Setting Up a Subsidiary in Germany – 2024 Guide

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Deciding to expand into Germany can be a huge milestone for your business. It is one of the largest economies in Europe and the fourth-largest worldwide. Since it is a member of the European Union, it can give your business access to a large market of more than 500 million customers. 

Factors like a highly skilled workforce, well-established infrastructure, and a stable political environment make it even more attractive for foreign businesses looking to expand their operations. Moreover, this country is home to several leading companies and research institutions, opening up lucrative partnerships and collaboration opportunities.

However, you may find setting up a subsidiary in Germany complex if you don’t know the process and legal requirements involved. Here is a comprehensive guide covering every step involved in setting up a subsidiary in Germany, from choosing a legal form to registering with the Commercial Register and hiring employees. 

Steps to set up a Subsidiary in Germany

The process of subsidiary formation in Germany is explained below. Don’t worry if you find the steps overwhelming; experts like Start Company Formations are always available to help your business get incorporated quickly without any hassle. 

Choose an Appropriate Legal Structure

Company law in Germany offers several legal structures for establishing a German subsidiary. 

Gesellschaft mit beschränkter Haftung, meaning Limited Liability Company, is the most commonly used legal structure for corporations. The shareholders of a GmbH are not personally liable for the company’s debts. €25,000 of startup capital is required to set up a GmbH, €12,500 of which must be paid at the registration stage. 

Setting up a GmbH doesn’t involve restrictions on the number or nationality of shareholders. A supervisory board runs the company as defined in the Articles of Association. It may have one or more managers who don’t necessarily have to be shareholders.

You can also set up Unternehmergesellschaft (haftungsbeschränkt) – a Limited Liability Entrepreneurial Company. This smaller version of GmbH requires a share capital of less than EUR 25,000. It is also called Mini-GmbH. 

However, you must retain a quarter of your annual profit until you accumulate the amount equal to the minimum share capital of the regular GmbH. Converting the accumulated profit into share capital allows you to alter your Mini-GmbH into a standard GmbH. 

Another popular option is AG (Aktiengesellschaft, meaning Stock Corporation) – more suited for larger businesses involving more shareholders and registering the shares to Stock Market.

The factors you should consider before choosing a legal structure for your subsidiary include the business purpose, the desired size, the number of potential shareholders, and the level of liability involved. 

Reserve a Company Name and Address

After determining an appropriate legal structure, you must also reserve a name for your company. The name must be unique, something not existing in the German Commercial Register. You can confirm the availability of a business name on the Unternehmensregister website. If the name you have thought of is already taken, you must think of a different one. Moreover, registering your subsidiary will require an address or business domiciliation in Germany.

Draft and Notarize Articles of Incorporation 

Articles of Association represent your company’s identity. It defines your subsidiary’s organizational and legal structure, including information like the company’s purpose, shareholders, the total number and values of the share capital held by each shareholder, management structure, registered name, and office. 

You will also have to get the articles of incorporation notarized. For that, you must contact a public notary – an official who verifies the identity of people signing the articles of association and witnesses the signing act. 

Gather or Prepare All Other Founding Documents

Besides notarized articles of incorporation, you will require the following documents for registering your subsidiary in Germany.

  • Application for registration
  • A Document showing the management board structure
  • Visas of directors in case of foreign resident
  • Registered office address of the business
  • Proof of identity and Information on the shareholders and directors
  • Proof of Share Capital
  • Any other information as requested by the notary.

Open a Bank Account for Your Subsidiary 

You will need a bank account for your subsidiary in Germany to manage financial transactions. Different backs may have different requirements, so make sure you know what documents you need at the bank you want to associate with. This may include valid passports, company registration documents, proof of address, and a registered address for your subsidiary. 

Deposit the Share Capital

Once you have a bank account opened in your company’s name, you will have to deposit at least half of the minimum share capital requirement in that account. In the case of a GmbH, you must verifiably deposit EUR 12,500.

You can also contribute share capital in kind, like patents or real estate. Such a contribution has to be agreed upon in the articles of incorporation. A valuation report of the asset is a must to get the share capital accepted in kind. You will need a certificate verifying that the share capital in cash or kind was accepted to get your subsidiary registered.

Register with the Germany Commercial Register

To legally operate your subsidiary in Germany, you must register your subsidiary with the Commercial Register. 

As mentioned earlier in the article, registering a subsidiary in Germany as a GmbH requires you to submit notarized articles of incorporation and various other founding documents: application for registration, identification documents for the managing director, proof of share capital, etc. These documents must be submitted via a notary. This process is now usually carried out online.

Register with Other Authorities and Tax Office

You may also need to apply for a trading license from the local Office of Business and Standards. Then, you must get registered with the statistical office. They will send a questionnaire requiring your firm’s business data. Next comes the registration at the chamber of industry and commerce and the labor office.

Next comes the registration of your subsidiary for taxes with the local tax office. This involves getting a tax identification number, registering for VAT (if applicable), and setting up a payroll system.

Apply for Relevant Permits and Licenses

You may also need to apply for additional permits and licenses based on your business activities, like a trade license or a permit for construction. 

Hire Competent Employees

If you plan to hire employees in Germany, you must follow all applicable labor laws and regulations relating to appropriate working conditions, employee taxes, and social security contributions.

When you register with the labor office, you will get an operating number of eight digits that you must report for social security. Then, you can apply for the federal health insurance office.

Visa Requirements for Investors in Germany 

Individuals from the European Union (EU) and the European Economic Area (EEA) wanting to enter, stay or start a business in Germany don’t require a visa to do so. However, they must register with the local registration office if they start residing in Germany. The requirements may differ for Swiss nationals and British citizens after Brexit.

Non-EU investors need a visa to stay in the country and conduct business activities, including forming a subsidiary. The visa is usually for a short term that doesn’t exceed 90 days, which is enough if you are not interested in residing there for the long term and just want enough time to make arrangements for establishing a subsidiary. Working with our formation experts at Start Company Formations can speed up the process. If you want to stay in Germany longer than the short-term visa allows, you may need to apply for a residence or a settlement permit.

Frequently Asked Questions

How Much Time Is Needed To Set Up A Subsidiary In Germany? 

The time needed to form a subsidiary in Germany varies based on factors like the registration process’s complexity and the subsidiary’s specifications. Generally, getting your subsidiary properly registered can take around two to six weeks. 

What Are The Tax Implications Of Setting Up A Subsidiary In Germany? 

Your subsidiary must be registered with the German tax authorities and follow German tax laws. The tax implications can be determined according to the specific activities of the subsidiary and its tax residency status.

Is My Physical Presence Necessary If I Want To Set Up A Subsidiary In Germany? 

Physical presence may not be necessary because the process can be completed online. However, having a local legal advisor and representative helping you with the entire process can be helpful. 

 What about the Accounting and Financial Reporting Requirements for Subsidiaries in Germany? 

Subsidiaries in Germany are obligated to prepare yearly financial statements according to the German accounting standards (HGB). Larger subsidiaries may also be required to establish consolidated financial statements. You should talk to a local tax advisor and accounting firm to ensure complete compliance with financial reporting requirements.

What Are The Major Issues Of Setting Up A Subsidiary In Germany? 

Some main challenges of setting up a subsidiary in Germany include keeping up with the complex legal and regulatory environment, understanding tax and labor laws, and hiring the right talent and resources to support your subsidiary’s operations. But don’t worry about these challenges because Start Company Formations can help you navigate them. We have been working in this industry for years now. We can provide professional legal and business advice to ensure a successful setup process.