Annual Reports in Germany

A guide for companies on what annual financial statements have to contain according to the German Commercial Code (HGB)

The German Commercial Code (German: Handelsgesetzbuch, Abbreviation: HGB) regulates accounting and the preparation of the annual financial statements for Companies based in Germany. Amongst other things, it requires companies to prepare the bookkeeping following the principles of orderly accounting, known by its German acronym GoB. The books have to record all transactions based on relating documents such as invoices and vouchers. The accounts have to be drawn up in German and in Euro. This also applies to the preparation of the financial statement. Besides meeting the requirements of the HGB, companies need to take into account tax legislation, a topic we will discuss in more detail in our upcoming articles.

Sole traders are exempt by the German Commerical Code from the requirements stated above, namely the preparation of the accounting and annual statements, under the provision that net income does not exceed EUR 60,000 and the annual turnover is below EUR 600,000 for two consecutive years. For newly established companies this rule kicks in, in the first fiscal year already.

For corporate enterprises, the HGB defines four categories (micro, small, medium, and large corporations) based on the company’s size of turnover, balance sheet total, and the number of employees. A corporation is classed in a particular size by meeting two out of three criteria for two successive years. The idea behind the classification is to make it easier for companies to draw up their annual accounts according to their size and thusly keeping the costs down. For example, small companies usually have to publish a less detailed balance sheet opposite to large and medium-sized enterprises. Small enterprises can dispense with the preparation of a management report. Micro companies do not necessarily have to prepare notes and have more time to prepare their annual financial statements.

As a standard, annual statements of corporate enterprises such as limited liability companies (German: Gesellschaft mit beschränkter Haftung, Abbreviation: GmbH) consist of a balance sheet, a profit and loss account, notes, and a management report. All corporate enterprises are required to prepare annual statements usually within three months of the following year, small corporations within six months of the following year.