Market entry in Germany — set up correctly from the start.

The three usual routes differ in liability and taxation:

• GmbH — a separate legal person with its own books and its own annual accounts. Share capital of EUR 25,000 (§ 5 Abs. 1 GmbHG); at least half must be paid in on filing (§ 7 Abs. 2 GmbHG). It pays corporate and trade tax on its own profit.
• UG (haftungsbeschränkt) — the same legal form with lower capital (§ 5a GmbHG). Contributions in kind are excluded, and a quarter of the annual surplus goes into a reserve until EUR 25,000 is reached. The suffix “UG (haftungsbeschränkt)” is mandatory.
• Branch — not a separate legal person. It is entered in the commercial register; the foreign company is liable.

To be distinguished from these is the permanent establishment: a purely tax concept (§ 12 AO) that can be met without any register entry — through a fixed place of business alone.

We assess the case for tax purposes in advance and see you through the notary appointment, the commercial register filing, the tax registration and the opening balance sheet.

The order is largely fixed, because each step presupposes the one before:

1. Articles of association and notarisation — on notarisation the company comes into being as a company “in formation” (GmbH i. G.).
2. Business account and payment of capital — at least half the share capital must be paid in before filing (§ 7 Abs. 2 GmbHG).
3. Commercial register filing by the notary. Only on entry does the GmbH come into being as a legal person.
4. Trade registration with the municipality.
5. Tax registration with the Finanzamt — from which follow the tax number and, on application, the VAT identification number.
6. Employer number from the Bundesagentur für Arbeit and registration with the Berufsgenossenschaft, the statutory accident insurer, as soon as staff are employed.

The tax number is usually the time-critical item: without it, neither VAT returns can be filed nor invoices issued with all mandatory details. We therefore prepare the tax registration in parallel with the notary appointment.

For foreign shareholders, certified and apostilled register extracts with translations are also needed; obtaining them should start early.

It is the registration with the Finanzamt and the basis for the tax number, prepayments and the filing frequency. The opening of a business or a permanent establishment must be notified under § 138 AO within one month; the questionnaire is submitted electronically.

It asks, among other things, for expected turnover and profit, the bank details for the direct debit mandate, the choice between cash and accrual VAT accounting and the application for the VAT identification number.

The answers determine the first year’s rhythm: turnover set too high leads to monthly returns and prepayments, set too low to back payments. For newly formed companies the frequency is monthly to begin with in any case. We complete the questionnaire and submit it.

Two different periods apply:

• Under German law, building work and installations create a permanent establishment if they last more than six months (§ 12 Satz 2 Nr. 8 AO). Connected and consecutive projects are added together.
• Under the double taxation treaty with France, it arises for the taxation of profits only after twelve months.

The treaty, however, limits only the right to tax the profit. Obligations that attach to domestic law — above all the wage tax deduction under § 38 EStG — can already apply from the seventh month.

Independently of this, the construction withholding tax applies; it does not depend on a permanent establishment and applies from the first invoice. Details under construction withholding tax and exemption.

We check the project duration in advance and take care of registering the permanent establishment.

A domestic business address is required. It is entered in the commercial register and must be one at which documents can be formally served, that is, an address at which post and service actually arrive; a PO box does not suffice. The same address later appears in the legal notice and on invoices.

A managing director resident in Germany is not required. They must, however, be in a position to discharge their duties and must not be subject to any disqualification.

Bear in mind the place of management: wherever the management actually runs day-to-day business, a permanent establishment at the place of management can arise — including in a home office. Conversely, a German GmbH that is in fact run from Paris may have its place of management there. See the home office as a permanent establishment.

We offer an address that accepts formal service, together with mail and telephone service: registered office.

The “Betriebsnummer”, the employer number, identifies the employer towards the social security system. It is issued by the Bundesagentur für Arbeit and used in every social security filing.

It is needed as soon as the first person is employed — without it no registration is possible.

It is not the same as the tax number, nor as the VAT identification number; the three numbers come from different bodies. In addition there is registration with the competent Berufsgenossenschaft, which has to take place within a week of opening.

We apply for the employer number and the accident insurance registration when we set up the payroll — see German Payroll & HR.