal Gazette. This includes the income statement. This regulation aims to ensure transparency and enable investors, creditors, and the general public to gain an insight into a business’s financial situation.
Disclosure requirements and deadlines according to business size
The disclosure requirements vary depending on the size of the business. Smaller GmbHs are only required to publish an abridged balance sheet that does not require a detailed income statement. In contrast, medium-sized and large GmbHs are required to publish their complete annual financial statements, including a detailed income statement. Three criteria are used to assign a business to one of these sizes: the balance sheet total, sales revenue, and the average number of employees in a financial year. The threshold values used for classification are outlined in the HGB and are subject to regular adjustments to reflect current economic conditions.
Different deadlines apply for the disclosure of the income statement in the electronic Federal Gazette depending on the size of the company. Small companies have up to 12 months after the balance sheet date to do this. This means that if a small business's fiscal year ends on December 31, it has until December 31 of the following year to disclose its records. Medium-sized companies have nine months and large companies four months (i.e., deadlines until September 30 or April 30 of the following year). It is important to note that failure to comply with these deadlines may result in sanctions ranging from fines to penalty payments.
The advantages for GmbHs of having a correct income statement
The income statement plays a key role for GmbHs in Germany. Not only does it help a business meet its legal requirements, but it also acts as a significant tool to manage and strategically align the business. Having an income statement that has been accurately prepared and carefully analyzed brings several benefits that extend far beyond simply meeting a business’s regulatory obligations.
First, having a correctly prepared income statement ensures compliance with the legal regulations governing a corporation’s annual financial statements. This helps prevent potential legal consequences and ensures that the business meets its obligations. Furthermore, having a precise income statement can help with optimizing the business’s tax. By providing an accurate overview of taxable profit, the income statement allows you to identify potential opportunities to reduce the business’s overall tax burden.
The role of the income statement as a strategic tool for management
The income statement can also be used as a key basis for making management decisions. By displaying a detailed overview of the business’s earnings and cost structure, the statement provides valuable information that can assist with strategic decision-making in areas such as investments, cost management, and pricing policy. The transparency created by publishing an income statement is another major advantage, particularly for medium and large GmbHs.
By enabling a comparison with industry benchmarks, businesses can recognize opportunities to increase their operational efficiency and profitability, alongside identifying potential areas for improvement. Put succinctly, the income statement is an important cornerstone of successful corporate management—with several applications beyond simply accounting—including strategic, tax, and operational use cases.
By preparing the income statement early and correctly, you can minimize legal risks and strengthen the financial integrity of your business. Are you interested in exploring a solution to simplify your income management? Sign up to discover how Stripe can transform and simplify your financial processes.