There are several advantages to considering establishing a Company in Germany. One of them is the German economy’s high level of stability. Germany’s innovative thinking and the law values protect and support business ideas. There are a number of alternatives available to international businesses looking to establish themselves in Germany as “legal entities,” some of which may be confusing. So, this article provides you with the knowledge necessary to establish a company in Germany.
Major Ways you Can Operate a Company in Germany
Subsidiary
A subsidiary is created whenever a parent firm establishes one. The subsidiary maintains its own financial sheet and conducts business under its own name. Larger, more big firms typically prefer a corporation as their legal form of organization.
According to German law, there are three main types of corporations:
- Limited Liability Company (Gesellschaft with beschränkter Haftung, GmbH)
- Stock cooperation (Aktiengesellschaft, AG)
- Partnership Limited by Shares (Kommanditgesellschaft auf Aktien, KGaA)
The most popular corporate legal structure in Germany is the private limited liability company (GmbH). There are minimal requirements and a lot of flexibility. The local Commercial Registry and the appropriate trade office must both have a copy of the subsidiary’s registration. Additionally, it is necessary to use a legally verified form to register in the Business Registry.
Autonomous Branch Office
Creating autonomous branch offices is a middle ground between establishing a separate business and merely creating a business division. Typically, a branch office would have a dual dependence on the parent corporation while still having some autonomy.
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A branch office is a location that is physically distinct from the main headquarters and as an extra expansion, a long-term area of concentration for the company. Although it’s unable to handle all of the main office’s operations, it does handle the kinds of transactions that define and constitute the firm’s core.
Therefore, branch office must prove its independence by being physically distinct from the main office, having its own administration with some degree of autonomy, maybe having its own accounting, maintaining its own balance sheet, and possibly even possessing its own inventory of company assets.
An independent branch office must meet the following criteria:
Dealings of a branch office
(i.e., activity lasting a specific amount of time must be included, and the deals must essentially be identical to what occurs at the head office; in particular, no purely subordinate supplementary and executive deals may be involved);
Branch office independence in terms of location
(e.g., own bank account, independent bookkeeping, but not necessarily own assets);
Branch office autonomy in regard to personnel
When a branch office is really established in line with the specified conditions, the branch office’s formation becomes effective. German legislation is followed during the registration procedure, which calls for a business registration certificate and inclusion in the Commercial Register. A notary public must certify the application and submit it. This is a more thorough explanation of how to register with the Commercial Registry.
The main office’s name can perfectly match that of the branch office. Nevertheless, including appendices (“German Office”) is allowed.
Dependent Office Branch (permanent establishment)
Permanent establishments are extra branches of the company as a whole that are established as commercial spaces but rely on the main office overseas. As a result, they don’t qualify as autonomous branches and aren’t allowed to operate under any other name than the headquarters’. In order to prepare, broker, or carry out the primary deals of the foreign firm, the service organization conducts auxiliary transactions.
Examples include:
- Manufacturing facilities having no revenues,
- Storage, receiving, and shipping locations; simple brokerage locations; and sales locations without in-house purchasing.
No information about dependent offices is included in the Commercial Register. Nonetheless, each location has to be listed in the Business Registration. This procedure can be carried out at the relevant trade office, through the Point of Single Contact, or in the Chamber of Commerce.
Representative
The phrase “representative office” is frequently related to opening branch offices, especially by international businesses. Yet, German business and trade law is not familiar with the phrase. If the firm’s office in Germany is part of the main office and engages in commercial activity, it is a dependent permanent establishment (as described above).
Afterward, the company would have to be registered in accordance with business law. As an alternative, the firm establishes a location that is run by an independent, external businessperson (such as a commercial representative), who has been given the necessary instructions. In this instance, the business is not operating independently for profit in Germany.
Special Challenges in Running a Company in Germany
In order to begin doing business in Germany, new businesses must first clear a wide range of administrative obstacles. For them to start operating, all new enterprises must register with the appropriate local chamber of industry and commerce, the local office of business and standards, the local commercial register, and the pertinent professional trade association.
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In order to register commercial real estate in Germany, one must first get an extract from the national land registry, then notarize the transfer agreement, waive which was before rights with the local council, and pay tax. The entire procedure takes, on average, forty days to finish.
In Germany, the taxes system for enterprises is incredibly complicated. Each financial year has nine payment periods, and a firm may be liable for as many as fourteen distinct types of taxes. The German system is time-consuming and difficult due to its complexity for businesses that operate there.
Germany charges very low amounts of government levies for imports and exports. Unfortunately, there is a ton of paperwork needed. Each export transaction requires four separate forms, and each import transaction needs five. The average time to finish the administrative procedure is one week.
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Four Legal to Run a Foreign Business in Germany
Every international firm with its head office and activities outside of Germany is eligible to open a wholly owned subsidiary or a branch office there.
A foreign parent corporation may possess all or a portion of a subsidiary’s autonomous legal status. The investor has a variety of corporations and partnerships to select from when forming a subsidiary, as shown below.
A branch office lacks a separate legal structure. It is a component of the head office’s company legally and organizationally, and as a result, is governed by the laws that apply to the head office. A branch office is an appropriate corporate structure for a foreign firm seeking to set up a representation in Germany with the intention of starting a business and keeping in touch with business associates.
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