Creating an Opening Balance Sheet: Structure, Content, Tips

If you’ve started up a new company in Germany, you have an important task ahead of you for tax purposes: preparing your opening balance sheet. You need to do this once you start making business transactions and at the beginning of each subsequent financial year. Once prepared, you then send it to your local tax office. The rules for this are set out in the Handelsgesetzbuch (German Commercial Code). 

• Companies subject to accounting requirements must prepare opening balance sheets 
• This includes all assets and liabilities of a company
• It is notarized and submitted to the tax office
• The legal basis is § 242 HGB

Your opening balance sheet will list all of your company assets and liabilities. In accordance with Section 242of the Handelsgesetzbuch (HGB), if your company is required to submit a balance sheet, it must be done when you have founded your company and at the beginning of the financial year. You’ll also need to prepare one if any of these situations arises:

Your opening balance sheet is your basis for proper accounting. A record of all your business-related transactions, it also serves as a comparison with your closing balance sheet. This together with your income statement will form your company’s annual financial statements at the end of the fiscal year.

The general rule goes like this: your previous year’s closing sheet must be identical to your opening balance sheet in the new year. Your balance sheet identity refers to the three main aspects of your balance sheet: assets, liability, and shareholder’s equity. The presentation of these on your balance sheet will be expressed in an equation, which measures the financial stability of your company. Your fixed and current assets should match the equity and liabilities. Ideally this will prevent the old fiscal year’s profits and losses shifting over to the new year.

If your company is registered in the Handelsregister (Commercial Register) you are obliged to keep double-entry accounts (matching your assets and liabilities) and prepare balance sheets. The following company types required are listed below:

Sole proprietorships with less than €600,000 in sales in back to back fiscal years and an annual net profit below €60,000 do not have to prepare balance sheets. Freelancers may submit an income statement to the tax office and this will exempt them from the balance sheet obligation.

So that you can compare it with the closing balance sheet, your opening balance sheet needs to be ready at the time you would normally prepare annual financial statements. Prepare your annual financial statements (in accordance with Section 264 HGB)within the first three months after the end of the fiscal year if the calendar year corresponds. In this case, you would need to prepare your sheet by March 31 of the next year.As mentioned earlier, the process is dependent on the size of your company. For example, companies which fit the specification of small corporations (see Section 267 (1)), are allotted six months into the fiscal year. 

While there are no statutory regulations for opening balance sheets for startups, the three and six month deadlines are common:

If you fail to comply with these deadlines, you could face legal consequences. To avoid this, the date you need to keep in mind is the date you commence business activities. This is especially true if you establish your company in a multi-stage process–in these cases, you may commence business activities before your company is entered in the commercial register.

Your GmbH or UG will exist ‘in formation’ until you have attended the notary appointment and entered it into the commercial register. From this point on, you must record all of your business transactions in the opening balance sheet. You choose the cut-off date, given that it corresponds with your start of business operations.

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The content and structure of your opening balance sheet will be the same as your corresponding closing balance sheet. Alongside your assets, include the following information in your opening balance sheet:

Once you’ve filled in the appropriate information, have the balance sheet signed by yourself and any other managing directors of your company.

Complete this step by selecting the date at which your company makes its first business transaction. Remember, this may be before you enter your company into the commercial register. 

Assets owned under your company name must be listed in full. Divide your opening balance sheet into assets and liabilities.Your assets are then divided into fixed and current assets. Fixed assets refer to ones which serve your company over a long term or permanent basis: 

Your current assets are ones used in the short-term, such as office supplies (pens, paper  etc) and any raw materials.Under liabilities you record your sources of funds:

This is the account which contains all of your opening balances and posting records. Enter any liabilities as debits and all assets as credits. 

When you have entered the figures into your opening balance sheet, they are supplemented with the above mentioned information on your assets and liabilities and must then be signed by management and notarised.

Now you’re ready to submit your opening balance sheet by mail to the tax office. This will be within either three or six months of the fiscal year, depending on the size of your company. If you would prefer, you can send your information electronically via the tax management program ELSTER. A corresponding certificate for authentication is then required.

You can of course prepare your opening balance sheet yourself or with your co-founders and some assisting software. If, however, you believe your company is larger or more complex and you’re unsure how you should proceed, seek a tax consultant or similar expert for assistance. What it will cost for the help of a tax consultant is based on the remuneration ordinance for tax consultants and also depends on the value of your company. In addition there is a notary fee for certification of your opening balance sheet, which is based on the Gesichts- und Notarkostengesetz (GNotKG) (German Law on Court and Notary Fees). How much you pay for this is again dependent on the nature of your company.

If your company is subject to accounting requirements, you will need to prepare an opening balance sheet for certain reasons. Your deadline will depend both on when you commence business activities and how large your company is. Exceeding these deadlines can result in serious consequences.The content and structure of your opening balance sheet will be identical to your closing balance sheet and your company assets will be divided into assets and liabilities.Decide whether or not you would like to prepare the sheet yourself. You should base this decision on the size and complexity of your company and situation. Consider approaching an expert if you have doubts. Before submission to the tax office, remember to have your opening balance sheet notarised and signed by all managing directors.