The branch is esentially an extension of a foreign company in Germany. This is a means of doing business that is often chosen by banks and other financial institutions but it can also be suitable for other types of foreign corporations.
Opening a branch in Germany is an option created for the entrepreneurs that wish to have a representative here, but without free liberty of action. A German branch is not considered a legal entity so the liability for its actions is taken by the foreign company. The name must be the same as the one of the foreign company, except that it has the termination “German division”.
Foreign companies can open a business in Germany in the form of a branch when they wish to retain a high percentage of control over their German counterpart. As described below, the branch is not essentially separate from the parent company, it will need to operate under the same name, and it will be subject to a number of limitations, among which the fact that it will perform only the same activities as the parent company.
- subsidiary companies that will be treated as domestic companies;
- branch offices that will be treated as extensions of the parent companies;
- representative or liaison offices that can be employed for marketing and prospecting purposes.
Out all business forms available, the branch office is suitable for foreign companies seeking to have full control over the activities of their satellite business in Germany.
All types of entities have their own advantages and disadvantages which can be explained by our company formation specialists in Germany.
Foreign companies setting up branch offices in Germany
In most cases, the branch office is employed for activities within the scope of the parent company. In other words, the German branch will not be allowed to conduct any other activity that the parent company’s operations.
The branch office is considered a permanent establishment in Germany, as it will have a registered office here. However, it cannot own assets in Germany.
When it comes to branch offices, Germany has a more complex business structure, as foreign companies can set up two types of such entities: the dependent and the independent branch office. The differences between the two forms are minor, yet very important in the decision-making process at an internal level.
The dependent branch office will depend entirely on the parent company and the management appointed in Germany cannot make its own decisions without the approval from the head office. The independent branch office, on the other hand, has decision-making powers with respect to its local activities in Germany. It can also have its own share capital and a bank account.
Another difference between the two types of branch offices is related to their accounting: the dependent branch does not have its own system, while the independent one does. Even so, the parent company will be liable for the obligations of both types of German branch offices. In case you need assistance for opening a branch office in another country, for example in Estonia, we recommend our partners - LawyersEstonia.com.
While in most European countries the branch office is mainly used by banks and financial institutions, in Germany, they can also be employed by businesses in other industries thanks to the independent type of branch.
If you want to open a company in Germany and decide for expanding your business through a branch office, you can rely on our officers for detailed information on how to choose between the two forms of this legal entity.
The following table summarized the characteristics of the branch and its main features. Investors can use this table to determine if the branch office is suitable for their business needs.
Lighter incorporation formalities
The branch office has to meet only a moderate set of incorporation formalities, compared to the GmbH for example.
Minimum operational requirements
The branch also has simpler requirements for management and control. For example, it suffices to appoint one individual as head of the German branch.
The foreign company is liable for the activities of its German branch.
The branch is subject to the local German tax laws for the profits derived from the country. Double tax agreements apply in case of branches.
Types of branches - presented by our specialists in company formation in Germany
Companies that wish to enter the market can choose between two types of branches that are available for registration in Germany: the independent branch office or the operational location. The latter is often called the depended branch office.
The independent branch office is essentially an extension or part of the foreign company but it can keep its own accounts. For this type of branch, its activities need to be identical to those of the foreign company. Although it performs the same activities as the parent company, it is not limited to merely observing orders and it is largely independent in terms of operating on the German market and it keeps its own books and other accountancy matters. Special licenses are necessary only in a few sectors of activities such as banking, investments, insurance, restaurants, transportation or telecommunication.
In terms of liability and commencing legal action, the German branch may do so via the main company. Nevertheless, if the reverse action is necessary, local creditors of the German branch can commence legal action against the branch in Germany. This type of branch is run by a manager who is entrusted to represent the parent company and observes the orders as needed. The mother company allots part of the company assets to the branch and also oversees that the German branch is properly equipped in order to conduct the needed activities.
The dependent branch officeestablished in Germany is one that is separated from the headquarter only by its location. Its actions are unified with the ones of the foreign company and cannot perform any activity independently. This is not an official business form that needs to be registered and the invoices for the activities in Germany are also handled by the head office (they are issued in its name). however, despite the very low requirements, this dependent branch office will need to issue reports about its activity with the Trade Supervision Office.
The representative office is an alternative to the branch, although more limited. It cannot engage in commercial activities; however, it can be used for marketing or search purposes. it is dependent on the head office and it is usually set up for the purpose of testing the market before opening a branch. During this premilitary step, the foreign company will set up its first contacts, perform a market analysis and other activities that will help streamline its entry on the market in a certain business field.
As mentioned in the table presented above, the branch is subject to taxation as a permanent establishment, in most cases. One of our tax specialists can give investors more details, including about the double tax treaties that may be of interest.
One of our agents who specialize in company registration in Germany can provide investors with more information on the independent or autonomous branch and the dependent type. What’s more, our agents will offer complete registration services irrespective of the chosen branch type.
Steps in registering a branch office in Germany in 2023
Just like in the case of a domestic company, the creation of a branch office in Germany will imply similar steps. These are:
applying for trading name reservation;
preparing the incorporation documents;
filing for Companies Register incorporation;
obtaining a tax identification number;
obtaining the business licenses required to operate.
Every company must open a bank account. Locally, it is known that it can be challenging for the procedure to be completed quite fast. It is best to start looking for a bank as soon as possible, so that when you are ready for starting a company in Germany, the first steps in having a bank account have already been taken. You can rely on our German company formation representatives for guidance in incorporating a branch office in 2023.
Opening a business in Germany as a branch office
Just like any form of business, it’s necessary to register the German branch in the commercial register (Handelsregister) before performing any activities.Therefore, the branch receives its own commercial register number, its own registration location and it is designated to a jurisdiction.
The necessary documents for opening a branch in Germany are the following:
- the notarized articles of association of the foreign company,
- the proof of registration in the foreign country,
- the name of the company and the registered address,
- the reasons why it was incorporated,
- the names of the directors (and the board of managers),
- details regarding the capital of the company,
- the address and objectives of the branch,
- the sum of working capital available in the branch office,
- the date when the decision of opening a branch was taken,
- the availability period of the branch,
- the name and addresses of the representatives,
- license (only in special cases).
The application for registration of the German branch must be signed by the foreign company’s representative in front of a notary and all the documents must be accompanied by an authorized German translation.
If several branches are opened, the applicant can select the commercial register of one district and send all the above documents for registration.
The Trade Supervision Office must also receive:
- proof of identity of the solicitant,
- the requested state permit,
- a residence permit (for the foreigners),
- proof of registration of the foreign company and its translation in German,
- the name of the local representative and its address.
In general, the registration of the branch is perceived to be simpler than the regular steps for company formation in Germany. Of course, this can depend on how fast the documents are issued and prepared by the foreign company representative as compared to how fast the Articles of Association are prepared for a newly incorporated business. One of our agents who specialize in branch registration can assist foreign companies that wish to enter the local market in this manner.
A branch office in Germany will have a designated manager who will handle the day-to-day activities and follow the instructions for conducting business as described by the head office. However, the individual appointed a branch representative will need to have a residence permit if he is not a German resident and not an EU member state citizen. This document is also required when the branch manager will be spending a longer period of time in the country. The residence permit is not mandatory when the individual retains his/her residency in another country and only travels to Germany for business purposes for a short amount of time. One of our agents can give you more details about the special requirements for the branch manager in Germany.
Special considerations related to branch office creation in Germany in 2023
When setting up a branch office in Germany at the level of 2023, there are several aspects to consider compared to the creation of a subsidiary or any other domestic business. The first one refers to the trading name of the branch which must be the same as the parent company’s name.
All documents for incorporation must be prepared by the parent company which must appoint a legal representative in Germany to complete the procedure.
Another important aspect of incorporation of a branch office in Germany is that it will be registered at a local level, meaning with the office of the Trade Register it will operate in.
At last, when it comes to business licensing, the parent company must apply for the necessary permits on behalf of the dependent branch office.
Taxation of branches in Germany
The tax treatment of a branch office will imply the levy of the corporate and other taxes imposed on all companies in Germany, however, the former will be taxed only on the profits earned in Germany.
The most important taxes levied on corporate profits are the corporate tax which is applied a standard rate of 15% to which a solidarity surcharge of 5.5% applies, thus the final rate is 15.825%, and the trade tax which is calculated based on the following formula:
- the trade tax applied at a rate of 3.5%;
- the municipal tax which ranges between 12.6% and 20.3%.
The trade tax is computed based on a combination of both levies.
Branch offices benefit from special tax regulations (exemptions and deductions) under Germany’s double tax treaties.
The following video created by our specialists in company formation in Germany presents the main characteristics of the German branch:
General information about investments in Germany
As mentioned, the branch is one of the two ways in which a foreign company can enter the German market. The alternative is to incorporate a subsidiary, which will be perceived as a separate legal entity from the parent company and will be treated like any other locally registered company. Investors can learn more about the differences between the branch and the subsidiary from our team of company formation agents.
Germany has a highly developed economy and it is one of the countries in the world with the highest nominal GDP. Below, we highlight some important facts:
-Exports: Germany is one of the largest exporters in the world, with 1.21 trillion euros in goods and services exported in 2016.
-Services: the services sector is one of the most developed, accounting for approximately 70% of the total GDP; it is followed by industry with 29.1%
Foreign investors can find multiple opportunities in Germany, both in the services sector and in other business fields. The decision to open a branch in the country, as opposed to other business forms, can depend on a number of factors, including but not limited to the foreign company’s involvement with its German counterpart’s activities.
Why open a branch office in Germany in 2023?
At the level of 2023, the German branch office is one of the best ways of expanding a business to Western Europe. Apart from having full control over it operations, this type of entity is suitable for companies in various fields.
If you are looking for the means to operate a branch office in Germany in 2023, you are in the right place, as our company formation agents can explain all the advantages of this business form.
Expanding a company in Germany through a branch office in 2023 is easy and quick, which is why you can rely on our specialists who can guide you.
In 2023, a 0.2% growth in real GDP is predicted. This is an improvement from the -0.6% forecast in the Autumn Forecast, mostly due to declining energy prices and the policy support for consumers and businesses that has improved the outlook for growth. Growth is predicted to pick up to 1.3% in 2024. The gradual adjustment of supply chains, reduced energy price inflation, and generally sound company finances and full order books should pave the way for a pick-up in investment growth in 2023.
For any other question you might have in regards to the establishment of a German branch for your business, please feel free to contact our local company formation specialists. We are specialized in offering qualified consultancy for foreign investors interested in setting up a company in Germany.
Marco Rössel is a Partner at Liesegang & Partner and an experienced Attorney at Law. He is specialized in commercial and corporate law and can help you open your company in Germany as fast as possible.
Call us now at +49 69 71 67 2 67 0to set up an appointment with our company formation experts in Germany. Alternatively you can incorporate your company without traveling to Germany.
As our client, you will benefit from the joint expertize of local lawyers and international consultants. Together we will be able to offer you the specialized help you require for your business start-up in Germany.