How to hire employees in Germany without the need to incorporate a German company?

Permanent Representative Germany

Introduction

If you have clients in Europe or want to recruit local employees, it may be useful to set up a permanent representation in Germany. A Permanent Representative (PR) is an individual who represents their principal company in a specific territory. The appointment of an individual representative is required by law and must be registered with the tax authorities.

If you have clients in Europe or want to recruit local employees, it may be useful to set up a permanent representation in Germany.

A foreign company (without any local presence) can establish a permanent representation without having to incorporate a legal entity. This means that the foreign company is not subject to German corporate law, which simplifies matters greatly. In addition, if you are hiring local employees and paying them in Germany, it's possible for your home country's labor laws not apply - although this must be discussed with each employee individually before they join your team. You also have the right to hire independent contractors - such as lawyers or accountants - who work independently on behalf of your company while being paid by that same company (and will therefore not be taxed twice).

An individual representative is responsible for compliance

As a permanent representative, you are responsible for compliance with the German tax authorities and social insurance institutions. This does not mean that you are an employee of the company or a member of its board. You do not have to be a German citizen; it is enough if you register in Germany as an individual representative of a foreign legal entity or partnership. As long as the requirements for being appointed to this position are met, there is no need for prior work experience or knowledge of German tax law and social insurance regulations.

Permanent Representative – Permanent Establishment

The term "permanent establishment" is not defined in the law. However, it is defined in the OECD Model Tax Convention at Article 5(1)(a) and (b). The European Union Directive also defines this term at Article 2(1)(a).

No Legal Entity Required

The representative is not required to have a legal entity. The representative is legally responsible for the business activities of the principal and must be registered and insured.

The appointment of an individual representative is required by law

The appointment of an individual representative is required by law. This applies even if the company has no turnover in Germany, or only sells its products abroad. The exception is when your company has no commercial activities with German customers and therefore does not conduct business in Germany at all (see below).

The appointment of a permanent representative does not make sense for small companies that have no turnover in Germany, or which are active abroad but do not have any contact with customers in Germany. In such cases, it is sufficient to appoint a legal person with limited liability as general agent for your company's interests instead (Gesellschaftergeschäftsführer).

Duties of the Permanent Representative

The PR must be registered and insured.
The PR must be a German resident and available to the tax authorities.
The PR must act on behalf of the principal in all matters relating to that person's business or professional activities in Germany. They may also represent other companies or individuals if they have been authorized by these clients to do so and they can prove this authorization with a copy of the power-of-attorney document (Unterschriftprotokoll).
In addition, an individual cannot represent more than three companies or persons at once without special permission from the competent authority (Landesamt für Bürger- und Ordnungsangelegenheiten). This rule has been introduced because there were cases where one person was representing up to 30 different companies!

The representative must be registered and insured

The representative must be registered and insured.
The representative must have a local address.
The representative must have a local phone number.
The representative must have a local bank account in his/her name (not the company's) from which to receive your payments, even if the money is paid into another account later on.
He/she should be registered with the tax office for German income tax purposes, even if no revenue is generated from Germany during this first year of operation there (you will probably need to file an annual report with them as well).

Formalities for Registration of the Permanent Representative (PR)

The PR must have a valid ID card or passport.
He/she should also be in possession of his/her residence permit, which should be issued by the German authorities or those of another Schengen member state if the PR is not residing in Germany.
If you are employed by a company that is based in Germany, you need to obtain an employment license from your local authority.
All other foreign nationals who wish to stay long-term in Germany need an entry visa which can only be obtained at any German consulate overseas prior to arrival in Germany. Upon arrival at Frankfurt Airport all foreigners are required to register with the police within 3 days after entering Germany – failure to do so may result in deportation proceedings being initiated against them, which can take up to three months time before they are completed and enforced upon such persons who fail this requirement set forth by German immigration laws currently existing today as amended since October 2011 when new regulations came into effect regarding these matters affecting everyone entering into any EU country including Switzerland even though it has its own separate immigration laws concerning foreigners staying there longer than six months without first obtaining permission from Swiss authorities beforehand during their visit there."

Costs for Establishing a PR in Germany or Europe

The costs for establishing a permanent representation in Germany, Europe, or the EU vary depending on many factors. The most important ones are:

Size of your company. The larger the size of your company, the higher it is likely to be.
Type of industry/sector in which you are operating your business (for example, financial services, automotive, or telecommunications). In regard to this factor, there are different types of funding models and thus it is not possible to give an exhaustive overview here. However, generally speaking, companies that operate in high-tech sectors need more money than traditional ones because they require more advanced equipment and technologies - such as software developers who can help them develop software solutions rather than just outsourcing these needs abroad like some other industries might do (e.g., manufacturing).

A Permanent Representative can only represent their principal in a specific territory.

A Permanent Representative can only represent their principal in a specific territory. This means that they are the only person who can sign contracts on behalf of the company and cannot act for another company without explicit permission from their principal. The law also stipulates that every permanent representative must be registered with the chamber of commerce in Germany or Europe, depending on where they have been appointed to represent their company.

There are further requirements when it comes to insurance, such as having professional liability insurance covering all risks associated with your role as a Permanent Representative (this may include any authority or power you hold over third parties).

Conclusion

If you want to register your permanent representative with the authorities in Germany you need to submit an application.

We advise you to contact an independent specialist for advice on whether or not a permanent establishment is right for your business. They will also be able to tell you what steps need to be taken in order to set up a representative office in Germany and Europe.