Global expansion into Germany generally means that you need to set up an in-country entity. However, by partnering with us you create the possibility to bypass this process and utilize our German entity. By using our PEO-service we take care of the complicated paperwork.
Expanding into a new country is always an adventure, but we believe this adventure should be exciting instead of just frustrating and time-consuming. Therefore, we have been supporting companies in over a hundred countries with their expansion plans.
In this guide, we will share which documents you need to establish an entity in Germany, but also where you will need to register your business address and company’s name. We will also break down the advantages and disadvantages of setting up an entity in Germany.
Set up an entity in Germany
When expanding into another country with little familiarity of how incorporation is done, setting up is met with many requirements and complexities. In Germany, foreign subsidiary entities act as an extension of the parent company, but enjoys the same company standing as domestic businesses, and are subject to all national laws.
The registration process in Germany comes with some variation, depending on the company type, and involves a large amount of bureaucracy. However, once that is sorted, registration is generally straightforward. After that, setting up a subsidiary entity in Germany involves a heavy workload.
Tax processing, filing accounts, law compliance, workforce management, payroll, recruitment… all these matters must be managed effectively, which can eat up your time, money, and resources.
Instead of the costs, delays and complications met going solo, use our services and be up-and-running with a presence in your new territory within days, rather than months.
How to set up a Germany Subsidiary
Setting up a subsidiary requires these steps:
- Decide on the company type that suits the nature of your business, your business goals and matches your own capabilities to meet establishment requirements.
There are six main types of companies in Germany, which consist of: the Limited Liability Company (GmbH) or the Mini-GmbH, the Stock Corporation (AG), the General Partnership (oHG), the Limited KG Partnership, the Sole Proprietor, a Representative Office and a Branch.
- Obtain a business address in Germany, or a local virtual office address.
- Open a local business bank account and deposit the appropriate share capital.
- Decide on a company name.
- Decide on the company objective (known as the Unternehmensgegenstand).
- Apply to the German Chamber of Commerce and Industry (IHK) for a check on the company name and the company objective.
- Prepare the appropriate registration documents.
- Notarize registration documents at a notary’s office.
- Register the documents with the Commercial Register (Handelsregister) and receive an invoice at the local business address for the registration fees. Once that is paid, the company is officially entered into the Register.
- Hire a tax adviser. The tax adviser will assist with the registration with the tax office (Finanzamt) for VAT and corporate taxes as well as to work on the business’ annual accounts.
- Submit a trade registration form (Gewerbeanmeldung) with the local trade office to get a trading license.
- Register the company with the statistical office and the Chamber of Commerce and Industry.
- Register with the Labor Office and Health Insurance Office and receive an eight-digit operating number to report for social security purposes.
- Receive the company’s Tax ID from the tax office.
- Register for insurance for the business and the founders.
- Set up a bookkeeping system (via a firm or a DIY system, which must be approved by the tax adviser), as well as a payroll system.
Registration Fees & Time:
- Open a bank account - Depends on the bank
- Company Formation Fees - EUR 1,800
- Accounting Costs - EUR 100
- Registration Fees - EUR 400
- Notary Fees - Depends on the notary
- Share Capital – Mini Limited Liability Company (UG) - EUR 1
- Share Capital – Limited Liability Company (GmbH) - EUR 25,000
- Share Capital – Stock Corporation (AG) - EUR 50,000
Overall, the company registration process can take approximately 14 weeks. Company registration can also take up to six weeks to process. Registration for a corporate bank account, both with the branch and online, may take up to a maximum of five weeks (with no delays).
Applications for company registration are mostly done electronically in Germany. Incorporation documents must be submitted to the German Commercial Register, and the registration of the entity will be recorded by the Register on an electronic platform.
What you need to set up a Germany Subsidiary
For foreign companies wishing to expand into Germany, certain requirements must be met:
- A local business address or virtual office – leased or purchased with all relevant documentation.
- A local bank account with the appropriate share capital deposited.
- Confirmed company name and company objective.
- Completed and notarized registration documents:
- Registration Application Form
- The Company Objective
- The resolution of the parent company detailing its decision to form a subsidiary
- The Memorandum of Association
- The Articles of Association
- List of shareholders and directors and their information
- Business address documentation
- Evidence of the share capital in the business bank account
- Certificate of Incorporation.
- A trade registration form.
- An eight-digit operational number from the Labor Office.
- A Tax Identification Number.
- A VAT Number.
- A tax adviser, a bookkeeping system, and a payroll system.
- Registration with the Chamber of Commerce and Industry, the Statistical Office, Health Insurance Office, and Labor Office.
- Business and Founders Insurance.
Benefits of Setting up a Germany Subsidiary
Germany has one of the strongest economies in Europe for subsidiary establishment and growing a business’ influence. There are also other significant benefits to establishing an entity in Germany:
- Companies in Germany benefit from 0% VAT for trade between EU member states.
- Germany is a leading economy in Europe, with significant spending power and an innovative business climate.
- Germany is located at the heart of a dense transport network in the center of Europe, with approximately 830,000 km of roads, and 38,000 km of railways.
- The country also benefits from a modern telecommunications infrastructure network.
- Germany businesses also have a large, diverse pool of workers and qualified professionals to choose from, with approximately 1.2 million people in 2020 emigrating to Germany for new opportunities.
- Many businesses in Germany can benefit from comprehensive information centers, start-up initiatives and government support programs.
- Those living in Germany also benefit from a high quality of life and lows living costs.
Germany Subsidiary Laws
In Germany, subsidiary laws may vary depending on the subsidiary entity type you wish to establish – but all are regulated under The Company Act. Compliance entails meeting these requirements:
Registration & Documentation
- For incorporation, companies require at least 1 director and 1 shareholder, who can be of any nationality, as long as they can easily enter Germany or obtain a visa.
- All entities in Germany require a share capital for registration, which varies according to the company type.
- All entities must be registered with the Commercial Register, as well as the Chamber of Commerce and Industry.
- All companies must acquire a trading certificate with their local trade office before beginning their commercial activities.
- All companies are required to have a local business address, as well as a local bank account.
- Entity Founders Documentation – foreign founders must submit certain documents that confirm their identities, for both private individuals and legal persons/entities, including parent company information, information on beneficiaries and shareholders, etc.
Accounts and Taxation
- The corporate income tax rate in Germany is 15%. A 5.5% solidarity surcharge must also be paid on top of this income tax. The municipalities additionally apply a trade tax and set the rate for it.
- Subsidiary entities are obliged to pay withholding taxes of 25% on dividends, 15% on royalties, and 25% on interest (on certain conditions).
- Entities must register with their local tax office, social security office, and health insurance before employees are brought in.
- Registration for VAT is also mandatory for all company types.
- Entities must engage the services of a tax adviser for work on its annual accounts and statements.
- The tax period for corporations is the calendar year, and tax returns must be submitted to the authorities by the 31st of July of the following year.
- All entities are required to file monthly VAT reports, and annual tax returns. Medium and large-sized firms, however, are also obligated to file profit and loss statements, related notes, and management reports.
- All reports by medium and large-sized companies in Germany must also be audited.
- All shareholders and directors must be registered with the Commercial Register.
- The number of directors required for incorporation depends on the type of company being incorporated.
- Annual shareholders’ meetings must be held for all company types.
- For public/stock companies however, management relies on a two-tiered structure of a management board and a supervisory board.
Working with Bradford Jacobs
Establishing an entity takes considerable time and resources, despite the ease of establishment you can find in Germany. To do this, you need to acquire the right people and the right resources, which will not be easy. A cost-effective and time-saving alternative to this is engaging the services of a Professional Employer Organization (PEO) such as Bradford Jacobs.
With over two decades of global recruitment expertise and our Employer of Record (EOR) solutions, we can have employees operational within days, ensuring that all laws and regulations (employment, payroll, tax) are followed. When you are expanding into a new territory, it is important to ensure your administration operates flawlessly for both you and your employees.
Our Human Resources’ experts will ensure a smooth transition of your onboarded employees into your new territory. International borders should not stand in the way of international expansion.
Contact us today to make your expansion goals a reality, with ease and confidence.