A permanent representative is a very simple and quick form of entering into business activity in Germany. It is worth noting that other options are also available and have their own benefits. The main reason for choosing a permanent representative instead of an established business is that it doesn't require any local capital contribution at all. The advantage of this form of incorporation is that the company can be formed by one person only without having to make any local financial investments or enter into contracts with third parties on behalf of the company (you will need to appoint a resident agent).
To begin with, a permanent representative is the most simple and quick legal form of starting a business activity in Germany.
It does not require any special documents, but only a converted German work contract from the foreign company's head office to the Permanent Representative. Consultinghouse lawyer will convert your current existing foreign work contract into a German work contract in accordance with German Labour Law. In addition to this, there are no minimum capital requirements for establishing a permanent representative office.
As already mentioned above: The establishment of a branch or subsidiary requires more time and effort than setting up a representative because it involves more complex legal formalities such as registration at tax authorities (finanzamt), obtaining approval from local authorities (staatsanwaltschaft) etc..
It is worth noting that other options for forming a legal entity are also available and have their own benefits.
If you decide to incorporate a company in Germany, you will have various options for the legal form of your business. These include:
Limited partnership (Gesellschaft mit beschrankter Haftung)
General partnership (Offene Handelsgesellschaft)
Limited liability company (Kommanditgesellschaftsform)
The first two options are similar to each other as they involve having partners who are personally liable for their debts. However, there are some key differences between these two forms of business organizations:
In order to be eligible for registration as an OHG, all shareholders must agree on the name and place of residence/business address; whereas in the case of GmbH registration only one shareholder needs approval from others if they reside at different locations or countries respectively;
Each member may not hold more than 20 percent shareholding in any given company whereas no such restriction applies on the number of shares owned by each shareholder;
The main reason for choosing a permanent representative instead of an established business is that it doesn't require any local capital contribution at all.
This means that you don't need to open a bank account, securities account or pay any capital contribution.
A second reason could be the presence of certain regulatory requirements in Germany that make it difficult to establish a new business there, especially if your company has no local presence yet or you do not have enough time and resources available at this point in time.
The advantage of a Permanent Representative is that the company can be formed by one person only.
This is especially useful if you are an entrepreneur who wants to start a business in Germany but doesn't have any local contacts or knowledge about Germany's legal system. In addition, there are no requirements regarding your personal address in Germany or opening a bank account here; instead, you can incorporate your company from abroad and use it as a basis for your activities in Germany.
The disadvantage is that you need to appoint an authorized representative who represents you before other authorities (e.g., tax authorities). This person is usually referred to as "fiduciary" or "permanent representative".
Another benefit linked to not having any capital contribution is that you don't need a bank account or securities account to be opened.
In Germany, if you want to open a securities trading account, the bank will require that you deposit enough money in your name as collateral against possible losses on investments. This requirement makes sense because banks are required by law to protect their customers' deposits up until EUR 100k per person per institution (and even more in case of bankruptcy).
A permanent representative may appear as an attractive option for international businesses because it requires no local capital contribution
A permanent representative may appear as an attractive option for international businesses because it requires no local capital contribution, no bank account, and no securities account. A German permanent representative also does not need to be registered with the tax authorities in Germany or have any local employees. This makes it easier for companies to establish themselves in Germany without having to make investments in real estate or hiring staff members who are familiar with German law and customs.
However, there are some disadvantages associated with choosing this type of business structure:
The main advantage of this form of incorporation is that it doesn't require any local capital contribution at all. This means that you don't need a bank account or securities account to be opened, which can be a big benefit for international businesses looking to start up in Germany without any local ties.