Comprehensive strategies and tips to successfully incorporate a business in Germany.
Planning for expansion of your business into the European market, you will want an economically stable location. Germany is the best location for your sales office, with economic stability and enough buying power to launch your growth into the European market. Germany has a progressive economy and is in the forefront of technological innovations in the region.
Right in the center of Europe, it’s in the heart of transportation networks to different European countries. It’s home to hundreds of thousands of business entities, from sole proprietorships to large conglomerates. Business incorporation in Germany requires proper documentation and understanding existing national and regional commercial and taxation laws. The first step in establishing a business or sales office in Germany is to find a business advisor to walk you through the details of establishing the type of business entity that will represent your company. Depending on your existing business structure and your goals in establishing an office in Germany, a business expert will advise you on the type of corporate structure that will fit your sales office.
Foreign companies have the option of setting up a representative office to observe the market and gain initial contact with prospective clients. A representative office is purely for observation. It isn’t allowed to conduct business and sales transactions. It’s considered the initial stage for setting up a business office. It can only operate for a period of one year, then the company has to decide whether to formally open a branch or subsidiary sales office in the country. There are cases where a representative office has had a longer period of operation, for this intention the company must explain the reason for the extension in detail and with a feasible conclusion. Registration to the commercial register is not necessary, however it must register in the local trade office.
There are two types of set ups for a sales office in Germany, branch and subsidiary. Business incorporation in Germany, such as setting up a branch is similar to that of local businesses, although the registration process takes a little longer than usual. The branch will take the name of the parent company, and is considered as one corporate entity. In a subsidiary, the parent company controls more than 50% of shares upon incorporation. But these two are considered separate entities.
In Germany, a foreign company can establish two kinds of branch offices, autonomous and dependent.
- An autonomous branch has a degree of independence from the parent company including management with executive powers, separate bank accounts, accounting records and assets. This autonomous branch is registered in the commercial register by the foreign company as well as in the local trade office.
- A dependent branch office is not deemed separate in any way from the parent company. The only requirement for a dependent branch is to register in the local trade office with certain documentation duly notarized, authenticated and translated to the German languages
Subsidiary Business Incorporation in Germany
A subsidiary sales office is a company, Limited Liability Company (LLC) or a corporation controlled by a parent company. Upon business incorporation in Germany, the parent company owns more than 50% of the shares of the subsidiary’s voting stock. But for the purposes of commercial regulations and taxation, the parent company and subsidiary are considered two different business entities. The subsidiary is subject to law, commercial and tax regulations depending on the region it is located in Germany.
General Overview on German Regulations
The German legal, regulatory and accounting systems are complex but remain transparent and consistent with international standards. Businesses, foreign and local, enjoy significant freedom within regulated conditions.
- Foreign and domestic businesses are treated equally in terms of regulations as well as in investment incentives and in the establishment, protection of real and intellectual property rights.
- The German legal system is sophisticated and efficient.
- The legal and regulatory systems fully require foreign businesses to comply with all legal obligations. New entrants are required to have the necessary legal expertise, in-house or outside consultants to meet all requirements.
- Key objectives of government policies, national and regional, are to create jobs and promote economic growth.
- Foreign and local businesses can rely on the judiciary system in upholding the law particularly the sanctity of contracts.
- The government with full degree of certainty established a level playing field for all businesses with two important legal codes, the Law Against Limiting Competition - the basis for the fight against cartels, monopoly and commercial abuse; and the Law Against Unfair Competition.
- Labor unions play an important role in collective bargaining agreements and a company’s work councils.
The German government ensures that all businesses, foreign and local, enjoy the benefits of a level playing field in all aspects of business operations within its territories. For this reason, it is considered as the prime location for initial market expansion in the EU region.
The advantages of establishing a branch or subsidiary in Europe through Germany comprise of expanding international presence, particularly in Europe; lower labor and production costs; potential benefits for tax and credit protection. Business incorporation in Germany such as a branch or subsidiary is the vehicle for expansion goals across the continent. The parent company still has full control over the business operations of the sales office, and has control over the manpower and other resources of the branch or subsidiary, expatriating executives to oversee the office and how many of the staff should be local. The whole purpose of a business or sales office is to explore the territory for the potential market and expansion into the European region. Germany gives you the advantage being the true center of trade and commerce of Europe.
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