A foreign company that wants a legal presence in Germany meets an unfamiliar formation maze: notaries, the Handelsregister (commercial register), and the Finanzamt (tax office). Most foreign parents form a GmbH, a limited liability company (Gesellschaft mit beschränkter Haftung), with EUR 25,000 share capital. Setup usually runs 2 to 8 weeks end to end.
A German subsidiary is a direct route into the European Union (EU) single market of around 450 million consumers, with limited liability that ring-fences the parent. Germany Trade and Invest (GTAI), the federal investment agency, reports the combined corporate tax burden averages about 30%. This guide covers entity choice, capital, steps, cost, tax, and ongoing compliance.
What is a subsidiary company in Germany?
A German subsidiary is a separate legal entity, a GmbH, UG, or AG, owned by a foreign parent company. A branch office and a representative office are not subsidiaries, because they are extensions of the parent rather than separate entities. Foreign parents may own 100% of a subsidiary, with no local partner required.
The three true subsidiary forms are the GmbH, the UG (entrepreneurial company, Unternehmergesellschaft (haftungsbeschränkt)), and the AG (stock corporation, Aktiengesellschaft). A wholly owned subsidiary gives the parent full control. A joint venture subsidiary shares ownership, risk, and cost with a partner, usually as a GmbH. A subsidiary differs from a sister company under a common parent, and from an internal division that is not a separate entity.
Which entity structure is best for a foreign subsidiary in Germany?
The GmbH is the standard choice for foreign subsidiaries. The UG suits cost-sensitive entry on minimal capital. The AG suits large operations or capital-markets plans. All three are separate legal entities with limited liability. A branch or representative office extends the parent instead of creating a German company.
| Entity | Separate legal entity? | Minimum capital | Liability | Best for | Source |
|---|---|---|---|---|---|
| GmbH | Yes | EUR 25,000 (EUR 12,500 paid in before registration) | Limited to company assets | Standard foreign subsidiary | GmbHG §5, §7 |
| UG (haftungsbeschränkt) | Yes | EUR 1 (retain 25% of annual profit until reserves reach EUR 25,000) | Limited to company assets | Cost-sensitive market entry | GmbHG §5a |
| AG | Yes | EUR 50,000 | Limited to company assets | Large operations, capital-markets plans | AktG §7 |
| Branch office (Zweigniederlassung) | No | None | Full parent liability | Extending an existing parent | HGB §13 |
| Representative office (Repräsentanz) | No | None | Full parent liability | Liaison only, no commercial activity | HGB, practice |
AG vs GmbH in Germany: which should you choose?
Choose a GmbH unless you need tradable shares or plan to raise from capital markets. An AG requires a mandatory two-tier board under the German Stock Corporation Act (AktG): a management board (Vorstand) plus a separate supervisory board (Aufsichtsrat). A GmbH needs only one or more managing directors (Geschäftsführer) directed by shareholders.
The AG also costs more to form and run. It needs EUR 50,000 minimum capital under AktG §7, double the GmbH’s EUR 25,000, and its supervisory board must have at least three members appointed before registration. For most foreign subsidiaries, the GmbH’s lighter governance wins.
How do you start a subsidiary in Germany? (step-by-step)
Forming a German subsidiary takes nine steps, from entity choice to employer registration, typically 2 to 8 weeks for a cash-formation GmbH. A German notary notarizes the articles and files the commercial-register application electronically. The Finanzamt, Gewerbeamt (trade office), and Federal Employment Agency then handle tax, trade, and employer registration.
- Choose the structure (GmbH, UG, AG, or branch).
- Check the name with the local IHK (Chamber of Industry and Commerce) and search the DPMA (German Patent and Trade Mark Office) for trademark conflicts. Commenda’s company name checker speeds the first pass.
- Draft and notarize the articles of association (Gesellschaftsvertrag for a GmbH, Satzung for an AG). German law makes notarization a validity requirement, so unnotarized articles mean no company exists. The notary then files the registration electronically.
- Open a German business bank account, deposit at least EUR 12,500, and obtain the deposit confirmation. Banks usually require an in-person appointment and the notarized articles.
- Register in the Handelsregister via the local Amtsgericht (district court), filed by the notary. Processing commonly takes 1 to 4 weeks.
- Register with the Finanzamt through the Fragebogen zur steuerlichen Erfassung (tax registration questionnaire) in ELSTER (the online tax portal) to get the Steuernummer (tax number).
- File the Gewerbeanmeldung (trade registration) with the Gewerbeamt.
- Obtain sector licenses where applicable, for example from BaFin (Federal Financial Supervisory Authority) for financial services.
- Register for employer and social insurance, obtaining a Betriebsnummer from the Federal Employment Agency, if hiring.
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What documents do you need to register a subsidiary in Germany?
The core file is notarized articles, capital-deposit confirmation, certified IDs, parent company documents, and registered-office proof. US parent documents usually need an apostille under the Hague Convention plus a certified German translation. A power of attorney lets a representative act for the parent.
- Notarized Gesellschaftsvertrag or Satzung (articles of association)
- Bank confirmation of paid-in capital
- Certified and apostilled parent company documents (certificate of incorporation, often with a certified German translation)
- Passport or ID copies of directors and shareholders
- German registered-office proof (lease or address agreement)
- Shareholder resolution appointing the Geschäftsführer
- Power of attorney, if a representative acts for the parent
- Sector licenses, where applicable
How much does German subsidiary setup cost?
Plan for roughly EUR 1,000 to EUR 2,500 in mandatory notary and commercial-register fees, plus EUR 25,000 share capital for a GmbH. Notary and register fees are set by the Court and Notary Fees Act (GNotKG) and scale with share capital. The share capital stays usable as working capital after formation. Advisory and translation costs add more.
| Cost item | Amount | Source |
|---|---|---|
| GmbH share capital | EUR 25,000 (EUR 12,500 paid in before registration) | GmbHG §5, §7 |
| Notary fees (articles plus register filing) | Scale with share capital | GNotKG fee schedule |
| Handelsregister entry fee | Statutory, scales with capital | GNotKG fee schedule |
| IHK membership | Annual contribution, mandatory | IHK |
| Legal, advisory, translation, apostille | Variable | Varies by provider |
| Registered office | Lease or business-center service | Varies by provider |
The share capital is not a sunk fee. See Commenda’s incorporation cost guide for Germany for a deeper breakdown.
How long does it take to register a subsidiary in Germany?
A straightforward cash-formation GmbH takes about 2 to 8 weeks end to end. Bank account opening is the usual bottleneck for foreign-owned entities, especially with non-EU directors. Notarization takes days, the Handelsregister entry commonly 1 to 4 weeks, and the tax number and VAT ID (value-added tax identification number) a few more weeks.
| Step | Typical duration |
|---|---|
| Notarize articles | 1 to 5 days |
| Open bank account and deposit capital | 1 to 4 weeks (main bottleneck) |
| Handelsregister entry (via notary) | 1 to 4 weeks |
| Finanzamt tax number and VAT ID | 1 to 6 weeks |
Durations are typical planning estimates and vary by Amtsgericht and bank.
Can a US company set up a GmbH remotely?
Yes, largely. Germany allows online notarization of cash-formation GmbH and UG incorporations through the Bundesnotarkammer (Federal Chamber of Notaries) video system, introduced in August 2022. A notarized and apostilled power of attorney lets a representative appear for steps that still require presence. No shareholder or director needs to live in Germany.
Online notarization currently covers cash formations, not contributions in kind. Traditional banks still favor in-person account opening, while some digital business banks support remote onboarding. The apostille and certified-translation requirements for US parent documents are the main paperwork to prepare early.
How do you register with the Finanzamt and get a German VAT ID?
After the Handelsregister entry, file the Fragebogen zur steuerlichen Erfassung in ELSTER to get your Steuernummer. The VAT ID (USt-IdNr.) comes from the Federal Central Tax Office (BZSt) and is required for EU cross-border trade. The Gewerbeamt notifies the Finanzamt for trade tax purposes after your trade registration.
Verify counterparties with Commenda’s global tax ID verification tool once your VAT ID is live.
How are German subsidiaries taxed?
A German subsidiary pays 15% corporate income tax (CIT), plus a 5.5% solidarity surcharge on that tax, plus municipal trade tax. The combined burden averages about 30% in most cities, per Germany Trade and Invest. Standard VAT (value-added tax) is 19%. The CIT rate is legislated to fall to 10% by 2032.
| Tax | Rate | Basis and notes | Source |
|---|---|---|---|
| Corporate income tax (CIT) | 15% through 2027, stepping down to 10% by 2032 | Körperschaftsteuer on taxable profit | KStG §23 |
| Solidarity surcharge | 5.5% of CIT (about 0.825 points) | Solidaritätszuschlag levied on the tax, not on income | SolzG §4 |
| Trade tax (Gewerbesteuer) | 3.5% base rate times the municipal Hebesatz; effective roughly 7% to about 21% | Hebesatz floor 200% through 2026, 280% from 2027 | GewStG §11, §16 |
| Combined corporate burden | About 30% average | CIT plus surcharge plus trade tax | GTAI |
| VAT | 19% standard, 7% reduced | On goods and services | UStG |
Major cities typically land at effective trade tax of 14% to 17% through higher Hebesätze. Germany maintains around 90 double-taxation treaties.
How are dividends to the foreign parent taxed?
Dividends a German company receives are 95% tax-exempt under the participation exemption (KStG §8b). Dividends paid out to a foreign parent face 26.375% withholding tax (25% plus the solidarity surcharge). The US-Germany tax treaty cuts this to 5% at 10% or more ownership and 0% at 80% or more ownership, subject to limitation-on-benefits tests.
Within the EU, the Parent-Subsidiary Directive can reduce withholding to 0% between qualifying group companies. Losses carry forward indefinitely subject to the minimum-taxation rule, and a research allowance (Forschungszulage) supports qualifying R&D.
Does a holding company structure make sense?
Sometimes. Some US parents interpose an EU or German holding company to access the 95% participation exemption and favorable treaty or EU directive withholding rates on dividends. The benefit depends on substance and anti-abuse rules. A holding layer adds its own formation and compliance cost, so the math has to clear.
See Commenda’s guide on setting up a tax-efficient subsidiary before committing to a structure.
Branch office vs subsidiary in Germany: what’s the difference?
A branch (Zweigniederlassung) is an extension of the parent, with full parent liability and no capital requirement. A subsidiary is a separate German entity with limited liability and EUR 25,000 minimum capital for a GmbH. A branch creates a German permanent establishment (PE), exposing parent profits to German tax.
| Aspect | Branch office (Zweigniederlassung) | Subsidiary (GmbH) |
|---|---|---|
| Legal status | Extension of parent, not separate | Separate German legal entity |
| Liability | Full parent liability | Limited to company assets |
| Minimum capital | None | EUR 25,000 (GmbHG §5) |
| Taxation | German PE profits taxed in Germany, parent exposure | Taxed as a German company |
| Registration | Handelsregister entry, no notarized articles | Notarized articles plus Handelsregister entry |
| Reporting | Parent accounts referenced | Own financial statements under HGB |
| Best for | Limited local activity | Long-term operations, liability ring-fencing |
A representative office (Repräsentanz) is a third option. It permits liaison and market research only, with no commercial activity.
What are the ongoing compliance requirements for a German subsidiary?
A German subsidiary files annual financial statements under the German Commercial Code (HGB) for publication, annual corporate and trade tax returns, periodic VAT returns, payroll and social security reports, and a Transparenzregister (transparency register) beneficial-ownership filing. Audits are mandatory for medium and large companies and all AGs.
| Size class (meet 2 of 3) | Balance sheet total | Revenue | Average employees | Audit |
|---|---|---|---|---|
| Small | Up to EUR 7.5M | Up to EUR 15M | Up to 50 | Exempt from mandatory audit |
| Medium | Up to EUR 25M | Up to EUR 50M | Up to 250 | Audit mandatory |
Thresholds follow the HGB §267 amendment effective 2024. VAT return frequency depends on prior-year VAT: new companies file monthly in their early years, then switch to monthly, quarterly, or annual. Trade tax runs on quarterly prepayments with an annual return. Track deadlines with Commenda’s compliance calendar.
Do you need a physical address for a German subsidiary?
Yes. A verifiable German registered address is mandatory for Handelsregister entry. A bare P.O. box does not qualify, because the address must receive legal correspondence and appear in the commercial register.
Compliant options include a commercial office lease, a business center or coworking space with registration rights, or a registered agent service that provides a legal address. The address must stay current, and changes must be filed with the register.
How we help you start a German subsidiary
Commenda handles German subsidiary formation end to end, from notarization coordination and Handelsregister filing to Finanzamt and VAT registration, then keeps the entity compliant after launch. You get one platform and one point of contact instead of a stack of local vendors.
Commenda’s incorporation service forms your GmbH or UG and files it with the commercial register. Its entity management platform tracks every filing deadline and keeps the subsidiary compliant across corporate tax, VAT, and annual accounts. For background reading, see the business incorporation guide and the guide to starting a business in Germany.
Book a demo to get a formation timeline and cost estimate for your German subsidiary.
About the author
Logan leads Commenda’s Services and Operations team, helping controllers, heads of tax, and finance leaders navigate international expansion. He built a global expert network across 70 countries and previously worked in management consulting across the Middle East and Southeast Asia.
Disclaimer: Commenda and its affiliates do not provide tax, accounting, or legal advice. This material has been prepared for informational purposes only, and is not intended to provide or be relied on for tax, accounting, or legal advice. You should consult your own tax, accounting, and legal advisors before engaging in any related activities or transactions.
