Taxes and bookkeeping for early-stage founding teams

In the early stages, every euro matters. At the same time, investors want reliable figures.

Typical tax topics for startups

1. Preserving losses: loss carryforwards

Most startups make losses in their first years. The Finanzamt (tax office) assesses these losses so you can offset them against future profits. You must therefore file tax returns even in loss-making years.

2. Investors and share transfers

If more than 50% of the shares change hands within five years, you may lose loss carryforwards (§ 8c KStG). Exceptions exist, including business-continuation loss carryforwards. Before a major funding round, review this rule, with a tax advisor where appropriate.

3. Recording a capital increase

Funding-round money enters the company partly as share capital and usually partly as a capital reserve (share premium). Neither is revenue or profit, and neither is taxable. Correct recording matters.

4. The UG’s statutory reserve

If you start as a UG (entrepreneurial company), you must allocate 25% of annual net profit after loss carryforwards to a statutory reserve until you reach the share-capital level of a GmbH (limited liability company). You account for this in your Jahresabschluss (annual financial statements).

5. Formation costs and input VAT

The company can bear notary, commercial register and formation advice costs as expenses if its articles permit this. You can also deduct eligible input VAT on costs incurred before your first sale if you genuinely intend to make taxable sales.

Bookkeeping, duties and deadlines

Bookkeeping: A UG (entrepreneurial company) or GmbH (limited liability company) is a commercial entity by legal form. You must keep double-entry books under the German Commercial Code (HGB) and prepare a Jahresabschluss (annual financial statements) each year, comprising a balance sheet, profit and loss account and notes. Micro-entities may omit the notes.

Annual financial statements: For small companies, you have up to six months after the financial year ends to prepare the statements. You must disclose them in the Unternehmensregister (company register) within twelve months of year-end. You submit them electronically to the Finanzamt (tax office) as an E-Bilanz (electronic tax balance sheet).

Annual tax returns (you file by 31 July of the following year if filing without a tax advisor):

Corporation tax return: 15% of profit plus a solidarity surcharge of 5.5% on that tax
Gewerbesteuer (trade tax) return: based on your municipality’s assessment multiplier
Annual VAT return
Investment income withholding tax notification if your company distributes profits

Ongoing: You file advance VAT returns monthly or quarterly, depending on the previous year’s VAT, by the 10th of the following month (one month later with a permanent filing extension). Corporation tax prepayments fall due on 10 March, June, September and December; trade tax prepayments on 15 February, May, August and November.

Record retention: Keep supporting documents such as invoices and bank statements for eight years, and books and annual financial statements for ten years.

You can manage your bookkeeping, prepare annual financial statements and create tax returns in Pluto. Employee payroll, non-standard international matters, tax groups, transformations and tax audits are outside its scope.

Frequently asked questions

Must I file tax returns in loss-making years?+

Yes. It is also worthwhile: only then can the tax office assess your loss so you can offset it against future profits.

Is investor funding taxable?+

No. Contributions to share capital and capital reserves are not profit. You must record them correctly.

What happens to my losses when an investor comes in?+

If more than 50% of shares change hands within five years, you may lose losses. Exceptions exist for continuing business operations. Consult a tax advisor before major rounds.

Pluto Tax is a software tool that supports you in preparing your own tax returns. It does not provide tax advice within the meaning of the German Tax Advisory Act.

Updated: October 2026