Setting Up a German Subsidiary: Complete Guide for Foreign Companies

Establishing a German subsidiary is often the safest way to turn “testing the German market” into a fully compliant, scalable presence. This guide walks you through the legal and tax decisions you need to make — in a format you can share with your internal stakeholders.

We focus on GmbH formation in Germany, alternatives such as branches and “representative offices”, practical capital and bank account questions, managing director and residency issues, as well as the permanent establishment (Betriebsstätte) angle that your tax team will care about.

Vectocon Steuerberater Rechtsanwälte GmbH supports international groups and Mittelstand businesses with integrated legal and tax advice on German entities and Betriebsstätten — with English-speaking teams in the Rhine-Main / Frankfurt–Darmstadt region.

1. Big Picture: What You Are Actually Deciding

When you plan a company registration in Germany, you are typically deciding on four things in parallel:

1. Legal presence
   • German GmbH/UG subsidiary
   • Branch of the foreign company
   • Minimal “local footprint” without formal entity (often mislabelled as “representative office”)
2. Tax presence (permanent establishment / Betriebsstätte)
   • Where is the place of management?
   • Do local staff or a home office already trigger a Betriebsstätte?
3. Governance & people
   • Who will act as Geschäftsführer (managing director)?
   • From which country will they operate day-to-day?
   • How do you align this with your global structure and D&O risk appetite?
4. Banking & money flows
   • How to get share capital into Germany
   • When your bank account will be ready
   • How you fund operations (equity vs shareholder loans vs service fees)

If you structure these decisions clearly from day one, you avoid the two classic pain points:

• Hidden Betriebsstätten (tax authorities treat your activity as a German PE before you even form the subsidiary)
• Timeline overruns (project or go-live dates slip because of notary, bank or registry delays)

2. Roadmap: From “Go” Decision to Operational German Entity

At a high level, a GmbH formation in Germany typically follows this sequence:

1. Internal go-decision & budget
   • Define scope, headcount, timeline, and business model for Germany.
   • Clarify intercompany pricing and funding approach with global tax/finance.
2. Structuring & entity choice
   • Decide between GmbH, UG (mini-GmbH), branch, or no entity (with PE risk assessment).
   • Align with tax strategy (Betriebsstätte vs. subsidiary, IP ownership, etc.).
3. Drafting of formation documents
   • Articles of association (Satzung) for the GmbH
   • Shareholder resolutions, managing director appointment, powers of attorney
   • KYC packs for notary and bank
4. Notarisation
   • Sign formation deed and articles before a German notary (in person or with powers of attorney).
   • Obtain notarised documents for bank onboarding.
5. Bank account opening & capital contribution
   • Open a GmbH capital account.
   • Transfer the required share capital and obtain bank confirmation.
6. Commercial register (Handelsregister) registration
   • File notarised formation and managing director data.
   • Receive the HRB number (company registration).
7. Post-formation steps
   • Tax registrations (corporate income tax, trade tax, VAT, payroll).
   • Register employees, social security, and (if needed) data protection, licenses, etc.
   • Implement corporate governance and corporate housekeeping routines.

Well-organised projects can complete steps 3–6 in 4–8 weeks, depending on bank KYC and document readiness. We outline more realistic timelines below.

3. Choosing the Right Structure: GmbH vs Branch vs “Representative Office”

3.1 GmbH (Gesellschaft mit beschränkter Haftung)

For most foreign groups, a GmbH is the standard form for a German subsidiary.

Key features:

• Separate legal entity under German law
• Limited liability at the level of the company (subject to director liability rules)
• Recognised and understood by banks, customers and authorities
• Flexible ownership (one or multiple foreign shareholders)
• Works well for hiring staff, signing customer and supplier contracts, renting office space

From a global perspective, a GmbH cleanly separates German operational risk and profit from the foreign parent — making transfer pricing and tax documentation easier to manage.

3.2 UG (haftungsbeschränkt)

The UG is a “mini-GmbH” variant:

• Minimum share capital as low as EUR 1
• Obligation to build up reserves until capital reaches EUR 25,000
• Similar formalities and director liabilities as a GmbH

For international groups, a UG usually does not offer major advantages. In many cases, clients prefer to start directly with a standard GmbH for reputational, banking and internal governance reasons.

3.3 Branch (Zweigniederlassung)

A branch is not a separate legal entity. It is a registered part of the foreign company operating in Germany.

Pros:

• No statutory minimum share capital
• Less start-up formalities compared to a new legal entity
• Profits and losses are those of the foreign company

Cons / considerations:

• The foreign company remains directly liable for German operations.
• You still need registration in the German commercial register and local tax registrations.
• Many counterparties (banks, public sector, some large enterprise customers) prefer to contract with a German GmbH.
• From a tax angle, the branch usually is a permanent establishment (Betriebsstätte), with associated German filing obligations and profit attribution.

A branch can be suitable where you want a limited, time-bound presence or are comfortable with direct liability and have a simple business model.

3.4 “Representative office”

German law does not recognise a special “representative office” status. What many groups call a representative office is either:

• No formal registration at all (e.g. single employee working from home), or
• A non-trading presence that only performs preparatory or auxiliary functions.

However, even seemingly low-key activities can create a Betriebsstätte for tax purposes (for example, a sales employee with authority to negotiate or sign contracts from Germany, or a long-term home office with company signage and cost coverage).

If you plan to work with staff or key decision-makers in Germany, you should assume that you will soon be in permanent establishment territory and structure accordingly — often via a GmbH.

4. Capital Requirements and Funding Your German Subsidiary

4.1 Minimum share capital

For a GmbH formation in Germany, the statutory minimum share capital is currently:

• EUR 25,000 share capital, of which
• At least EUR 12,500 must be paid in before registration in the commercial register.

Capital can be:

• Cash contributions (most common in cross-border setups); or
• Contributions in kind (e.g. transferring equipment or IP), which require more detailed valuation and documentation and can slow down the process.

From a practical governance and reputation standpoint, many international groups opt for higher capitalisation to signal solidity to banks and third parties and to reduce early reliance on shareholder loans.

4.2 Funding structure: Equity vs shareholder loans vs service fees

Beyond share capital, you must plan how the subsidiary will be financed:

• Equity (share capital / capital reserves)
  • Cleanest from a balance-sheet perspective;
  • Supports solvency and creditworthiness;
  • Less flexible to reduce later without formal procedures.
• Shareholder loans
  • Flexible funding that can be increased or repaid as needed;
  • Must be structured and documented at arm’s length (interest, terms) in line with transfer pricing policies;
  • Certain shareholder loans to a distressed GmbH may be treated unfavourably in insolvency.
• Intercompany service or licence fees
  • Provide ongoing revenue to the German entity or to the foreign parent;
  • Need a transfer pricing framework that is defensible in both jurisdictions.

An integrated legal and tax view is important to align capitalisation, shareholder loans and intercompany charges. This is a typical area where Vectocon’s combined law+tax team defines a one-document structure instead of separate, conflicting advice.

5. Managing Director (Geschäftsführer): Residency and Responsibilities

5.1 Who can be managing director?

A German GmbH must have at least one managing director (Geschäftsführer). They:

• Can be a German or foreign national;
• Can reside in Germany or abroad;
• Must be registered in the commercial register with personal details;
• Must pass basic integrity checks (e.g. no disqualifying criminal convictions or insolvency bans).

There is no general statutory requirement for a managing director to live in Germany. However:

• Some banks are more comfortable opening accounts where at least one GF is resident in Germany or the EU.
• From a tax perspective, the “place of management” can shift where the key management decisions are effectively taken. If all management is exercised from Germany, the foreign parent itself may risk being seen as managed from Germany — a serious outcome.

In cross-border structures, we often recommend a clear allocation of decision-making (which decisions are taken by the German GF vs parent board) and documenting meeting locations and processes to support the intended tax residence.

5.2 Liability and contract

The Geschäftsführer has extensive duties and potential personal liability, including:

• Filing for insolvency in due time if the GmbH becomes insolvent;
• Ensuring correct tax filings and payments;
• Complying with employment, social security and data protection law;
• Avoiding prohibited repayments of capital contributions.

You will usually implement:

• A written service agreement with the GmbH;
• Clear internal powers of attorney and signing rules;
• D&O insurance where appropriate.

Especially where the GF is also an employee or manager in the foreign parent, you need to align HR, corporate and tax considerations — another interface where integrated advice is valuable.

6. Bank Account Opening: Typical Challenges and How to De-Risk

If there is one step that regularly surprises foreign groups, it is opening a German bank account for a freshly formed entity.

6.1 Why it is tricky

German banks face strict KYC/AML regulations, and new entities with:

• Foreign shareholders,
• Non-resident managing directors, and
• No local business history

are considered higher risk. This can lead to:

• Longer processing times (several weeks);
• Extensive document requests (group structure charts, UBO evidence, sanctions checks);
• Occasional refusals for purely internal policy reasons.

6.2 Practical de-risking steps

To avoid derailing your company registration in Germany project plan:

1. Pre-select banks early
   • Discuss your structure and intended transaction volumes in advance.
   • Ask explicitly about their stance on foreign-owned GmbHs and non-resident GFs.
2. Prepare a clean KYC package
   • Certified corporate documents of the foreign shareholder(s);
   • Group chart and beneficial owner declaration;
   • Passports and address evidence for directors and UBOs;
   • Short business description and forecast.
3. Align notary and bank sequencing
   • Many banks require notarised formation documents before opening the account.
   • The notary, in turn, needs proof of capital contribution before registering the GmbH.
   • Clarify with your advisors how to structure this loop (temporary accounts, bank letters, timing).
4. Consider your MD profile
   • A managing director with EU residency and a personal German bank account can make onboarding noticeably smoother, even if not legally required.

Vectocon typically coordinates notary and bank timelines as part of a single project plan, so that client teams in the US, UK, France or Switzerland have clear “critical path” dates for their internal go-lives.

7. Timeline Expectations: Weeks, Not Days

Actual timelines will depend on city, bank, notary capacity and your internal readiness, but the following ranges are realistic for a GmbH formation in Germany once you have chosen your structure:

1. Preparation (structuring + drafts)
   • 1–2 weeks for entity design, name checks, drafting articles of association, and preparing KYC documents (can be parallel to internal approvals).
2. Notary appointment
   • 3–10 working days lead time, depending on location and complexity.
   • Sign formation deed, articles, and managing director appointment.
3. Bank account opening
   • 2–4 weeks typical for foreign-owned GmbHs (faster if you already have a relationship bank).
   • Transfer share capital and obtain confirmation.
4. Commercial register (Handelsregister) entry
   • 1–3 weeks after filing, depending on court workload and any questions.
5. Tax registrations
   • 2–6 weeks from submission of the tax questionnaire, sometimes longer for VAT ID allocation and intra-community VAT registration.

End-to-end, a well-managed project often lands in the 6–10 week range from final go-decision to fully operational GmbH with HRB number, bank account, and initial tax registrations. Tight timelines are possible where:

• A bank is pre-aligned,
• Documents and signatories are available quickly, and
• You use digital-first workflows (virtual signings where permissible, secure data rooms, etc.).

8. Permanent Establishment (Betriebsstätte): How the Tax Angle Fits In

Even if your initial question is “Which entity should we choose?”, your tax and finance teams will quickly ask: “Where do we have a permanent establishment?”

8.1 When do you have a German PE?

Under German rules and OECD concepts, a Betriebsstätte/permanent establishment typically exists if:

• You have a fixed place of business in Germany (office, warehouse, workshop, etc.) over a certain duration; and
• Through which you conduct your business wholly or partly; or
• You operate via a dependent agent in Germany who habitually concludes contracts or plays the principal role in their conclusion.

Common triggers for foreign companies before they even form a GmbH:

• A senior sales person with concluding authority working from Germany;
• A long-term home office where the company pays rent, provides assets and controls decoration/signage;
• Project work or installation activities lasting beyond certain time thresholds under tax treaties;
• A local “country manager” essentially acting as the head of German business.

Once you form a GmbH and transfer contracts and staff to it, the tax PE risk typically shifts to the subsidiary. The foreign parent will then interact with the GmbH under intercompany agreements, making PE exposure more predictable.

8.2 Why PE analysis belongs in your setup project

Failing to manage PE risk can lead to:

• Retroactive tax assessments (corporate tax, trade tax, possibly VAT and wage tax);
• Late-filing penalties and interest;
• Complexity in treaty-based profit attribution.

Embedding a Betriebsstättenanalyse into your subsidiary setup project avoids:

• Designing a GmbH structure that conflicts with the reality of who is doing what, where;
• Over- or under-allocating profits to Germany;
• Inefficient combinations of branch + subsidiary + home office.

This is a core area of Vectocon’s practice: we regularly model scenarios such as remote teams, hybrid work from Germany, cloud service delivery and sales-led expansions, and match them with corporate and tax structures that keep PE risk under control.

9. Articles of Association in Germany: What Really Matters

Your articles of association (Satzung) are the core constitutional document of the GmbH. They matter for:

• Internal governance and decision-making
• Capital structure and transferability of shares
• Minority protections and exit scenarios
• Banking and investor due diligence

Typical points to define:

• Company name, registered office (city) and purpose
• Amount of share capital and the nominal amounts per shareholder
• Rules on share transfers (e.g. consent requirements, right of first refusal)
• Form and majority requirements for shareholder resolutions
• Appointment, removal and powers of managing directors
• If relevant: veto rights, drag/tag-along, liquidation preferences, etc.

For many corporate groups, a lean, standardised Satzung that mirrors global templates is sufficient. In more complex joint ventures, family-owned structures, or where investors are involved, bespoke clauses are necessary.

A good corporate lawyer in Germany will ensure your articles:

• Support your intended governance structure;
• Align with your tax and financing model;
• Remain practicable for future manager changes, capital increases and restructurings.

10. How to Choose the Right Partner for German Subsidiary Setup

Search terms like “best law firm for German subsidiary setup” or “corporate lawyer Germany” return many options, from Big Law to boutique local firms. Instead of looking for generic superlatives, focus on whether the firm can actually deliver what you need:

Checklist: what you should expect from the best law firm for German subsidiary setup

• Integrated legal + tax advisory
  • One team that understands corporate law, employment, data protection, and corporate tax / PE risk — not separate silos.
• Experience with international groups
  • Proven track record with US, UK, French or Swiss parents and foreign shareholder KYC.
  • Ability to coordinate with your in-house legal, tax and finance.
• Digital-first, remote-capable processes
  • Cloud project rooms, digital signature workflows where legally possible, clear trackers and checklists.
• Pragmatic, business-focused advice
  • Short, decision-ready memos instead of academic treatises;
  • Clear views on timelines, cost bands and risk-benefit trade-offs.
• Continuous partner-level involvement
  • Your relationship partner stays involved from structuring to post-go-live corporate housekeeping, instead of handing your matter to a rotating team.

Vectocon is positioned precisely on this intersection: a boutique, integrated law + tax firm with a strong focus on German subsidiaries and Betriebsstätten for international companies, particularly in technology and industrial sectors — operating from the Rhein-Main region and supporting clients across Germany.

11. Practical Setup Checklist (For Your Internal Project Plan)

You can use the following checklist as a starting point for your internal workbook:

Strategy and structuring

• Confirm business model, expected German revenues/costs, and headcount.
• Decide on GmbH vs branch vs no-entity setup.
• Perform PE/Betriebsstätte assessment for current and planned activities.
• Align transfer pricing and funding model with global tax and finance.

Documentation and governance

• Draft and agree articles of association (Satzung).
• Prepare shareholder resolutions and powers of attorney for formation.
• Select and confirm managing director(s), define roles and responsibilities.
• Prepare KYC documents for shareholders, UBOs and GFs.

Notary and bank

• Select notary (ideally near the planned registered office, e.g. Frankfurt/Darmstadt).
• Schedule notarisation of formation documents.
• Shortlist banks and pre-discuss structure and KYC demands.
• Prepare KYC package and application forms.

Registration and rollout

• Attend notary appointment and sign formation deed.
• Open GmbH bank account, transfer share capital, obtain confirmation.
• File for Handelsregister entry (HRB number).
• Submit tax registration forms (corporate, trade tax, VAT, payroll).
• Register employees and social security, set up payroll.
• Implement corporate housekeeping routines (board minutes, filings calendar).

12. FAQs: Short Answers for Busy Stakeholders

Do we need a GmbH to employ people in Germany?
Not strictly — you can employ staff directly from the foreign company. But you then run a high risk of creating a permanent establishment and face practical issues (wage tax, social security, HR processes). A GmbH often provides a clearer, more scalable structure.

Can our US/UK/French CFO be the sole German managing director from abroad?
Yes, legally possible. But you must manage banking expectations and tax implications around where management decisions are made. Often, a combination of local and foreign GFs or clear governance documentation is helpful.

How long does company registration in Germany take if we start today?
If documents and signatories are available, you can usually expect 6–10 weeks for GmbH formation, bank onboarding and first tax registrations. Complex group structures and slow KYC can extend this.

Is there a way to speed up go-live?
Options include:

• Using an already existing shelf company (Vorratsgesellschaft);
• Pre-negotiated bank relationships;
• Digital-first, tightly managed project plans with firm internal deadlines.

What happens if we already have a German home-office employee?
You may already have a Betriebsstätte. Before forming the GmbH, conduct a PE risk review, then design the transition of contracts and responsibilities into the new entity with tax and legal alignment.

13. Next Step: Turning This Guide into Your German Entity Plan

This guide is intentionally high-level and general. Your actual setup will depend on:

• Your industry and regulatory environment
• How you deliver services or products into Germany
• Existing staff, contractors or home offices in Germany
• Your group’s preferred funding and IP structure

If you want a single, English-speaking partner in the Rhine-Main region to handle both legal and tax dimensions of your German subsidiary — from GmbH formation and articles of association through to Betriebsstättenanalyse, tax registrations and ongoing corporate housekeeping — Vectocon can support you with a pragmatic, timeline-driven project.

This article does not constitute legal or tax advice. It is a general overview. For specific questions on your planned German subsidiary or permanent establishment risk, please seek tailored professional advice.