Determining whether to relocate to Germany entirely or open a branch office or a subsidiary in Germany is essential for your business. At Schlun & Elseven Rechtsanwälte, our corporate lawyers provide clear insight regarding which model – branch, subsidiary or representative office – may be suitable for your situation. Here is a brief outline of the differences between some of these different options.
The Subsidiary Company in Germany
Subsidiary companies under German law refer to legally independent companies with their own legal personality, in which the parent company holds a majority stake. The subsidiary company, therefore, has a German legal form. This German form allows subsidiaries to have a degree of independence when conducting commercial activity on the German market. Such independence will enable them to make entrepreneurial decisions specifically for the German market. However, there are risks involved, and pursuing the subsidiary model brings higher bureaucratic burdens such as commercial register entry and business registration. There are additional financial requirements for its establishment, as where a GmbH or an AG has been established, the minimum share capital (AG 50.000,00 €/ GmbH 25.000,00 €) needs to be financed. The subsidiary model is particularly suited to longer-term commitments in Germany.
The Branch Office in Germany
The branch office is dependent on having a head office, but it can take part in business dealings independently. The branch office is viewed as an establishment separate from the head office, but it carries out its own legal transactions for a temporary purpose. These activities must be within the scope of the business activities of the head office. The branch office has a certain degree of organizational independence from the head office, but it does not have the status of a legal entity. The branch office 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.
A branch office in Germany allows for independent business activity, and there are low economic efforts to establish it. However, it does have a high bureaucratic burden as it needs an entry into the commercial registry and business registration, and its trade name is the same as that of the head office.
The Permanent Establishment / Representative Office in Germany
The representative office is entirely dependent on the head office abroad. This establishment may not run under a separate trading name in Germany, and invoices are issued in the trading name of the head office. Consequently, it does not take part in business transactions independently. The bureaucratic elements are low for establishing a representative office as an entry into the commercial register is not required. There is also no share capital requirement for opening such an office.
The representative office is only suitable for temporary access to the German market, as it provides less entrepreneurial flexibility.