Company Set Up

Corporations like the GmbH based in Germany or with an executive board in Germany are liable to corporate taxation on globally generated income. Setting up a GmbH is easy and uncomplicated and can be accomplished in just a few steps.

Five-step formation process

In order to establish a GmbH in Germany, at least one shareholder (private individual or legal entity) is required. The nationality and residence of the shareholder(s) and the managing director(s) of a GmbH are irrelevant. However, the GmbH must have a German business address and a local representative. 

The involvement of a German notary is required for the incorporation of a GmbH.

Certain documents are required for the incorporation of a GmbH. Typically, the notary will ask for documentation verifying the existence of any parent company as well as the power of representation for persons acting on behalf of it. In general, an excerpt from the foreign commercial register as well as articles of association of the foreign parent company are required.

Please note that specific requirements regarding authentication and translation apply subject to the legal form and origin of the foreign company. It is advisable to consult a German notary at an early stage for individual advice.

Online establishment

Online establishment of a GmbH is possible under certain conditions. The online estabblishment procedure is applicable to company formations with cash and non-cash contributions. Exempted is the contribution of objects whose transfer itself is subject to notarization (e.g. real estate or shares in a limited liability company).

The online notarization takes place in a video conference between the notary and the parties involved. The German Federal Chamber of Notaries provides a video communication system with a two-step identification procedure that requires an electronic proof of identity (eID).

The following eIDs meet the current requirements for secure identification within the online formation procedure:

• German national ID cards with eID function (for German nationals)
• German eID cards (for EU/EEA citizens)
• German electronic residence permits with eID function (for nationals of third countries)
• Electronic identification schemes issued by another EU/EEA member state in accordance with the eIDAS regulation and a corresponding high assurance level.

The signatures required for the incorporation are obtained by means of a qualified electronic signature.

Articles of association

The articles of association shape the identity and constitution of the company. Thanks to the large scope for contractual design, the GmbH is a very flexible corporation form. Mandatory content includes share capital, shareholders and respective shares held, business name, registered office, and company purpose.

For a standardized formation of a GmbH, model articles of association (for set-ups by cash subscription with a maximum of three shareholders and one managing director) are provided. These articles must still be notarized, but for a reduced fee. In addition, sample deeds are also provided by the chambers of industry and commerce (Industrie-und Handelskammer, IHK).

Share capital of a GmbH

The GmbH requires a minimum share capital of EUR 25,000. At the time of registration, at least half of the minimum capital (i.e. EUR 12,500) must be actually and verifiably contributed on a bank account. The capital is not a deposit and, to a certain extent, can be used for the company’s business operations.

The share capital can also be contributed in kind (e.g. real estate or patents). A contribution in kind must be agreed upon in the articles of association, a valuation report is necessary, and the asset must be fully contributed.

Registration of the new company

Registration with the German commercial register (Handelsregister) via a German notary is mandatory. Since August 2022, online procedures allowing commercial register applications  have been significantly extended.

Once registered in the commercial register, the GmbH becomes a legal entity and the limited liability exists.

Before business operations are started, the competent local trade office (Gewerbe-/Ordnungsamt) must be notified about the planned activity. A business license or permit is not necessary for registering the business in the majority of cases. In some sectors, a permit or authorization might be required.

The Mini-GmbH is a private limited liability company with a minimum capital of less than EUR 25,000. In order to compensate the initial absence of capital, the company has to retain a quarter of its annual profit until it has accumulated the minimum shareholder capital of an ordinary GmbH (i.e. EUR 25,000). The accumulated capital can then be converted into share capital and the Mini-GmbH altered into a standard GmbH.

Mini-GmbH formation

The Mini-GmbH is generally subject to the same legal duties and rights as the standard GmbH (excepting the above-mentioned specific provisions). The formation procedure is also the same as that for a standard GmbH. However, the share capital has to be contributed fully and contributions in kind are not possible when establishing a Mini-GmbH.

For uncomplicated standardized formation of a Mini-GmbH, model articles are provided. These articles must still be notarized, but for a reduced fee.

A branch office is a suitable business form for a foreign company wanting to establish a presence in Germany for the purpose of initiating business and maintaining contacts with business partners.

In Germany, there are two kinds of branch establishments which primarily differ due to the degree of the independence from the head office company: the autonomous branch office and the dependent branch office.

Autonomous branch office

The autonomous branch office (selbständige Zweigniederlassung) fulfills tasks that exceed mere implementation and support-related tasks. It is dependent upon the head office company at the internal level but engages in business activities independently. However, the foreign head office company is liable for the business transactions concluded by the branch. 

At the organizational level, autonomous branch offices are to a degree independent from the parent company. For instance, an autonomous branch office usually has its own management with executive powers, a separate bank account, and accounting as well as independent business assets. 

Foreign companies can register an autonomous branch office in Germany if they are entered in a foreign commercial register (or a comparable directory). The autonomous branch office must be entered in the commercial register (Handelsregister) and registered with the local trade office (Gewerbeamt). As of August 2022, the online procedures for commercial register applications have been significantly extended. The involvement of a German notary is required. Documentation verifying the existence of the head office company as well as the power of representation for persons acting on behalf of it is needed for the registration.

A business license or permit is not necessary for registering the business in the majority of cases. In some sectors, a permit or authorization might be required.

Dependent branch office

A dependent branch office (unselbständige Zweigniederlassung) is a subordinate department of the head office company and does not have any autonomy from it. It focuses on maintaining contacts and initiating business in Germany.

The dependent branch office is not able to independently participate in the general business transactions of the head office. It performs support and implementation-related tasks without having any individual business discretion and is entirely dependent on the head office. 

The only formal requirement for a dependent branch office is registration with the local trade office, for which certain documentation on the foreign company is also necessary. A business license or permit is not necessary for registering the business in the majority of cases. In some sectors, a permit or authorization might be required.

Branch office taxation

A branch office is subject to taxation in Germany if it is considered to be a permanent establishment according to the applicable double taxation agreement. An autonomous branch office is generally regarded as a permanent establishment, whereas a dependent branch office is only ever considered a permanent establishment under certain conditions.

The profit attributable to a German permanent establishment of a foreign corporation is taxed in Germany according to German taxation rules for corporations. Special rules apply for tax returns and income determination for permanent establishments. 

Stock corporation (AG)

The German stock corporation (Aktiengesellschaft, AG) is a company form intended for larger companies with a large number of shareholders. Eligibility for a stock exchange listing and the easy assignability of the shares makes it ideal for attracting capital. In contrast to the GmbH, the founding and organizational formalities of an AG are relatively numerous and inflexible due to mandatory rules. This said, the AG form enjoys a high market reputation.

The AG requires a minimum share capital of EUR 50,000. The articles of association need to be certified by a notary. Legal consultation is advisable for drawing up the articles of association.

The AG can be established by one or more persons. Founding shareholders can either be natural or legal persons.

Partnerships

Besides corporations such as the GmbH or AG, there are also different forms of partnerships. 

Characteristic for a partnership is the personal commitment of the partners to their working efforts in the partnership. In partnerships, the individual partners responsible for the liabilities of the company (including private assets) act for the company. Limitations of liability for individual partners are only possible to a limited extent. Any partnership requires at least two partners.

There are four major forms of partnerships in Germany. Their main difference lies in the liability of their partners and required registration obligations.

• Civil Law Partnership (GbR)
• General Commercial Partnership (oHG)
• Limited Partnership (KG)
• GmbH & Co. KG