How is a branch office established in Germany?

This article provides answers to several questions related to branch offices and their setup in Germany.

What is a permanent business establishment?

A branch office is a physically separate office from the main business which is established as an additional, permanent center of the company and has to be entered in the commercial register. A branch is eligible for those companies whose head office is already registered in the commercial register or, if it is a foreign company, its head office should be entered in the commercial register if the company is established in Germany.

A branch office is not independent, it is not a separate legal entity from the head office of the parent company. It is legally and organizationally part of the head office of the company and in this respect, it is subject to the regulations of the head office. If the branch office is established by a foreign company, its internal constitution is governed by the company statutes and the relevant foreign law.

Despite its internal dependence on the head office, it takes part independently in business transactions. The branch office must be organized in such a way as to enable it to survive the discontinuation of the head office. The legal relationships of the branch with its customers are subject to German law. German law also applies to the legal treatment of the branch office in Germany (registration in the commercial register).

The physical separation of a head office and branch office does not mean that they must be situated in different locations. Under certain conditions, it can happen that both have their business premises in the same building.

Typical characteristics of a branch office are:

• The execution of factually identical or similar business transactions as in the head office (not just mere auxiliary or performance transactions)
• Specific duration (not just the handling of temporary exhibition transactions)
• An external organization similar to the head office (usually but not necessarily: ​​separate accounting, independent bank account, and independent business location)
• Branch manager with significant powers and freedom of action

How is a branch established, and what is the purpose of entering it into the commercial register?

Establishment

The branch is created by the actual process of its establishment. The entry in the commercial register is only for the purpose of declaration. The decision on the establishment of the branch is to be taken by the relevant executive committee of the head office.

Capital

The legal status of an independent branch office requires its own financial resources. Minimum capital is however not required. The amount of the capital is also not recorded in the commercial register.

Internal constitution

The head of the branch office independently represents the office externally. However, the head office is always the natural or legal entity responsible for the debtor’s liabilities. Typically, the manager of the branch office will be given at least the full power of the attorney or the general commercial power of representation which may be externally limited to the operation of one of the several branches of the main business.

Can the business name of a branch office be different from the business name of the head office?

Business name

The business name of the branch office may be similar to the business name of the head office. It may however also be different, in which case a reference should be included to the branch (e.g. ABC GmbH Frankfurt branch office, XY Services, a subsidiary of ABC GmbH). Pursuant to § 50 paragraph 3 of the HGB, a suffix is required if the power of procuration is to be limited to the operation of a branch office with effect against third parties, or if an identical registered company already exists at the place where the branch is established. In the company name of the branch office of a foreign company, the business name of the head office must appear fundamentally unchanged (if necessary in a foreign language as well) including the legal form suffix. If, according to the relevant foreign law, a company suffix is not required by the management, or if this company suffix is not known or incomprehensible in Germany, a clarification of the suffix is necessary to avoid possible errors. In addition, a suffix may be added to the company name of the branch office (e.g. Frankfurt Branch).

What details must be included on a branch office's business letters?

Information on business letter

The branch office must specify the complete business name in business letters. The commercial register in which the branch office is registered must also be indicated. In addition, the other mandatory information of the head office required for the relevant legal form shall be indicated. The indication of the head office is also desirable but not required by law. Domestic branches of foreign companies must specify certain minimum information on business letters issued during domestic outgoing correspondence:

• Commercial register in which the branch office is registered
• Registration number
• Complete foreign business name with legal form suffix
• Commercial register of the foreign company
• The information required on business letters by German law for the respective legal form, unless the foreign law stipulates otherwise.

The following details must be specified on the business documents of foreign legal entities outside the EC or EEA: company name, location and state of the registered office of the company, legal representative (surname with at least a first name).

Financial statements

Accounting and accounting requirements with regard to the branch are subject to German law. In case of doubt, the provisions applicable to the German legal form which is most similar to the legal form of the foreign enterprise shall be applied.

Branch office in legal proceedings

Although a branch office is not an independent legal entity, a special court of jurisdiction is opened pursuant to § 21 Civil Procedure Code (ZPO). A business person may then be called upon at the site of the branch office, provided that the dispute is a proprietary dispute and that the dispute has been justified in the operation of the branch.

A foreign company's branch office 

This is rather a non-independent business branch, dependent in every aspect on the head office, which also is in charge of the central administration.

The distinction between a subsidiary and a branch office is important as it determines whether an entry must be made in the Register of Companies. The distinction is also relevant in determining the place of the actual business in terms of German tax law.

Setting up an autonomous branch office

Any foreign corporation outside of Germany can establish a branch office. Especially if a presence in Germany for the purpose of initiating business and maintaining contacts with business partners is wanted, or if a long-term commitment in Germany is uncertain, a branch office could be the best suitable business form.

A business branch is part of the foreign company's organization. The legal liability of the branch office depends on the liability of the legal entity of the head office.

An autonomous branch office (Zweigniederlassung) has some degree of autonomy from the foreign head office by having its own management with its own executive powers, separate bank accounts, a separate balance sheet, and independent business assets. Only foreign commercial business persons, who are registered in a commercial register, can establish an autonomous branch office.

The autonomous branch office must be entered in the commercial register and registered with the local trade office.

The application for registration with the commercial register must include detailed information on the foreign company and generally be accompanied by among others notarized in German certified translation of its articles of association as well as of its certificate of registration from the commercial register of its home country.

The application for registration of an autonomous branch office with the commercial register must be certified and submitted by a notary.

Tax requirements

If a foreign company operates a branch office in Germany (business office, factory, etc.), its profits must be taxed in Germany. The taxes incurred depend on the legal form of the company. They correspond to the taxes that a company with the corresponding German legal form would have to pay.

The profits of the branch which is taxed in Germany is either exempt from taxation in the other State or is subject to taxation there, in which case the tax paid in Germany is charged against the corresponding tax of the other State. Details are provided in the Agreement for the Avoidance of Double Taxation (DBA) concluded by Germany with the other State. In particular, income tax or corporation tax, solidarity surcharge, payroll tax, trade tax, and value-added tax are payable.