Accounting obligations for merchants

Commercial bookkeeping (accounting) is obligatory for the following:

Under tax law (section 141 para. 1 sent. 1 of the Commercial Code), commercial entrepreneurs who are not entered in the Commercial Register are required to prepare their balance sheets if they generate sales of more than EUR 600,000 or a profit of more than EUR 60,000 per year.

Exception: Sole traders who on the balance sheet dates of two consecutive financial years do not report more than EUR 600,000 in sales revenue and EUR 60,000 in net income respectively are exempt from the commercial law obligation to maintain accounts and prepare an inventory (section 241a sent. 1 HGB).

Proper accounting requires the entrepreneur to reflect the status of their commercial transactions and their asset situation. In addition to an annual inventory, this encompasses at the end of each financial year the preparation of a financial statement (balance sheet) showing the ratio of their assets and liabilities and a comparison of their expenses and income (profit and loss account). The balance sheet and the profit and loss account form the annual financial statements (section 242 HGB). The annual financial statements are to be prepared in accordance with the accounting principles within the period corresponding to the ordinary course of business (section 243 HGB) and are to be prepared in German (section 244 HGB). The merchant must retain the annual financial statements for a period of ten years (section 257 HGB).
Note: Entrepreneurs who are not obliged to keep commercial accounts because they are not entered in the Commercial Register or do not exceed the tax accounting limits (see above) can calculate their profit with a simple income-surplus statement.

For corporations such as AGs, GmbHs and UGs (limited liability), additional accounting obligations apply depending on the size of the company. The HGB distinguishes between four different size classes: micro-corporation, small corporation, medium-sized corporation and large corporation.

For fiscal years beginning after 31 December 2015, the following size-class thresholds apply (a new regulation following the Accounting Directive Implementation Act (BilRUG) which came into force on 23 July 2015). However, the new thresholds may already be applied to financial statements for the financial year beginning after 31 December 2013. Companies may choose whether they make use of the new regulations for annual accounts from 2014 on. The accounting obligations, which are linked to the respective size class, only arise if the threshold values are exceeded or undershot on the balance sheet dates of two consecutive financial years. In the event of conversion or formation of a new company, the legal consequences will already occur if the requirements are met on the first balance sheet date after the conversion or formation of a new company.

Micro-corporations are small corporations that do not exceed at least two of the following three characteristics (section 267a HGB):

Small corporations are those which do not exceed at least two of the following three characteristics (section 267 para. 1 HGB):

Medium-sized corporations are those that do not exceed two of the following three characteristics (section 267 para. 2 HGB):

Otherwise it is a large corporation (section 267 para. 3 HGB).

If a company does not exercise its right to apply the new regulations for annual accounts from 2014 on, the previous thresholds apply to annual financial statements for the fiscal years up to 31 December 2015 (art. 75 para. 1 sent. 2 Introductory Law to the German Commercial Code (EGHGB) in conjunction with section 267 HGB (old version)):

Micro-corporations are small corporations that do not exceed at least two of the three characteristics below:

Small corporations are those which do not exceed at least two of the following three characteristics:

Medium-sized corporations are those that do not exceed at least two of the following three characteristics:

Otherwise it is a large corporation.

The regulations for corporations apply accordingly to certain trading companies, in particular GmbH & Co KGs. The extended obligations do not apply to commercial companies in which at least one personally-liable shareholder is a natural person or another commercial company with a natural person as a personally-liable shareholder or in which the connection of companies of this type continues.

Change in the definition of sales revenue
The German Accounting Directive Implementation Act (BilRUG) has also amended the definition of sales revenue for the fiscal years beginning after 31 December 2015. Previously, sales revenues were revenues from the sale and rental or lease of products and goods typical of the corporation’s ordinary business activities as well as from services typical of the corporation’s ordinary business activities after revenue deductions and value-added tax. According to the new definition, sales revenues are the proceeds from the sale and rental or leasing of products and from the provision of services by the corporation after deduction of sales revenues and value-added tax and other taxes directly related to sales (section 277 para. 1 HGB). With the removal of the restriction to revenues typical of ordinary business activities, the sales revenues are considerably expanded in terms of content. In the future, the sale of products and the provision of services outside of ordinary business activities will also be sales revenues and not other operating income. The increase in sales revenues may result in the company exceeding the previous thresholds and in it needing to be assigned to a larger size class.
Note: The above-mentioned new thresholds may only be applied retrospectively to financial statements for financial years beginning after 31 December 2013 if the new definition of sales revenue is applied at the same time as the increased values. In addition, the first-time application of the new provisions in the notes to the financial statements or consolidated financial statements must indicate the lack of comparability of sales revenues and the amount of sales revenues for the previous year that would result from the application of the new section 277 para. 1 HGB.

Corporations must add notes to their annual financial statements and prepare a management report (section 264 HGB). The purpose of the notes to the financial statements is to explain the annual financial statements, e.g. they provide information on the accounting and valuation methods applied or the share of current liabilities in total liabilities (section 284 et seq. HGB). The management report presents the course of business and the position of the company (section 289 HGB). These documents must be prepared by the legal representatives of the corporation. They must be prepared within three months of the end of the financial year. The annual financial statements must state the name, registered office, court of registration and number under which the company is entered in the Commercial Register. If the company is in liquidation, this fact must also be stated.

Exception: Micro-corporations and small corporations do not need to prepare a management report. They may also prepare the annual financial statements at a later date if this corresponds to the ordinary course of business, but within the first six months after the end of the financial year. Micro-corporations do not need to add notes to the annual financial statements if they disclose certain information in the balance sheet (section 264 para. 1 sent. 5 HGB).

The annual financial statements and the management report must be audited by an auditor (section 316 et seq. HGB).

Exception: The auditing duty does not apply to small and micro-corporations.

Auditors and accountancy firms are responsible for auditing large corporations, while sworn auditors and accountancy firms are responsible for auditing the annual financial statements and management reports of medium-sized companies.

The auditor submits an impartial written audit report on the audit (section 321 HGB) and issues an audit opinion on the results of the audit (section 322 HGB). With their audit opinion, the auditor expresses their overall opinion of the company’s accounting and annual financial statements to the company and its shareholders, as well as to the outside world. They certify that the financial statements comply with the statutory provisions.

Auditors are largely entitled to information and to inspect books, cash ledgers, and inventories of securities and goods. They are bound to absolute secrecy.

The shareholders elect the auditor before the end of the financial year to which their audit work relates (section 318 HGB). The auditor cannot be a person who has participated in the preparation of the annual financial statements. If the shareholders do not appoint an auditor in due time, they shall be appointed upon application by the competent court.

The legal representatives of the corporation must submit the adopted or approved annual financial statements, the management report and the audit opinion electronically to the operator of the Federal Gazette (www.bundesanzeiger.de) at the latest one year after the balance sheet date of the financial year to which they relate and must have them published in the Bundesanzeiger immediately after submission (section 325 HGB). The operator of the Federal Gazette establishes whether the corporation has complied with the statutory provisions for preparation, audit and publication (section 329 HGB).

Exception: Small corporations need only submit the annual financial statements and the notes to the financial statements to the operator of the Federal Gazette; the notes do not have to contain information on the profit and loss account (section 326 para. 1 HGB). Micro-corporations can choose whether to have their annual financial statements filed with and published in the Federal Gazette or whether to issue a filing order (section 326 (2) HGB). The Federal Gazette must at the same time be informed that the company complies with the size characteristics for micro-corporations. The Federal Gazette has set up a Balance Sheet Navigator. Its purpose is to help companies check whether they can choose the filing option.
Sanctions
Anyone who violates the disclosure requirements is acting improperly. The Federal Office of Justice can impose fines of up to EUR 25,000. The Commercial Register is also authorised to set fines and penalties in order to encourage compliance with the above-mentioned obligations. For further information, see the professional article “Publication, disclosure and announcement obligations” .

IHK Berlin publishes professional articles as a service for its member companies. These are intended to provide a brief introduction to the legal principles involved, and do not claim to be exhaustive. They are no substitute for the extensive advice available from a lawyer/tax advisor who has carried out a detailed assessment of your individual circumstances.