Establishing of a subsidiary or branch office in Germany

Foreign companies planning to do business in Germany in order to expand the business or for investment purpose have various alternatives available to them. The business activity can be legally organised by establishing a local subsidiary or a branch office.

A subsidiary is an autonomous business enterprise that is established by an existing company (parent company). There are no special legal conditions or restrictions applicable to foreign companies interested in establishing a subsidary (i.a. a GmbH). Foreign companies are subject to the same german laws and regulations that local companies are subject to with regard to the establishment of the business and registration of it with the trade supervision office, the commercial register and tax authorities.

UG (haftungsbeschränkt) in german practice

In order to counter the strong advance of the english limited company, which can be set up cheaply, the possibility of founding a so-called "Unternehmergesellschaft/UG" (haftungsbeschränkt), wich means entrepreneurial company (limited liability company), was introduced in the german GmbH Act in 2008. The essential feature here is that - unlike with the classic GmbH - the share capital can also be less than 25,000 EUR, which in fact means that the UG (haftungsbeschränkt) could theoretically already be founded with a capital of one euro. Unlike with the classic GmbH, however, contributions in kind are not permitted and the share capital must be paid up in full at the time of formation. Caution is also advised here if the UG (haftungsbeschränkt) is only provided with a share capital of a few euros, but the company should nevertheless bear the formation costs. This can lead to the company not coming into existence, as the registration court refuses registration due to overindebtedness (underbalance).

In such cases, either sufficient capitalisation must be ensured or the founding costs must be borne by the shareholders themselves.

A conversion of the UG (haftungsbeschränkt) into a regular GmbH is possible at any time; this requires an increase of the share capital to a sum of at least 25,000 EUR.

Due to the limited capitalisation, the GmbH law also requires the formation of an annual reserve in the commercial balance sheet, into which 25 % of the annual surplus must be placed, which may only be used to carry out a capital increase from shareholder funds or to compensate for losses.

Standard protocol formation (Musterprotokollgründung)

In the same year, the introduction of a so-called „Musterprotokollgründung“ came into force, which is intended to facilitate a particularly quick formation. The model protocol can be used for the formation of companies with a maximum of three partners and only one managing director, which is automatically exempt from the restrictions on multiple and personal representation. Since the model protocol also constitutes a list of shareholders, the preparation and submission of a separate list is unnecessary. The same applies to the articles of association. However, it should be borne in mind that the model protocol lacks essential regulations that are indispensable in practice. This applies in particular to rights of termination or the exclusion of shareholders. A standard protocol is therefore suitable for simple cases, e.g. the formation of subsidiaries, in which the cost advantage clearly comes to bear.

Branch in Germany

Instead of a subsidiary, it is under certain circumstances advisable for a foreign company to (initially) set up a branch office in Germany.  Low foundation and establishment costsoften play an important role in such a decision. On the other hand, the foreign parent company is fully liable to the extent of its own asset for any claims creditors might assert against the dependent German office.

A branch office can be established either as an independent branch office (“Zweigniederlassung”) or an dependant branch office (“Betriebsstätte”):

Independent branch office (“Zweigniederlassung”) in Germany

An independent branch office is not an autonomously legal entity separate from that of the business headquarters. An independent branch office is geographically and in terms of its internal processes seperated from its headquarter, operates independently to a very large extent and is keeping its own books. Its business activities are based on the same subject matter as those of the headquarters and cannot be limited to sole supporting tasks.

An independant branch office may sue or be sued only through the main company. However, by its local presence, the German branch office of a foreign company can have action taken against it by local creditors through the local court system. Also, since an independent branch office is not an autonomous legal entity but rather an integral part of the main company, the main company is liable for any obligations or debts incurred by the branch office.

Organisation under german law

The organisation is led by manager with power of external representation. As concerns material matters, separate proportion of the company's assets must be allocated to the branch office. The branch also has to be equipped in a way that enables it to independently and permanently participate in everyday business activities and fulfil its purpose.

corporate name

The name of the branch office can be eigther the exact name of main company or an alternate name; in this case an additional reference to the affiliation to the headquarter is required.


All of the commercial activities of an independent branch office have to be reported to the Trade Supervision Office (Gewerbeaufsichtsamt). Usually, no special licenses are required unless the planned business activity of the branch office falls into a special category such as banking, insurance, passenger transportaion or restaurants.

Additionally, it is necessary to file for registration of the company in the Commercial Register. By this way, the branch office will receive its own registered location, its own commercial register number and will be assigned to its own court of jurisdiction. All of the relevant information and documents concerning the establishment of the branch office must be submitted to commercial register and in notarized form.

Dependant Branch Office/permanent establishment (Betriebsstätte) in Germany

The setting up of a dependent branch office is a simple organisational alternative available to a domestic or foreign company that already has a registered office in Germany and would like to be business from another location as well. The same company can have several independent branch offices. Independent branch offices depend on the main office in every respect. Its operations are unified and the only difference is that the branch office is on a different location and headquarters. Even its invoices are issued in the name of the head office. A dependent branch office is not officially registered. However, every branch office must report its business activities to the local trade supervision office. The form application procedures and same as those described above. Since dependent branches are involved in the same operational procedures as the head office, simply performing their part on a different location, they are not allowed to have company names that are different from that of the head office.

Taxation of a dependant or independent branch office under german law

If a foreign company operates a permanent establishment or branch office in Germany, the profits of this permanent establishment must be taxed in Germany. The taxes incurred depend on the legal form of the company. They correspond to the taxes that a company with the corresponding German legal form would have to pay.

The profit of the permanent establishment that is taxed in Germany is either exempt from taxation in the other state or it is subject to taxation there, in which case the amount of tax paid in Germany is credited against the corresponding tax of the other state. Details regularly result from the agreement on the avoidance of double taxation that Germany has concluded with the other state.

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