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How to Establish branches or branch for your company in Germany

Establish branches or branch in Germany

For companies based abroad, an attractive way of expanding their business can be to set up a branch in Germany. While entrepreneurs from other EU countries have it easy – within the EU, the principle of free movement applies to them – setting up entrepreneurs for third countries (like from the Middle East and Africa) entails some formalities and considerations.

1. Possible forms of organization for branches in Germany

 If a company based in a non-EU country would like to set up a branch in Germany, there are several possibilities of organization:

Subsidiary: The subsidiary is majority-owned by the parent company, but organized as a company under German law (eg GmbH, OHG, KG). It is legally independent and has its own legal personality.

Branch: An independent branch has no legal personality and is part of a foreign company. The services largely correspond to the head office and there is both spatial and personal self-employment. For the foundation a trade registration certificate is required. A branch office must be entered in the German commercial register, whereby the actual existence of the company abroad must be proven by a commercial register extract plus a corresponding translation.

Establishment: A permanent establishment only accepts auxiliary transactions for the main company (eg pure production sites, agencies, external warehouses). The company has no legal independence and is completely dependent on the main operation abroad. It is not required to register a commercial register in Germany, but it is necessary to register with the relevant regulatory, trade or consumer protection office.

Representative office: This branch office is usually run by a self-employed entrepreneur (eg a sales representative). Typical are activities in the area of cultivating contacts or market research. This representation is legally completely dependent. The German trade regulations do not recognize this as a business enterprise, which is why no registration in the commercial register is necessary. However, the business registration is indispensable.

 

2. Process of business registration

 The business registration results in the establishment of a foreign branch office in Germany. It could be necessary for additional information to be provided, for example, residence permit data. In addition, of course, foreign companies must obtain the necessary permits, if they want to operate a licensed trade (eg restaurant license).

 

3. Management by a foreigner: residency requirements

If the business is to be managed locally by a foreigner, you should inform yourself in advance about the necessary formalities. Especially important are the following circumstances:

• Foreigners from EU countries: EU citizens only need a valid identity card or passport to enter. A residence permit is not required.

• Foreigners from a third country: If a foreigner from a third country is to take over the management of the company in Germany, he/she needs a special residence permit (AE). If he already has permanent residence in Germany or if he has an unlimited residence permit/right of residence or a settlement permit, he must only present a valid passport and possibly a confirmation of registration.

• Management from abroad: If the manager carries out the business from abroad, he does not necessarily have to have a place of residence in Germany. However, he may submit an application to the German embassy in his home country so that he can be granted a residence permit.
• Residence Permit for Representatives: Representatives are granted a dedicated residence permit for up to twelve months. However, a notarized declaration of posting by the main company domiciled abroad is required. It also checks whether the livelihood has been guaranteed for at least one year. For this a German account must be proven with at least 30,000 euro credits. An extension is possible in individual cases for a maximum of another six months. At the latest then, the company must transform the representation into proper cooperation, be it according to German or foreign law, or the representative will have to leave the country.

If there is no approval by the competent foreigners authority, self-employment is prohibited.


Assigned residence permit:
Comprehensive requirements

The Immigration Office issues a special residence permit for the management of the company for a maximum of three years. However, the following prerequisites must be fulfilled for this:

  1. Existence of an overriding economic interest or a particular regional need
  2. Positive effects on the economy
  3. Secured financing

The immigration authorities include further criteria in their decision, for example the professional qualification of the manager, the viability of the business idea, the amount of equity and the consequences for the labor market in Germany.

Taxation of profits from foreign branches

If a foreign company opens a permanent establishment or branch in Germany, the profits earned in Germany are taxable. In some countries, the amount must be re-taxed. The taxes already paid in Germany will then be taken into account in the double taxation procedure. In principle, the following taxes should be taken into account: