German Entity Set Up Guide

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German Entity or Subsidiary Set Up Guide

A subsidiary set up in Germany by a foreign parent company is required to register with the local commercial register and the trade office. Subsidiaries are subject to the same German taxation system as any other local business. When launching a subsidiary, investors usually open the German equivalent of a private limited liability company, known as a GmbH (Gesellschaft mit beschränkter Haftung). A public company with limited liability uses the suffix AG.

The subsidiary is a 100% local German entity with full independence from the parent company and must follow the same incorporation procedures.

The advantages for companies expanding into Germany by this route include exploring new markets, enhancing international credibility and opening a gateway to mainland Europe. But setting up a subsidiary in Germany involves a hefty workload in addition to moving staff across the globe or sourcing them in-country.

Consultation on human resources, payroll tax processing and filing, workforce management and compliance with every aspect of German employment law all have to be managed, eating up time and costs … and not the best use of your resources.

Remove this burden by partnering with an Employer of Record (EOR) company such as Bradford Jacobs. Initially we source your new staff through our Professional Employer Organisation (PEO) international recruitment specialists and then our EOR experts handle all legal and compliance requirements. Instead of the cost and inevitable delays in going solo, companies can be up-and-running with a presence in their new territory within days rather than months.

  • Obtain a business address in Germany
  • Decide on the type of company that best suits the nature of the business, with the most popular choices being a private limited liability company (Gesellschaft mit beschränkter Haftung – GmbH) or a branch (Zweigniederlassung)
  • Confirm the company name with the Commercial Register after checking with the Unternehmensregister website that the name is unique
  • Open a bank account. Proof of identity can be obtained through a post office, notary or lawyer. Applicants must also have a “certificate of registration” (Meldebescheinigung) as proof of residence
  • Documentation must be presented to the Trade Office (Gewerbeamt) relating to tax and social security authorities, the Labour Office, and relevant professional bodies, works councils, trades unions
  • Register with the trade chamber to which the company will belong
  • Enrol with the Commercial Register by providing all documentation through a notary, detailing registered company name, registered office, authorised personnel, confirmation of share capital at minimum amount of €25,000. The company name will then be published on the Handelsregister website
  • Register with the local tax office and provide the Articles of Association certified by a notary within four weeks of commencing business

German Subsidiary Laws

German law generally makes no distinction between Germans and foreign nationals regarding investment or establishing companies. The following documents must be filed with the German Commercial Register, after being officially notarised:

  • The minimum share capital required for a private limited liability company (GmbH) of €25,000
  • The Memorandum and Articles of Association of the subsidiary
  • The confirmation of the parent company detailing its decision to form the subsidiary
  • The registered company name of the GmbH must always contain the suffix ‘with limited liability’, or the relevant abbreviation ‘mbH’

The subsidiary must be registered with its local Tax Office for taxation and payroll purposes, which can be completed online with the German Fiscal Authority’s Form Management System (FMS). Tax declarations for payroll and Value Added Tax (VAT) must be filed and in the first year VAT accounts must be submitted monthly. After this, periodic returns depend on the amount of turnover. Tax returns are generally due by May 31 of the following year.

A German savings bank account must be set up to deposit the required share capital alongside the normal account.

Benefits of setting up a German Subsidiary

Among the legal advantages of setting up a subsidiary in Germany is that the shareholders and directors of the parent company have limited liability and are not liable for the activities of their German subsidiary. The subsidiary also has the freedom to diversify in its business activities and increases the global credibility of the parent company. Germans are used to dealing with private limited companies (GmbH) so this also adds to credibility and trustworthiness, while publishing accounts electronically in the Federal Gazette adds to transparency.

The subsidiary also has legal advantages, including:

  • Limited liability means shareholders are not liable for any debts of the subsidiary and their own assets remain secure
  • Subsidiaries may appoint a managing director who is not a shareholder, to avoid diluting share capital
  • The subsidiary is a separate legal entity and can enter contracts independent of the parent company

Setting up a German subsidiary is also a way to assess the potential of the market without capital expenditure. However, it is a time consuming and expensive exercise with no guarantee of a successful transition at the end of the process. The alternative is to use a Professional Employer Organisation (PEO) such as Bradford Jacobs so that staff can be sourced in-country, placed in their roles and be up-and-running within days, rather than months. In addition, all the difficulties of payroll, taxation and compliance will be under control thanks to our Employer of Record (EOR) services.

What you need to set up a German Subsidiary

  • Foreign companies planning to expand into Germany must have:
  • A business address in Germany
  • Confirmation of the business name with the Commercial Register
  • A German bank account
  • The minimum €25,000 share capital, deposited in a savings bank account
  • Completed and notarised tax and social documentation registered with the Trade Office and Labour Office
  • Registration with the local Tax Office and Articles of Association, certified by a notary, within one month of commencing business
  • Confirmation of the parent company detailing its decision to form a subsidiary
  • An official tax number assigned by the tax authorities (Finanzamt, Steuerbehörden)
  • Membership of the local Chamber of Industry and Commerce

Working with Bradford Jacobs

The cost-efficient and time-saving alternative to establishing a subsidiary in Germany is alongside a Professional Employer Organisation (PEO) such as Bradford Jacobs. Our global recruitment know-how and Employer of Record (EOR) solutions will have employees operational within days – avoiding risking penalties or fines for non-compliance with tax regulations and employment laws. Germany’s employment laws are diverse – based on case law, and agreements on collective bargaining, and with works councils and trades unions – all adding to the complexity. Our Human Resources’ experts will also ensure a smooth transition into the new culture for your onboarded employees. There is no reason for international borders to stand in the way of your international expansion – call us.