Branch of a Foreign Company in Germany
Many people confuse a branch office with a subsidiary and/or a representative office. A branch office is simply an additional registered “presence” in Germany – without establishing a new company here. When you found a subsidiary, you create a separate legal entity – another (legal) person with its own rights and responsibilities. A branch office is not a legal form of a company, but only a registered domestic representation. It does not have its own legal personality.
We distinguish between independent and dependent branch offices. The formal steps to open such a branch are described below. A representative office is the same as a dependent branch office.
Simplified Explanation
Imagine your company is based in the UK, and you want to do business in Germany. You have three options:
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Subsidiary:
You start a new company in Germany. This company is legally separate from your UK business. It has its own rights, responsibilities, and bank account. -
Branch office (Zweigniederlassung):
This is not a new company, just a part of your existing UK company that operates in Germany. You register it officially, but it’s still part of the original business.-
If it’s an independent branch, it has some freedom – like its own management or its own office – but it’s still not legally separate.
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If it’s a dependent branch, it’s more like a local office that depends fully on the UK headquarters.
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Representative office (Repräsentanz):
This is the simplest version – just a small presence for marketing or communication. It cannot make contracts on its own. In legal terms, it’s the same as a dependent branch.
What is needed to set up a branch?
That depends on the type of branch office you want to set up. We distinguish between dependent and independent branch offices. While a dependent branch office involves the least amount of bureaucracy, an independent branch office requires some official registrations.
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Isn’t it better to set up a company / incorporate?
The answer depends on how strong a presence you want to have in Germany – whether you're just looking to test the market or are planning to commit to long-term business activities in Germany. Keep reading.
You might ask: Shouldn’t I just start a company in Germany?
That depends:
- If you only want to test the waters, a branch office or representative office might be enough.
- But if you’re planning to stay and grow long-term, setting up a separate company usually makes more sense.
What are the advantages of opening a branch in Germany?
There are many advantages of opening a branch in Germany. We listed the most important advantages below.
- Simplified Setup and Lower Costs:
Establishing a branch is less formalized and involves fewer administrative requirements compared to forming a subsidiary. It does not require capital contributions, making it cost-effective. - Direct Control:
Headquarters retain full control over the branch’s operations, ensuring consistency in corporate policies and decision-making. - Tax Transparency:
The branch’s profits and losses are directly included in the parent company’s tax return, simplifying tax overhead. This will be true for a dependent branch.
Yet, the independent branch will be considered as a tax subject in Germany. It is imaginable that the independent branch might trigger taxation also at home. However, double taxation conventions exist that aim to prevent any double taxation.
§§§ - Access to Germany’s Robust Economy:
Germany boasts a stable economy, robuste infrastructure, and access to one of Europe’s largest consumer markets, including e-commerce.
§ - Government Subsidies:
Foreign companies may benefit from subsidy programs that support expansion into Germany.
§§ - No Separate Legal Entity:
A branch does not require independent registration as a legal entity, reducing administrative overhead.
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This sounds exiting. Are there any disadvantages?
There are just as many disadvantages of opening a branch in Germany, we listed the most relevant disadvantages below.
- Unlimited Liability:
The parent company is fully liable for the branch’s obligations, increasing financial risk.
§ - Lower Market Perception:
A branch may be perceived as less reliable or graspable in the German market compared to a subsidiary, potentially affecting customer trust and business relationships.
§ - Reduced Flexibility:
A branch is typically closely tied to the parent company’s directives, which may limit its ability to adapt to local market conditions.
§ - Complex Accounting Requirements:
Despite integration with the parent company’s accounting system, branches must comply with German accounting regulations, adding complexity.
§§§ - Taxation Obligations:
Profits generated by the branch might be subject to German taxation rules, which may differ from those in your country. It might lead to filing two annual closings: 1) at home and 2) in Germany – just like a subsidiary.
§§§ - Challenges in Managing Operations:
Operating a branch from abroad can present logistical difficulties and requires appointing a local manager who resides within Germany or the EU/EEA.
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Dependant Branch aka Representation
What determines a dependant branch?
A dependent branch will be just a local address for local communication while business is still made at home. It's roughly comparable to a domestic agent with the company's sign on his office's door.
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Where does this branch need to be registered?
It will only have to be registered with the local trade office
How is the tax rate for a dependent branch?
Zero. Nic. Nothing. Nada. Since business is conducted at home, there is generally nothing to be taxed in Germany. Its sole function is to represent the parent company. Business is transacted and invoices are written at headquarters. It's comparable to a phone in another room. The main exception will be for real estate.
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Independent Branch
What characterizes an independent branch?
An independent branch will be considered as a second office physically separate from the main office and managed by a local. It should be created as an additional, permanent center of operations from which not necessarily all the business of headquarters is conducted but pretty much all lines of the business. It might be that only regionally interesting parts of the business is done via the branch. It has its own management with a certain freedom of disposition, separate accounting for business transactions and its own business capital. Case law has summarized these requirements several times to the effect that the branch office must be organized in such a way that it could continue to exist as a separate trading entity if the main branch were to cease to exist.
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You mention a local must manage the branch? Who can this be?
The person's nationality is actually regardless for corporate purposes. Foreigners will need a residence permit to work for this branch. In any case, the branch's manager must have an address in Germany.
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What kind of visa is good enough for this position?
This depends on the person's current setup and what kind of work permit the candidate has. Usually, this is a straightforward question that the local person can ask us on our service number 09008 529 366 00 for € 2.99 / minute.
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Heck, we have a really strong presence in Germany with a lot of traffic. We write the company's invoices with the home address. Aren't we now an independent branch?
You are showing less then what is needed; you clearly describe a dependant branch.
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