Establish a real German Company, register a Branch Office or start with a mere Representative Office
If you want to sell your goods or services to Germans it is in most cases a huge advantage to be actually present in Germany. A German business address and phone number shows that you are seriously committed to doing business in Germany long term and thus builds trust with customers and business partners. But how to go about it technically?
I. Set up a real German Company
The most serious approach and biggest committment is, of course, to establish an actual German company, for example as a wholly owned subsidiary (affiliate) of an existing UK company. In most cases, the best choice will be a GmbH (German Limited Liability Company) or a GmbH & Co KG. The details are explained in these article here and here. If you are not quite ready for such a big step then there are the following two alternatives.
II. Register a Branch Office of an existing UK Company
Such a “Zweigniederlassung” or “Betriebsstätte” (place of business) is not a separate legal entity but a dependent office of an existing foreign company. Although the legal entity has its seat outside of Germany, the German branch (Betriebsstätte) is, of course, still subject to German legislation and – most importantly – German business taxes (Körperschaftssteuer, Gewerbesteuer etc.). Taxation depends on the nature and extent of business conducted there. The basic question is whether, and if so how much value is being created in Germany. These tax issues must be assessed professionally by a tax advisor with international experience. We will be happy to assist. You can find valuable basic information about German taxation on the official website of the Federal Tax Office (which is also available in an English version), see especially the section “Employer Obligations”.
When you open a business site – of whatever nature – in Germany you must (i) register with the local commercial register which is done through a German notary and (ii) submit a form “Gewerbeanmeldung” (business or trade notification) by which you notify the respective community about your business activities. For Munich, for example, the form is available here (please enter “Gewerbeanmeldung”) or download the form directly as pdf file here: Gewerbeanmeldung. In line 20 of the form you can see the three options: “We hereby report the establishment of [ ] a Head Office [ ] a branch office / subsidiary or [ ] a mere representative office.
Which brings us to the third – most timid – way to start business activities in Germany.
III. Register a mere Representative Office (unselbständige Zweigstelle)
This may be an option if you just want to test the waters and you want to be able to reason vis-a-vis German tax authorities that – at least for the time being – there is no real business being conducted in Germany, but you only use the representative office as a business delevopment vehicle, i.e. to attract German business for your foreign company.
Whether the tax authorities will accept this depends on an evaluation of the actual activities in Germany. They will not simply take your word for it but will request that you fill in a comprehensive questionnaire.
What it is all about is that German tax authorities want to tax an actual added value if such value is being created within Germany. Thus, if the site is to be found to be an actual “production site” (Betriebsstätte) where value is created (goods, are produced, services are rendered etc) then they will consider corporate tax to be due there. A production site can be, for example, one software programmer.
We advise a number of UK clients who have opened such an unselbständige Zweigstelle. They mostly have one employee (or a freelancer) who develops business, visits prospective clients, visits fairs etc. Please note that, to qualify as a mere representative office, all actual business must be done in/from the UK (contracts are entered into with the UK company, work is done in UK, invoices issued from the UK etc.). Thus – from a tax perspective – no taxable value is created in Germany. However, employee tax (Lohnsteuer, German PAYE) must of course be paid in Germany as well as social insurance contributions. Please note that due to statutory pension, health insurance and social security contributions the actual costs of employment are approximately 1.3 times the gross salary.
Please also note that an unselbstständige Zweigstelle (mere representative office) cannot obtain a German VAT-ID number, since it does not really trade. So if you wish to obtain a German tax number, in particular a VAT-ID, you must opt for a “real branch”. This will trigger the obligation to file annual tax returns in Germany, something a mere representative office is not obligated to do.
For an overview of German company forms see here.
The law firm Graf & Partners (Germany) has been assisting entrepreneurs and businesses with their international expansion to Germany since 2003. We also have a network of professionals in the areas of tax, IT, marketing and business consulting. Do not hesitate to contact us by calling German solicitor Bernhard Schmeilzl on +49 941 463 7070 or send an email to: mail [at] grafpartner.com. For non-legal work, we do recommend the service provider Friendly Germans Ltd. The British-German Consultancy Firm.