What are the advantages and disadvantages of employing a permanent representative for your foreign company in Germany?

Introduction

The decision to set up a permanent representative in Germany can be an effective way of accessing the German market. In this article, we will explore some of the advantages and disadvantages of this solution as well as the requirements for setting up a PE in Germany.

Does the Permanent Establishment (PE) have to be a legal entity?

To be able to hire an employee in Germany without a legal entity, you must first look at the definition of a permanent establishment. A permanent establishment is a real business unit that can be managed by a foreign company. In other words, it is not just an office or place of business but rather an actual business unit with its own legal personality and all the functions that come with being an independent unit.

This means that if you are hiring some people through your German branch and they are working here as part of our services, then this could be considered as having a permanent establishment in Germany since they will have their own offices, equipment, etc., and these assets will remain after we leave so they can continue operating independently from us. However, if all the work was done remotely or remotely controlled (e.g., via remote access), then there would not be any need to form any kind of physical presence here since there wouldn't exist anything left behind once we finished working together either way

Why should this be done?

• To avoid double taxation

• To avoid paying VAT

• To avoid paying corporate tax

• To avoid paying social insurance contributions.

What are the advantages of this solution?

The main advantage of this solution is that you can hire a local person to be your permanent representative. This person will be able to act on behalf of your company and handle all the paperwork required by local authorities and other entities. You can hire an employee who is already working in Germany or even someone who has just moved there.

This will ensure that they have knowledge of the laws, regulations, business culture, and more that are relevant to running a business in Germany. They will also be familiar with local practices such as those related to managing employees or paying taxes

What are the disadvantages of this solution?

This solution is only suitable if you have an EU citizen as an employee, who is willing to be your representative. In this case, the employee will take care of all tax and social security obligations in Germany and become a legal entity in his or her own right.

There are several disadvantages to this solution:

• You will have to pay taxes in Germany

• You will need a German place of business (a registered office or another form of business presence)

• You must hire an accountant who can file your tax returns and other documents for you

• You may need a German lawyer

Requirements for setting up a PE in Germany

To set up a PE, the company must have a representative in Germany. This can be either a person or another legal entity (e.g., a company or foundation). The representative must have a German address and be available during normal business hours.

In addition to being able to show that they are present in Germany, they also need to provide proof that they're legally allowed to represent your company as its official representative. This means that if you’re setting up an LLB or GmbH — which is what you'd use for this purpose — then it needs to be registered with the Handelsregister (trade registry) in Germany before becoming your official representative there.

The first step is to register a permanent representative with the German authorities.

The first step is to register a permanent representative with the German authorities. This is a simple process that takes only a few minutes and can be done online, in person, or by mail. The official name of your business should be entered into the process. You will also need to provide an address where you will receive service requests from German authorities after registration, as well as your contact information in Germany.

When do you need to register a PE?

When you need to register for a PE depends on your situation. If you meet any of the following criteria, you will need to register a PE:

• You are present in Germany for more than 3 months per year.

• You want to do business in Germany.

• You want to hire employees in Germany.

• You want to be liable for taxes in Germany (including VAT).

• You want access to the German infrastructure (e.g., banking).

When don't you need to register a PE?

You do not need to register a permanent establishment if:

• The PE does not have a physical presence in Germany.

• The PE is not registered with the German tax or social security authorities.

Registering a permanent representative in Germany is often more efficient than incorporating a full legal entity.

Registering a permanent representative in Germany is often more efficient than incorporating a full legal entity. Not only is it quicker and cheaper to register a permanent representative, but it’s also easier to do so. This can be done by the foreign company itself—without the need for local representation.

In addition to being simpler, registering a permanent representative is often faster than incorporating a full legal entity. While companies that want their own offices in Germany must wait for bureaucratic processes before opening their doors, those who opt for this alternative don't have to go through any such delays because they're not setting up shop on German soil at all; instead, they'll be based elsewhere while using this person as an intermediary between themselves and locals who are interested in doing business with them or vice versa (e-commerce platforms like Amazon Marketplace require sellers' businesses be registered in their respective countries).

Conclusion

We hope this article has helped you better understand the process of setting up a permanent representative in Germany. As we’ve seen, there are several advantages to doing so, including reduced tax and legal obligations. However, there are also some disadvantages that might make incorporating a GmbH more advantageous for your business.