I. Establishing a Company
Any foreign company with headquarters and business operations outside of Germany can establish either a fully owned subsidiary or a German branch office. The subsidiary is an independent legal entity fully or partly owned by the foreign parent company. When establishing a subsidiary the investor can choose between several types of corporations and partnerships as listed below. A branch office has no independent or separate legal personality distinct from the head office itself. In legal and organizational terms, it is part of the head office business and is thus subject to the law governing the head office. A branch office is a suitable business form for a foreign company wanting to establish a presence in Germany for the purpose of initiating business and maintaining contacts with business partners.
1. The Subsidiary
When choosing the legal form of the company, a corporation is usually the best option for larger, established companies. There are three major forms of corporations under German law:
- Limited Liability Company (Gesellschaft mit beschränkter Haftung, GmbH)
- Limited Liability Entrepreneurial Company (Unternehmergesellschaft (UG), haftungsbeschränkt/ ”Mini GmbH–)
- Stock Corporation (Aktiengesellschaft, AG)
- Partnership Limited by Shares (Kommanditgesellschaft auf Aktien, KGaA)
The German private limited liability company (GmbH) is the most widely used legal form for corporations. It combines high fexibility with relatively few obligations. Further information on specific forms of corporations you will find in the Investment Guide to Germany published by Germany Trade & Invest.
2. Autonomous Branch Office (selbstständige Zweigniederlassung)
An autonomous branch office has to display some degree of autonomy vis-à-vis the head office by having its own management with its own executive powers, separate bank accounts, separate balance sheet, and independent business assets. Only foreign commercial business persons, who are registered with a commercial register, can establish an autonomous branch office.
The decision to establish a branch office must be made by the managing directors of the head office. The autonomous branch office must be entered in the commercial register and registered with the local trade office. The application for registration with the commercial register must include detailed information on the foreign company. The application must be certified and submitted by a notary.
3. Dependent Branch Office (unselbstständige Zweigstelle)
A dependent branch office displays no autonomy vis-à-vis the head office of the company and is not entered in the commercial register. The only formal requirement for a dependent branch office is registration with the local trade office for which certain documentation on the foreign company is also necessary.
4. Representative Office
Offices that purely serve to observe the market and pave the way for initial customer contacts are often described as ”representative offices.– A representative office is not allowed to conduct any independent business activity on behalf of the foreign company. Usually a representative office is regarded as initial stage of setting-up a business and can be established for duration of one year. After this period the foreign company has to decide whether or not to set-up a business entity (e.g. subsidiary, branch office). In some cases the establishment of a representative office for a longer period is intended (e.g. representative offices of national enterprises and/or of large investment goods manufacturers; Agencies of foreign institutions such as economic development, tourist boards). This should be reasoned originally in detail and plausibly. Registration with the commercial register is not required, however a representative office of non EU-based company has to be registered with the local trade office.
II. Formation Procedures: Registering the Business
Generally speaking, your business (subsidiary, autonomous branch office) in Germany must be registered with the commercial register (Handelsregister). Any business must then be registered with the local trade office (Gewerbeamt) of the municipality in which the business is located. This applies to every company regardless of its company form. Any application for entry into the commercial register must be submitted by a German notary in certified and electronic form.
A business license or permit is not necessary for registering the business with the local trade office in the majority of cases. For some business sectors, a permit or authorization might be required (e.g. insurance companies and manufacture of medicaments). Some business activities might require a craftsmen's card (Handwerkskarte). The German Trade and Crafts Code (Handwerksordnung) classifies business activities which require a craftsmen's card.
The trade office generally forwards the registration to the tax authority, the regional association of professional trading associations, and the Chambers of Industry and Commerce or the Chambers of Skilled Crafts. Chamber membership is automatic and mandatory.
III. Requirements for a Residence Permit
The German law does not require the managing director of a subsidiary or a branch office to permanently reside in Germany. Thus the managing director may stay abroad. In this case, if applicable, he/she might be asked to prove the ability to come to Germany at any time (e.g. valid passport, valid business visa).
Should the managing director with foreign nationality run the business on-site a residence permit for the purpose of self-employment is required. Foreign entrepreneurs are considered self-employed if they intend to hold positions such as: entrepreneurs (including freelance activities), managing partners or employed managing directors and representatives of a company's German branch office, executive board members of stock corporations, authorized signatories (Prokurist), senior executives with power of representation. This regulation does not apply to the nationals of the European Union, the European Economic Area, or Switzerland.
A residence permit for the purpose of self-employment must be applied in your home country before coming to Germany. A residence permit for the purpose of self-employment will usually be granted if at least EUR 250,000 is invested and at least five new jobs are created. Where these standard requirements are not met, a residence permit for the purpose of self-employment may nevertheless be granted. In such cases, the responsible local foreigners– registration office will assess the underlying business idea.
