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Extending business to Germany

Extending business to Germany

Extending business to Germany

Legal analysis  

1. requirements for establishing a branch office or company in Germany

2. requirements for employment of workers in the German branch office/company



This guide was created according to laws valid as of 3rd November 2017. The guide was created according to the applicable Czech law, German law and relevant EU law.

The guide aims to introduce the advantages and disadvantages of establishing a branch office or independent company in Germany, along with the formal procedures for such establishment.

The second part of this guide aims to introduce the legal background and the procedure for employing a Korean (worker of korean company) in Germany and the legal background and the procedure for posting a Korean worker (worker of czech company) to Germany.

This guide is concluded with a brief summary and final remarks.


Table of contents


Foreword. 2

Table of contents 3

1. Establishing a company in Germany. 4

1.1 Main Characteristics of GmbH. 4

1.2. Formation of GmbH. 4

1.3. Costs of establishing a GmbH. 4

1.4. Pros and Cons of a GmbH and taxation. 5

1.5 UG: Limited liability entrepreneurial company. 5

2. Establishing a branch office in Germany. 6

2.1 Main Characteristics of a Branch office 6

2.2. Formation of a Branch office 6

2.2.a. An Autonomous branch office 6

2.2.b. A Dependant branch office 7

2.2.c. Necessary documentation. 7

2.3. Costs of establishing a Branch Office 7

2.4. Pros and Cons of a Branch office and taxation. 7

3. Employing a Korean worker in Germany. 9

4. Employing a Korean worker from the czech company in Germany. 10


1. Establishing a company in Germany

The major form of organisations are: Sole Proprietorship, Partnership (Civil-Law Association, General Partnership, Limited partnership), GmbH - limited liability company, UG: Limited liability entrepreneurial company and AG: Stock corporation. In accordance with the stated purpose, emphasis shall be put upon a GmbH company, as it provides for limited liability and is the most common kind of company.

1.1 Main Characteristics of GmbH

GmbH is the simplest form of a capital company that can be set up for any admissible purposed. GmbH is composed by capital amounts and not by the combination of persons and in general only the company itself is liable. The Shareholders’ agreement determines the share capital. The minimal capital required for setting up the GmbH company is 25.000 EUR. Nationality and residence of the shareholders and of the managing directors of GmbH are irrelevant. GmbH is regulated by the Act on Limited Liability Companies (Gesetz betreffend die Gesellschaften mit beschrankter Haftung).

1.2. Formation of GmbH

Firstly, Articles of Association must be drafted and include the following mandatory content: Share Capital, Shareholders and Respective Shares, Business Name, Registered Office, and Company Object.

Secondly, the Articles of Association must be notarized. If the persons acting before the German notary are not fluent in German, German law requires that the notary’s appointment be translated and sworn by a translator.

Thirdly, the Share capital must be paid - it is necessary to open a company account at a German bank, at least 50 % of the minimum capital must be paid (that is 12.500 EUR).

Fourthly, the company is registered with Commercial Register (the official Commercial Register is located at the local court), which is done by the notary after receiving a bank notification that the share capital has been paid. Application form for the registration must be signed by the managing director personally in front of a notary public (power of attorney is not possible) and must be notarized. Entry in the official commercial register will take between 3 to 7 weeks. Registration is required before taking up commercial activities. All persons acting on behalf of the company are personally liable for debts resulting from transactions carried out on behalf of the company before registration.


Finally, the company must register itself in a special register for business activities (Gewerbeanmelding), with the Chamber of Commerce (IHK) and with Tax Authorities.

1.3. Costs of establishing a GmbH

·         Registration costs (notary): apx. 500 EUR (can be reduced if standard Articles of Association are used)

·         Fees for Registration in Commercial Register: apx. 250 EUR

·         Fees for Registration in Special Register (Gewerbeanmelding): apx. 30 EUR

·         Yearly payment to local Chamber of Commerce: apx. 250 EUR/year

·         Translation costs: apx. 800 EUR

·         + legal fees

The costs of establishing GmbH should be less than 2.000 EUR, not including the mandatory share capital of 25.000 EUR

1.4. Pros and Cons of a GmbH and taxation

When choosing the legal form of the company, a corporation is usually the best option for larger, established companies. Corporations are liable to corporate income tax, trade tax and solidarity surcharge. The average tax burden is less than 30 percent. In some regions, due to a locally variable rate of trade tax, it is under 23 percent.

The German limited liability company (Gesellschaft mit beschränkter Haftung, GmbH) is the most widely used legal form for corporations. It combines high flexibility with relatively few obligations and ensures that the liability of the company is generally limited.

The disadvantages are mainly higher costs of establishing the company, that the founder of the company must be physically present for signing in the Notary office, and in some cases the corporate taxation rate. Also, the company will fall under the jurisdiction of German courts and German law (of incorporation, tax law etc.).

1.5 UG: Limited liability entrepreneurial company

The Mini-GmbH (Unternehmergesellschaft UG, haftungsbeschränkt) is not a separate legal form of company, but a GmbH which has a minimum capital of less than EUR 25,000 and where cash subscription is required. This means that it is possible to set up a company with limited liability in Germany with capital of only EUR 1.00.

In order to compensate the initial absence of capital the company has to retain a quarter of its annual profit until it has accumulated the minimum shareholder capital of an ordinary GmbH (which is EUR 25,000). The accumulated capital can then be converted into share capital and the Mini-GmbH altered into a standard GmbH.

The pros of this type of company is the lower required share capital and the costs for establishing an UC are lower. However, ¼ of the yearly profit must be accumulated, this kind of company is meant to transform to GmbH eventually (it is quite convenient for start-ups), which will require additional costs.




2. Establishing a branch office in Germany

In Germany, there are two kinds of branch establishments which primarily differ due to the degree of the independence from the head office company: Autonomous Branch Office and Dependent Branch Office.

It is necessary to take into consideration that German authorities strictly control whether the business conducted by the branch fulfils it legal definition, in order to ensure that the law is not being circumvented and when it is circumvented, the authorities can issue substantial fines.

2.1 Main Characteristics of a Branch office

Any foreign company with a head office and registered business operations outside of Germany can establish a German branch 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. In general, a branch may sue or be sued only through the main company. However, by virtue of its local presence the German branch office of a foreign company can have action taken against it by local creditors through the local judicial systém.


A dependent branch office (unselbständige Zweigniederlassung) is a subordinate department of the head offce company and does not have any autonomy from it. It focuses on maintaining contacts and initiating business in Germany. The dependent branch office is not able to independently participate in the general business transactions of the head office. It performs support and implementation-related tasks without having any individual business discretion and is entirely dependent on the head office. Invoices have to be made out in the name of the head office company. An individual company name cannot be used.

The autonomous branch office (selbständige Zweigniederlassung) fulfills tasks that exceed mere implementation and support-related tasks. It is dependent upon the head office company at the internal level but engages in business activities independently. However, the foreign head office company is liable for the business transactions concluded by the branch. At the organizational level, autonomous branch offices are to a certain extent independent from the parent company and usually have Management with freedom to act according to their own judgement (i.e. with full power of attorney and power to contract), own capital resources and bank account and Separate accounting. An autonomous branch office can use its own name affix but the company name of the head office must also appear including its legal designation (for example: korean Ltd. company, branch office, Dresden).

2.2. Formation of a Branch office

2.2.a. An Autonomous branch office

Foreign companies can set up an autonomous branch office in Germany if they are entered in a foreign commercial register (or a comparable directory). The decision to establish a branch office must be made by the managing directors of the head office. The autonomous branch office must be entered in the commercial register and registered with the local trade office.

The application for registration in the commercial register must include detailed information on the foreign company and generally be accompanied by a notarized copy of an excerpt of the commercial register showing the existence of the foreign company and the power of representation of the managing director(s) and the management board as well as from memorandum and articles of association. All documents should be in German certified translation and the notary’s certificate must be authenticated.

Due to the harmonized EU Law, the documentation effort for European companies is fairly modest. For non-European companies it can be extensive, the exact details depending on the foreign company’s residence. The application must be certified and submitted by a notary.

The autonomous branch office must be registered in the trade office before business operations are started. A business license or permit is generally not necessary for registering the business. Only for some business sectors, a permit or authorization may be required (banks, restaurants, hotels, bars, insurance companies, passenger transportation lines). Trade office registration must be submitted on commencement of business at the latest.

2.2.b. A Dependant branch office

As a dependent branch office displays no autonomy vis-à-vis the head office of the company, it is not entered in the commercial register. The only formal requirement for a dependent branch office is registration with the local trade office, for which certain documentation on the foreign company is also necessary.

2.2.c. Necessary documentation

To register a branch, evidence of the existence of the parent has to be provided, as well as certified copies of the Articles or Statutes, the names of the directors, the share capital, the registered office, and the names of the representatives who will act for it.

Among the documents needed are a certified copy of the charter, statutes or memorandum and articles of the company, or other instrument constituting or defining the constitution of the company, copy of the certificate of incorporation of the company, 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, and copies of the latest accounting document Various documents will need to be translated, including: the parent company's registration certificate, the company's articles of association, the names of the company's directors and secretaries.

2.3. Costs of establishing a Branch Office

While the costs of the Registration with the Local Chamber of commerce are not generally more than 250 EUR, the costs for the translation of all necessary documents can be quite high.

2.4. Pros and Cons of a Branch office and taxation

The advantage is that a branch is not subject to the same disclosure requirements as a subsidiary.  In a start up situation, a branch has the advantage of letting the foreign investor offset German source start-up losses against home country taxable income, depending on the home country’s tax system.


The disadvantages is that a subsequent conversion of the branch into a German corporation  typically results in gain recognition, particularly for goodwill.


Moreover, A branch office has no independent or separate legal personality distinct from the head office itself. In legal and organizational terms, it is part of the head office business and is thus subject to the law governing the head office. In this context, the foreign head office company is fully liable to the extent of its own assets for any claims creditors might assert against the branch office. Any obligations or debts incurred by the branch office are also legal responsibility of the foreign company.


Branches of foreign companies often have more difficulty in obtaining bank accounts in Germany. Clients and customers may be less keen to do business with a branch of a foreign company. [1]The representatives of the branch may be held jointly and severally liable for tax debts. The financial statements of the parent must be lodged at the Trade Register. The obligations of the branch are the same as those of the parent, including filing VAT returns, employee returns and corporation tax returns - meaning that there are few savings in administering a branch. If the company is to sign contracts in front of a notary on a regular basis, there is quite large administrative burden (in this case it is more convenient to establish a new company).


As to the taxation, a branch office is subject to taxation in Germany if it is considered as a permanent establishment according to the applicable double taxation agreement (DTA). An autonomous branch office is generally regarded as a permanent establishment, whereas a dependant branch office is only ever considered a permanent establishment under certain conditions. A German permanent establishment of a foreign corporation is taxed in Germany according to German taxation rules for corporations (corporate income tax, solidarity surcharge and municipal trade tax).

Mgr. Natalie Vlachopulosova




[1] That is apparent from a number of German articles.