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Company Expansion to Germany: Most Suitable Organizational Form

Given the increasing globalization of the business world and Germany’s position as one of the economic centres of Europe, company expansion to Germany represents an attractive opportunity for many foreign, internationally active companies to enter the lucrative German market. This development is further fueled by Brexit’s current political developments and the corresponding economic uncertainties in domestic markets.

If you are planning a company’s expansion to Germany, the first question to be asked concerning setting up a branch in Germany is how to choose the right organizational form. A distinction is made between establishing a subsidiary company and establishing an independent branch office or a dependent permanent establishment/representative office. The choice of the right organizational form depends strongly on your individual motives and goals associated with the expansion. For example, the planned length of your economic involvement in Germany, tax aspects, residence law aspects and bureaucratic burdens must be considered.

To gain a better overview of the various organizational forms and their respective advantages and disadvantages, these are listed and examined in more detail below. However, it should be noted that the following information does not replace individual legal advice tailored to your specific ideas and interests. For a comprehensive and detailed examination of your individual case as well as for competent advice, our lawyers at Schlun & Elseven Rechtsanwälte for Business Immigration, German and European corporate and commercial law and residence law will assist you with extensive expertise and many years of experience. We will accompany you on the way to establishing your company on the German market and beyond. Company expansion to Germany is achievable with the right legal support in your corner.

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The Subsidiary Company in Germany

The subsidiary company is a legally independent company with its own legal personality, in which the parent company holds a majority stake. It is established per the provisions of German company law. In this respect, the subsidiary company of a foreign parent company has a German legal form.

German company law makes a basic distinction between partnerships, general partnerships (OHG) and limited partnerships (KG) and capital companies, limited liability companies (GmbH) and stock corporations (AG). Foreign company founders are thus subject exclusively to German legislation. This applies in particular to the formation of companies, business registration and entry in the commercial register.

Advantages of the Subsidiary Company

  • German legal form facilitates commercial activity on the German market.
  • Domestic partners perceive companies as equal business partners.
  • Due to legal and organizational independence, entrepreneurial decisions can be made specifically for the German market.
  • Possibility of trading under its own name – independent of the parent company’s company name.

Disadvantages of the Subsidiary Company

  • High bureaucratic burden: Commercial register entry and business registration are necessary.
  • High economic effort: At least in the case of capital companies, the minimum share capital (AG 50.000,00 €/ GmbH 25.000,00 €) must be paid up.
  • Given the exclusive application of German law, there may be an increased need for legal advice.
  • Basically only suitable for longer-term commitments.

For more information on the different company organisational forms in Germany, please visit our page “Company Formation in Germany“.

The Permanent Establishment / Representative Office in Germany

As a dependent branch or subsidiary of the entire company, the permanent establishment is dependent on the company headquarters abroad. It may not run a separate trading name which differs from the head office – and invoices are issued in the trading name of the head office. The permanent establishment regularly carries out auxiliary transactions which serve to prepare, arrange or execute the main business of the foreign company. Consequently, a permanent establishment does not take part in business transactions independently. The head office and the permanent establishment therefore legally form a single business operation, which is merely physically separated.

An entry in the commercial register is not required. However, it is generally necessary to register a business at the competent trade office or public order office.

Advantages of Representative Office:

  • Low bureaucratic burden: registration in the commercial register is not required.
  • Fully subject to the law of the State of the head office
  • Suitable with regard to temporary commitment in Germany
  • No share capital required

Disadvantages of Representative Office:

  • Registration of the business with the responsible trade office / public order office required.
  • No independent business activity
  • Therefore less entrepreneurial flexibility with regard to the development of the German market.
  • No possibility of trading under a name that differs from the company name of head office.

The term “representative office”, often used in connection with the establishment of branches of foreign companies, has no basis in German trade and commercial law. Therefore, it is either a dependent permanent establishment or a domestic, external representative (e.g. commercial agent) is mandated, who acts legally independently for the head office and thus the operation of foreign companies on the German market is not applicable.

The Branch Office in Germany

The branch office is a kind of intermediate form between a company with its own legal personality and a purely permanent establishment. It is to a certain extent dependent on the company of the head office, but on the other hand the branch office takes part in business dealings independently.

The legal provisions of the branch office are defined in §§ 13 et seqq. HGB (German code of commercial law). The legislator deliberately refrained from defining the term branch office. However, it is generally described as a establishment separate from the head office, which carries out its own legal transactions for a temporary purpose – within the scope of the business activities of the head office – with a certain degree of organizational and factual independence vis-à-vis the outside business world. Despite this commercial independence, the branch office does not have the status of a legal entity and therefore cannot itself be the carrier of rights and obligations. In this respect, it represents a part of the company dependent on the head office without its own legal personality. It is therefore subject to the (foreign) law applicable to the head office.

The branch office must be organized in such a way that it could continue to exist if the head office were to disappear. In order to be independent, it must have its own management with freedom of disposition and its own business assets allocated by the main branch. In the balance sheet of the head office, the business transactions of the branch office are listed separately.

For a branch office to come into existence, it is sufficient that it is correctly established. However, it must be entered in the commercial register, whereby only German law applies to the registration procedure. However, entry in the commercial register has only declaratory effect.

Advantages of the Branch Office

  • Independent business activity
  • Is subject to the law of the head office from a legal and organizational point of view.
  • As a result, there may be less need for legal advice.
  • Low economic efforts: Although the legal status of an independent branch office requires its own capital resources, no minimum share capital is required.


  • High bureaucratic burden: Commercial register entry and business registration are necessary.
  • The trade name is basically the same as that of the head office, but can be extended by a clarifying addition (e.g. “Zweigniederlassung Deutschland”).
  • Basically only suitable for longer-term commitments.

Tax Perspective for Company Expansion to Germany

The forms of organization explained in more detail above may also differ from one another in individual cases with regard to tax law aspects. In principle, however, the profit of a company or its permanent establishment or branch office generated in Germany is also taxable in Germany. The actual tax burden then depends on the respective German legal form of the company or on the legal form with which the foreign head office most closely corresponds in its organizational structure.

In particular, income tax or corporate income tax, wage tax, business tax and value added tax (VAT) may be incurred.

The extent to which the amount to be taxed in Germany is either released from taxation in the state of the main establishment / head office or is again subject to taxation in that state, is determined in each individual case by the agreements for the avoidance of double taxation (DPA) which the Federal Republic of Germany has concluded with other states.

Permits (Concessions)/ Legal Issues relating to Foreigners

In Germany, any commercial activity of subsidiary companies, branch offices or permanent establishments must be registered with the competent trade office or public order office. If necessary, a separate permit/concession may also have to be applied for some areas of business activity. This applies in particular to the following areas of business: financial services, insurance, restaurants, travel and transportation, crafts, and brokerage.

In addition, questions may arise with regard to the management of branches by foreign natural persons from third countries (countries that do not belong to the European Economic Area (EEA) with the exception of Switzerland) with regard to the law on foreigners and in particular with regard to residence law.  German immigration law provisions on entry and residence must therefore be observed.