Legal forms of doing business for a foreign company in Germany

Legal forms of doing business for a foreign company in Germany

As an entrepreneur looking to expand into Germany, you may find that doing business in this country is more complicated than you first thought. To start off, you should familiarize yourself with the various legal forms required to conduct business in Germany for a foreign company. Additionally, you’ll need to be aware of the various taxes that you’ll be levied upon, and make sure you’re complying with all of the regulations that are in place. With the right resources and guidance, you’ll be able to successfully set up a business in Germany.

Branch offices

Germany is one of the most popular foreign investment destinations in Europe. Foreign companies have been setting up branch offices in Germany for years in order to take advantage of its strong economy and stable government. There are many reasons why businesses choose to set up a branch office in Germany:

  • Germany has a high level of infrastructure and business support.
  • The German market is highly competitive and highly regulated, which makes it a challenging and rewarding environment for businesses to operate in.
  • German companies are also highly valued in the global marketplace, making it a great place to do business. In addition, the country has a well-educated workforce, which makes it an ideal location for international companies looking to hire talent.
  • A foreign company looking to set up a branch office in Germany should take the time to research the market and carefully consider the different options available. By following the right steps, the process can be easy and successful.

Types of branch offices in Germany

There are two types of branches that a foreign company can set up in Germany – independent and dependent. An independent branch is a separate legal entity and is therefore liable for its own debts and obligations. A dependent branch, on the other hand, is not a separate legal entity and is therefore not liable for its own debts and obligations. The foreign company that owns the dependent branch is liable for its debts and obligations. Both types of branches are subject to German taxation law.

Independent branch office

The independent branch office is an extension of the foreign company, but it operates autonomously with its own accounts. This type of branch conducts the same business activities as the parent company. However, the independent branch is not restricted to carrying out orders and can largely act freely on the German market. The branch keeps its own books and is responsible for its own accounting. In a few sectors, such as investments, banking, restaurants, telecommunication, and transportation, special licenses are necessary.

Dependent branch office 

The branch office established in Germany is dependent on the head office in terms of location only. Its actions are unified with those of the foreign company, and it cannot perform any activity independently. Invoices for activities in Germany are also handled by the head office, which issues them in its own name. However, despite the very low requirements, this dependent branch office will need to issue reports about its activity to the Trade Supervision Office.

Subsidiary companies

A subsidiary company is a separate legal entity from the parent company, meaning it has its own management structure, share capital, and accounting system – but it can still operate under the parent company’s name. This is according to subsidiary laws in Germany. Having a subsidiary can be beneficial because it limits the financial liability of the parent company if something goes wrong.

As a business owner, it’s crucial to stay up-to-date with all the subsidiary accounting requirements for your company. For example, in Germany, the law states that businesses must register with their local tax office online using the Federal Central Tax Office‘s Form Management System (FMS). The tax office will use the information provided on the registration forms to determine how much tax the company owes.

Your parent company must allocate responsible persons to compile a resolution that outlines your intent to start a subsidiary in Germany. After the employer number is received, the next step is to register with the local Chamber of Commerce. Lastly, you will need to file an application for a business license with the local city government where your subsidiary will be located. If you do not want to deal with all these, you can decide to work with firms that carry out the whole process on your behalf.

Representative or liaison offices

The German branch of a company may commence legal action and be held liable via the main company. Nevertheless, if local creditors need to take reverse action, they can do so against the branch in Germany. Branches like these are run by managers appointed by the parent company. They observe orders as needed and are given a part of the company’s assets to manage. The mother company ensures that the German branch is properly equipped in order to conduct the needed activities.

The representative office is an alternative to the branch, although it is more limited in what it can do. For example, this office can’t perform commercial tasks but is allowed to market products. The parent company establishes its brand in Germany by testing various products before they are introduced into the German market. During this initial step, the foreign company will set up its first contacts, perform a market analysis, and engage in other activities that will help streamline its entry into the market in a certain business field. All of these activities are essential in helping the company have a successful start in a new market.

Open a dependent branch office or a subsidiary company in Germany with Workhy!

If you want to open a dependent branch office or a subsidiary company in Germany, Workhy is here to help with the legal processes and the necessary paperwork without requiring you to reside in Germany or travel there. The main idea behind this service is that it will allow you to start and run your business in Germany from anywhere in the world! Furthermore, after establishing a dependent branch office or a subsidiary company in Germany with Workhy, you can benefit from additional services your business may need, such as opening an online bank account, bookkeeping, VAT, EORI and IOSS applications.

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