Opening a subsidiary can be a long and complicated process. Germany has complex corporate laws as well as other additional requirements that lengthen the time it takes to open a subsidiary, and omission can lead to fines or shutdown if not handled correctly.
How to set up a subsidiary in Germany
The Germany subsidiary setup process includes completing all applicable registrations for Germany’s Commercial Register as well as tax and social security programs. Additionally, you must apply for an employer number before you can hire employees and register them for health insurance.
It can take 6 to 12 weeks for this information to be fully processed. During this time, you should set up bank accounts in Germany. The parent company’s board should also adopt a resolution that explains the decision to create a subsidiary. Required documentation might need to be officially notarized before being filed with the German Commercial Register.
Germany subsidiary laws
According to local laws, a subsidiary usually operates as a limited liability company that has its own share capital, management structure, and accounting system separate from the parent company. However, you can also set up a branch office of your parent company in Germany and continue using the parent company’s name to conduct all operations.
It’s essential to stay up to date on all subsidiary accounting requirements. Germany’s subsidiary laws state that you must register with your local tax office online through the Federal German Fiscal Authority’s Form Management System (FMS). The tax office will determine the amount you need to pay based on the amount of profit you declare on the registration forms. Your tax returns are then due on May 31 of the following year.
Benefits of setting up a Germany subsidiary
You have several options when growing your business in Germany — the most common ones are to set up a branch office or establish a subsidiary. A subsidiary has a few noticeable benefits over a branch office, including:
- Operate as a local company: Unlike a branch office — which is not a Germany-based corporation — a subsidiary is treated as a local company. This local operation gives you access to more trade opportunities and can help you establish your employer brand in the community and make you more attractive to talented candidates.
- Full independence from the parent company: Your subsidiary will operate independently from the parent company. It can perform additional or distinct business activities based on local needs and culture. Your company name in Germany can also be different than the parent company.
- Same taxation principles as other Germany-based companies: Germany’s subsidiary laws might favor setting up a subsidiary as opposed to a branch office, especially regarding taxation. While branch offices are taxed according to local laws and might fall under a double tax treaty, a subsidiary operates under the same taxation rules as all other resident companies in Germany.
Other important considerations
You will likely spend a significant amount of time, money, emails, and other resources to set up a subsidiary in Germany. The process can take months from start to finish and will require you to travel back and forth between Germany and your home country. You will also need extensive knowledge about Germany’s subsidiary laws, employment practices, and guaranteed benefits. Without this knowledge, you could face fines for non-compliance.
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