Often subsidiaries in Germany are not actually meant to generate sales revenue. They are rather been used as a cost center e.g. to provide services or to simply develop business within and across the European markets.
There are a couple of parameters to consider:
The first question is, which company the invoices are issued to. E.g. if the invoices are issued to your German GmbH, then also the German GmbH has to balance those invoices.
The second question would be how your German company is receiving income:
- Generating revenue e.g. through sales
- Loan, e.g. through shareholder, mother company, bank, etc.
- Transfer Pricing, through owning company
Use a loan for a one-time transfer of money and only if you believe that the German company can actually pay it back by sustainably generating profits on its own at some point.
Transfer Pricing Agreement
By introducing a transfer pricing agreement you can provide your German GmbH continuously with funds (e.g. on a monthly basis). The funds will be allowing your German GmbH to cover all monthly expenses (e.g. rent, IT & Internet, salaries, etc.) and hence, to operate on its own.
The required funds are basically the sum of all monthly expenses + a markup of 5-10%. The markup will be recognized as the profit of your German company to be taxed in Germany. This will keep the German tax office happy.
The internal funding is based on an internal transfer pricing agreement, hence you would not need to issue an internal loan agreement all the time or an internal invoice.
We would definitely recommend introducing a transfer pricing agreement if the German GmbH is financially fully relying on its mother company.
Typically, the topic is a bit more complex and we would also recommend evaluating it from a tax perspective of the home country of the mother company, e.g. with regard to existing double tax agreements between two countries.
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