4 Ways To Register a Foreign Company In Germany

There are many reasons why you might want to set up a company in Germany. One of them is that the German economy is very stable. Business ideas are valued, protected and backed by the law in Germany and the country values innovation. If a foreign company wants to establish their business as a ‘legal entity’ in Germany, it has several options, which might be difficult to understand. So, this article gives you the information you need to set up a legal entity in Germany. It covers tax registration, dependent and independent branches and subsidiaries.

The simplest option is the VAT registration for foreign companies in German

Tax registration is the most basic option if you plan to register your foreign company in Germany. This type can be used to sell products online in Germany and is required so that you can:

• Report sales – which will be taxed
• Submit a tax declaration, and
• Cover VAT purposes – which you are responsible to check on your own

To register a foreign company in Germany with a VAT registration, you will need to complete a tax form and submit it to the Finanzamt (finance office). The Finanzamt will then issue your tax number. Some of the questions on the tax form you will need to answer are:

• The amount of income you are expecting to earn
• Questions related to VAT, and
• What your work involves

As a result of choosing this basic option and applying for a VAT number in Germany, companies are also able to carry out transactions that are taxable in Germany, to export products and to import products.

Setting up a dependent branch in Germany (unselbstständige Niederlassung)

A dependent branch office is another way to establish a foreign company in Germany. In this case, the company might have many business locations that depend on a head office. The dependent branch office that is set up in Germany is linked or joined to the parent company and can only carry out the activities that the head office does. It doesn’t have autonomy and invoices are also issued in the name of the head office.

What are the advantages of setting up a dependent branch in Germany?

Setting up a dependent branch is a favourable alternative for many reasons. It lets you:

• Have a business representative in Germany, and
• It is a fast and simple way to register your company in Germany

What are the disadvantages of setting up a dependent branch in Germany?

But there are some disadvantages to setting up a dependent branch to register your company in Germany, which include that:

• The banks in Germany do not normally open a business account for a dependent branch
• If you are issuing invoices, they must be issued in the name of the foreign company, and
• You will require tax advisers who can understand both the tax laws of the foreign country and the tax laws of Germany

Setting up an independent branch in Germany (selbstständige Niederlassung)

An independent branch is legally linked or joined to the company’s main branch. This means it follows the laws that apply to the main branch. If it is set up by a foreign company, the branch is therefore overseen by the laws of the foreign country and the company statute.

However, even though it relies on the main branch to function, it acts independently in its business transactions. This means, in terms of the independent branch’s legal relations with its customers, it will be overseen by German laws. The independent branch also follows German law in terms of how the branch is legally treated in Germany.

What are the advantages of setting up an independent branch in Germany?

There are many advantages of setting up an independent branch in Germany. Two of the main benefits are that:

• Business owners opening an independent branch in Germany can depend on the foreign company for internal functions, and
• Business owners are normally able to easily set up a business account in Germany with an independent branch.

What are the disadvantages of setting up an independent branch in Germany?

There are also some disadvantages of setting up an independent branch in Germany to be aware of. Two of these include that:

• The branch will need to be entered into the commercial register and get a notarial certification, and
• Although the same accounting rules apply to independent branches as GmbH or UGs, the branch will still need to follow the tax laws of the foreign company and German tax laws as well.

Setting up a subsidiary in Germany

If you choose to set up a subsidiary in Germany, you are choosing to create a company that is legally independent of the parent company. The subsidiary company that you choose to set up might be a GmbH or a UG company. Subsidiaries in Germany have no special or particular legal restrictions that prevent you from creating them – so you will not face any complications there. Foreign founders who create subsidiaries in Germany should know that German laws apply to the creation of the subsidiary, and the registration of the business, as well as the process of entering it into the commercial register. Foreign founders will also not encounter any problems when importing capital into Germany when forming the subsidiary.

You will require some documents to set up a subsidiary, which you can find out more about in our article ‘How to register a company in Germany’.

What are the advantages of setting up a subsidiary in Germany?

There are several benefits of setting up a subsidiary in Germany. Some of the benefits include:

• You will be able to depend on the foreign company and the tax system it abides by
• Your subsidiary will be a German company. It will benefit from an independent name, a legal form and a legal character, and
• Your tax advisor will not need to have international tax law knowledge.

What are the disadvantages of setting up a subsidiary in Germany?

There are a couple of disadvantages to choosing to establish a subsidiary in Germany. It might take more time, and the setup costs might be higher. It’s also the case that you will need your own capitalisation to set it up.

Our recommendation: Founding a subsidiary company

Even though there are many options to take when setting up a company in Germany, a subsidiary company is beneficial for many reasons. It might take longer to set one up, but we recommend a subsidiary company for two key reasons. It is ideal for establishing a completely German company, and you will not have the problem of needing international tax law knowledge. In the long term, there are no considerable differences in the maintaining costs of a subsidiary and independent branch. Explore your options at GmbH-UG.com to find out more about setting up a subsidiary company in Germany.