Expansion possibilities for foreign companies in Germany
Organisational forms and conditions applicable to establishing a business
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 legal form. 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.
When a subsidiary is established, a legally independent company is formed. The subsidiary trades under its own name and prepares its own balance sheet. 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)
- 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 flexibility with relatively few obligations. We have gathered more information on choosing the right legal form here. The Investment Guide to Germany published by Germany Trade & Invest should be regarded for further information regarding legal forms and registration requirements.
Subsidiaries must be registered in the local Commercial Register and with the competent trade office. Registration in the Commercial Register must be in a legally certified form. More information about registering with the Commercial Register can be find here.
2. Autonomous Branch Office
Autonomous branch offices are intermediate between forming an independent company and simply forming a division of a company. A branch office would typically on the one hand be dependent of the company, and on the other hand have a certain degree of autonomy.
The branch office is described as an office that is spatially separate from the main branch, and which was created as an additional, long-term focus of the business. While it cannot conduct all the business of the main office, it does conduct the type of transactions which characterise and form the essence of the business. The independence, which the branch office must demonstrate, comes from it being spatially separate and having its own management with a certain freedom of authority, possibly its own accounting, its own balance sheet and its own business assets.
The criteria of an autonomous branch office are:
- Dealings of a branch office (i.e. activity of a certain duration must be involved and the dealings must in essence correspond with those of the head office; in particular, no merely subordinate auxiliary and executive dealings must be involved);
- Spatial independence of the branch office (e.g. its own bank account, separate bookkeeping, not necessarily, however, its own assets);
- Independence of the branch office in terms of human resources (i.e. the head of the branch office must strictly be authorised to represent the branch office autonomously during legal transactions).
The founding of a branch office becomes effective through the actual procedure of its establishment in accordance with the indicated criteria. A business registration certificate, along with entry in the Commercial Register, is required; German law applies during the registration process. The application must be certified and submitted by a notary. The process of registering with the Commercial Register is described below in more detail.
The name of the branch office can be exactly the same as the main office. The addition of appendices ("German Office" or "Hamburg Branch" etc.) is, however, permitted. An appendix is required where a power of attorney pursuant to § 50 clause 3 of the German Commercial Code (HGB) is to be restricted to the operations of a branch office with effect to third parties, or if, in the location in which the branch office is established, a company with the same name is already registered.
3. Dependent Branch Office (permanent establishment)
Permanent establishments are additional branches of the enterprise as a whole, which are set up as business premises but are dependent upon the head office abroad. Therefore, they do not constitute independent branches, and as such are not permitted to trade under any name other than that of the head office. The permanent establishment performs auxiliary dealings that serve the purpose of the preparation, brokerage or execution of the foreign enterprise's main dealings.
- Manufacturing sites, with no sales,
- Points of storage, receipt and shipping,
- Mere points of brokerage,
- Sales points without their own purchasing.
Dependent offices are not entered in the Commercial Register. However, each site must be registered in the Business Register. This process can be done in our Chamber of Commerce, via the Point of Single Contact, or at the appropriate trade office.
The term "representative office" is often associated with establishing branch offices, particularly by foreign companies. However, the term is not known by German commercial and trade law.
The company’s office in question in Germany is either itself commercially active as part of the main office, in which case it is a dependent permanent establishment (as described above). It would then have to be registered under commercial law.
Alternatively, the company opens an office which is managed by an external, independent businessman (e.g. a commercial representative) who has been instructed accordingly. In this case, the company is not conducting independent commercial operations in Germany.
Business registrations and special approvals
Registration of business is required for commercial activity in Germany. Under some circumstances, additional licences are required. We have listed these activities here.
Not all businesses must be registered with the Commercial Register, but all businesses must be registered with the Business Register.
1. Entry in the Commercial Register
Subsidiaries must be registered in the local Commercial Register. Registration must be in a legally certified form. The process is handled via a notary.
When registering an autonomous branch office, an application for entry in the Commercial Register must be made directly to the court in the district in which the branch office is located. Registration of the branch office of a foreign company will then be handled as it if were a main office.
When registering, evidence of the existence of the company as such must be presented and, if the company's purpose or authorisation to trade in Germany requires a licence, evidence of this should also be provided. Registration should also include the branch office's address and purpose. The registration should also state:
- The register in which the company is maintained and the registration number provided legislation in the country in which the company has its registered office provides for a register entry;
- A certified and translated copy of the statutes/articles of association;
- The company's legal form;
- The company's trading name and corporate headquarters;
- The persons authorised to represent the company legally and out of court for the company's branch office activities, stating what authorisations they have.
Permanent establishments do not need to be entered in the Commercial Register. Business registration is sufficient in this case.
2. Business registration
The commercial activity of subsidiaries, branch offices or permanent establishments in Germany must be registered, according to German commercial law, with the responsible trade office. As mentioned above, the process of registration can be handled via our Chamber of Commerce, or online via the Point of Single Contact.
In the process, the following documents must be presented to either of the mentioned competent authorities:
a) Concerning the applicant
- Proof of identity by means of identity card or passport + certificate of personal registration;
- Proof of authorisation to act on the part of a third party where applicable;
- For managing director, board or individual with power of attorney: extract of the company's entry in the Commercial Register;
- Licences where applicable (e.g. handicrafts trading permit, estate agency operating licence etc.).
Foreign nationals must present a residence permit issued by the competent foreigners’ registration office which includes an authorisation to be self-employed.
b) Concerning the enterprise
- A company entered in the Commercial Register must provide evidence of this by means of an extract from the Commercial Register;
- A translation of any documents from foreign commercial registers must also be provided;
- Foreign companies are required to produce a power of attorney for Germany as well as an address in Germany. An individual with power of attorney in Germany must produce an authorisation in his own name.
Note: You can also register your business at the Service Center at our Chamber of Commerce (Opening hours: Monday to Thursday from 9 a.m. until 4 p.m. and Friday from 10 a.m. until 3 p.m.). We recommend that you get in touch with the Service Center beforehand: Tel: 040/36138-138). The whole process can be also initiated via the Point of Single Contact.
According to German law, business registration as such does not yet provide entitlement to commence commercial activity if a special permit (a catering concession, for example) or entry in the register of qualified craftsmen is required. Therefore, if necessary, the corresponding approval must be applied for with the responsible authority or a trade association under public law before the activity is commenced.
Note: Clarify potential approval obligations with the Chamber of Commerce first. You find more information on potential obligations here.
Requirements under immigration law for foreign company principals
If the German subsidiary or branch is going to be managed by foreign nationals in Germany, a valid passport for the business registration and, if necessary, confirmation of application for the business registration is sufficient in the case of EU citizens and citizens of countries of the European Economic Area (EEA).
For arrival and residence, state nationals from non-EU states (third states) require a valid and recognised national passport, as well as a residence permit in the form of residence approval in order to carry out an independent activity. This approval will be granted by the foreigners’ registration office for duration of three years maximum, and only on request upon fulfilment of the following pre-requisites:
- economic interest or a regional need;
- prospect of positive effects on the economy;
- verified funding.
To be taken into consideration at the same time: what effects on the training and employment situation in Germany can be expected; whether the underlying business concept is sustainable and how high the capital expenditure is; and the professional qualifications of the company principal / applicant. Applicants aged 45 and above must, in addition, provide evidence of appropriate old-age provision.
Applications for a residence permit must be submitted to German Embassy or Consulate in the applicant’s home country. Nationals of New Zealand, Australia, Japan, South Korea, Israel, USA and Canada don’t need entry visa and can apply for a residence permit at local foreigners’ registration office.
Employment activity is not deemed to take place if the person in question maintains their usual residence abroad and merely conducts meetings or negotiations within Germany, provided the total stay does not exceed three months within one year.
Note: State nationals from third states wishing to travel to Germany in order to commence activity as representatives of a foreign enterprise will receive, from the responsible foreigners’ registration office, a purpose-related residence permit for a maximum of 12 months.
The pre-requisite for this is the written, accredited statement of delegation by the foreign parent company and provision of a subsistence allowance for the representative for 1 year. Currently, for this purpose, proof of a sum of 30,000.00 Euros on a German bank account must be provided. Upon expiry in the justified individual case, the residence permit can be extended by a maximum of 6 months at the discretion of the foreigners’ registration office. Upon expiry of the total of 18 months at the latest, the foreign head office must declare to the local foreigners’ registration office whether or not it would like to take part, with all rights and obligations, in local business life. If no transformation of the representative office into a company according to German or foreign law is desired, the residence permit for the representative will not be extended; the latter will be obligated to leave the country. If the transformation of the representative office into another legal form is desired, a decision must be taken concerning the change of purpose of the representative's residence permit hitherto, according to the stipulations of the German Residence Act.
Note: More information can be obtained from the German foreign representations.