Opening a subsidiary is a long-drawn process, particularly in Germany. The country has many subsidiary laws and other requirements that lengthen the time it takes to open a subsidiary, which can lead to numerous fines or shutdowns if not handled correctly.
How to Set Up a Germany Subsidiary
The Germany subsidiary setup process includes completing all applicable registrations for Germany’s tax and social security programs. You must first apply for an employer number before you can hire employees and register them for health insurance.
It can take up to six weeks for this information to be fully processed. During this time, you should set up bank accounts in Germany in case the government would need to reimburse you. The parent company’s key players should also write a resolution that explains the decision to create a subsidiary. Every piece of required documentation needs to be officially notarized before being filed with the German Commercial Register.
Germany Subsidiary Laws
According to Germany subsidiary laws, a subsidiary operates as a limited liability company that has its own share capital, management structure, and accounting system separate from the parent company in the US. However, you can continue to use the name of the parent company to conduct all operations.
It’s essential to stay up-to-date on all subsidiary accounting requirements. Germany 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 how much you owe 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 two options when growing your business in Germany — set up a branch office or a subsidiary. A subsidiary has many noticeable benefits over a branch office, including:
- Operation as a 100% local company: Unlike a branch office — which is not a German resident corporation — a subsidiary is treated as a local German company. This local operation gives you access to more trade opportunities and also helps establish you as a leader in the community and makes you more attractive to talented candidates.
- Full independence from the US parent company: Your subsidiary will operate independently from the US parent company. It can perform additional or distinct business activities based on German needs and culture. You can even change the company name in Germany to be different than the parent company.
- Same taxation principles as other German companies: German subsidiary laws favor setting up a subsidiary as opposed to a branch office, especially regarding taxation. While branch offices are taxed according to German laws and 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 need a significant amount of time, money, emails, and travel points 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 the US. You will also need extensive knowledge about Germany subsidiary laws, employment practices, and guaranteed benefits. Without this knowledge, you could face fines for non-compliance.
A simple solution is to work with a global PEO. Globalization Partners can handle everything from hiring employees on your behalf to dispersing benefits and setting up payroll. As the employer of record, we take the liability from your shoulders and put it on ours, so we ensure you meet all German subsidiary laws.
Let Globalization Partners Help With Your Expansion
Contact us today to learn more about our comprehensive solution and how we can help you expand your company in Germany.
THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE LEGAL OR TAX ADVICE. You should always consult with and rely on your own legal and/or tax advisor(s). G-P does not provide legal or tax advice. The information is general and not tailored to a specific company or workforce and does not reflect G-P’s product delivery in any given jurisdiction. G-P makes no representations or warranties concerning the accuracy, completeness, or timeliness of this information and shall have no liability arising out of or in connection with it, including any loss caused by use of, or reliance on, the information.