Business entities in Germany in 2023
Healy Consultants Group will assist our Clients to select the business entity that is most conducive to their business needs. There are several ways to set up a business in Germany, the most common being the limited liability company (GmbH). Alternatively, our Clients may choose to set up a German public limited company (AG), while many of our multi-national Clients may also choose to register a branch office.
The German Limited Liability Company (GmbH)
LLC formation is the most common way to start a business in Germany. This type of company is most often used by international businesses setting up a German subsidiary and has traditionally been used by entrepreneurs to set up their small businesses. This entity faces no business restrictions and can be incorporated in any sector of the economy;
In order to set up an LLC, our Clients must i) appoint one shareholder and one director ii) deposit a minimum paid up share capital of €25,000 in the corporate bank account and iii) enter the company in the German Commercial Register;
Best for entrepreneurs – the UG limited liability company (mini-GmbH)
The UG company allows entrepreneurs to put less capital at risk when setting up a business in Germany, as there is no minimum share capital requirement for this form of company. Instead, 25% of the company’s profits must be contributed to its reserves each year until those reserves sum up to a total €25,000, at which point the company converts to a standard GmbH. This means that less capital is at stake until the business is successful and generate profits, reducing our Client’s risk and decreasing the cost of capital.
Healy Consultants Group recommends the UG to entrepreneurs who are trying to set up a business in Germany. The UG has earned the nickname “mini-GmbH” thanks to having the same limits on its liability and no restrictions on the business it can undertake, while removing the requirement of having €25,000 in share capital. Businesses with more than 3 shareholders may not use the UG and must instead incorporate a GmbH.
The German Public Limited Company (AG)
This entity is recommended for businesses planning to receive investment from outside or listing on a stock exchange, thereby requiring easy transferability of shares. German public limited company setup requirements stipulate an increased minimum share capital of €50,000. The incorporation and management of an AG also involves more bureaucratic requirements and red tapes.
GbR (Gesellschaft bürgerlichen Rechts)
This flexible business model is equivalent to a civil partnership, which is the simplest form of partnership. Such type of company can be formed either by an individual or through a contract agreed upon by two or more persons. GbRs have limited legal capacity which are listed in the German Civil Code (BGB 705).
Limited partnership with an LLC as general partner (GmbH & Co. KG)
This form of business entity is a combination of an LLC and an LP. The LLC is appointed as the sole general partner of the partnership. The limited partners are only liable to the extent of their registered holdings. As a result, this entity combines the advantages of a partnership and an LLC.
Subsidiary (Tochtergesellschaft)
A subsidiary company in Germany has an independent legal personality from its parent company. Nevertheless, it is pre-dominantly held by its parent company with its legal liability accruing to the parent company itself. This form of business entity is legally incorporated in Germany either in the form of i) a German LLC (GmbH) or ii) a German stock corporation (AG).
A German subsidiary must fulfil its paid-up share capital requirement and its managerial and accounting activities can be conducted independently. Moreover, it can autonomously sign contracts, hold assets and conduct business in Germany. It is an obligation for a German subsidiary to pay its corporate tax, trade tax as well as the solidarity surcharge under the German Corporate Law.
A subsidiary must register its name with both the Commercial Register and the local Trade Register in Germany.
Dependent Branch (unselbständige Zweigniederlassung)
This type of business branch is completely dependent on the head office and does not have an autonomy. The parent company also manages the central administration of a dependent branch. When trading, the dependent branch must always use the name of the parent company. However, it is mandatory for every dependent branch office to report its business activities to the local Trade Register in Germany.
Dependent branch companies are generally used for marketing and research activities as well as initiating business in Germany.
Dependent branches are not entered into the Commercial Register, but details about the entity can be found in the Business Registry.
Autonomous Branch (selbständige Zweigniederlassung)
- An autonomous branch office is a part of the parent company that is permanently separated from it both in terms of geography and internal proceedings;
- This structure can independently perform its operations in Germany within the confines of the head office’s scope of business. Moreover, operations of an Autonomous Branch Office are not limited to support and implementation activities;
- An autonomous branch can use its own name whilst conducting business in Germany;
- It is entitled to have its own management team; bank account and capital resources as well as a distinct accounting register separate from its parent company;
- However, the liabilities of the branch accrue to the parent company, since it is not an autonomous entity and remains an integral part of the parent company.
Comparison table between a Subsidiary, Autonomous BO and Dependent BO
Subsidiary Autonomous Branch Office Dependent Branch Office Establishment of a new legal entity? Yes No No Legal presence GmbH, AG etc Registration of a German physical presence Registration of a German physical presence Founding and organisational formalities GmbH - moderate;
AG - lowModerate Low Registration authority Commercial register of Germany Trade Register of Germany Trade Register of Germany Let us know if you need Healy Consultants Group’s assistance to setup a Subsidiary or a Branch Office in Germany for your company.
Independent Commercial Agent
- Representative offices are not recognized under German law; instead, foreign firms hire an agent who will work independently;
- The actions of agent are not the actions of the parent firm, so our Client does not need to register with the German Commercial Register.
General Partnership (OHG)
- This is an association between two or more people wherein all partners carry unlimited personal liability for the debts of the business;
- Business entities can enter into a general partnership; the formed entity will be GmbH & Co. OHG.
Limited Partnership (KG)
- This differs from OHG with respect to the partner’s liability. One or more partners enjoy limited liability, while there must be at least one general partner with unlimited liability;
- The names of the limited liability partners must be registered in the Commercial Register for legal purposes.
European Stock Corporation (SE)
Two or more existing companies in different EU states may merge to create a European Stock Corporation. This allows them to do business across Europe with just one vehicle, rather than setting up a network of subsidiaries. The combined entity requires share capital of at least €125,000.
Comparison of German company types
Germany LLC German AG Autonomous Branch How long to set the company up? 5 weeks 4 weeks 3 weeks How long to open company bank account? 4 weeks 2 weeks 2 weeks Legal Liability Limited Limited Unlimited Wholly Foreign owned Yes Yes Yes Minimum Initial capital 25,000 50,000 0 Corporate Bank Account Commerzbank Commerzbank Deutsche bank Tenancy agreement required before incorporation Yes Yes Yes File annual tax return Yes Yes Yes Managing Director need to travel? Yes Yes Yes Resident director required No No No Resident shareholder required No No No Minimum directors allowed 1 1 1 Minimum shareholders 1 1 0 Germany company secretary required No No No Corporate shareholders allowed Yes Yes Yes Corporate director(s) allowed No No No Public register of shareholders and directors Yes Yes Yes Allowed to trade on Stock Exchange No Yes No Bearer Shares allowed No Yes No Germany Corporate Tax Rate 15.825% 15.825% 15.825% Company tax payable on? Worldwide Income Worldwide Income Germany based Income Annual financial statements required Yes Yes Yes Statutory audit required Yes Yes Yes Tax exempt free zones available 4 4 4 Withholding Tax on Dividends without DTA 0.26 0.26 0 Withholding Tax on Dividends with DTA 5% - 15% 5% - 15% 0 Allowed to issue sales invoices Yes Yes Yes Allowed to sign contracts Yes Yes Yes Allowed to import and export goods Yes Yes Yes Must appoint a Supervisory Board No Yes No Must rent an office in Germany Yes Yes Yes Can buy German property? Yes Yes Yes Can own equity in other German companies? Yes Yes Yes Estimate of engagement costs € € € Germany company incorporation fee 4,950 5,830 6,340 Average total Germany business setup costs 14,090 11,320 12,680 Average annual costs including accounting and tax fee 13,050 7,055 7,567 Sample engagement fee invoice View invoice PDF View invoice PDF View invoice PDF
