Open a Representative Office in Germany: Guidance for foreigners
Open a Representative Office in Germany
Updated on Tuesday 03rd October 2023 Rate this article
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A representative office is established in order to conduct non-commercial activities, which will just set out the premises for establishing a business presence on the local market. Foreign companies are allowed to open a representative office in Germany, but it is important to know that the term is not officially recognised in Germany because the applicable legislation does not contain any provisions referring to the incorporation of a representative office. However, the law provides an alternative in this sense, through the registration of a branch office in Germany. Our team of German lawyers can offer assistance for the incorporation of a non-commercial office here.
| Quick Facts | |
|---|---|
| Purpose of a representative office | Liaison offices are established for the purpose of conducting non-commercial activities. |
| Requirements | You must ensure that representative offices comply with non-commercial activities and do not engage in commercial transactions. |
| Laws governing liaison offices in Germany | German legislation does not provide for this specific type of structure. |
| Activities of a representative office | - market research, - advertising, - customer support, - negotiations, - maintaining relationships with partners, etc. |
| Interdicted activities | - direct sales of products or services, - signing contracts, - import and export, - investments, etc. |
| Can hire employees (YES/NO) | YES |
| Accounting and reporting | Not applicable |
| Taxation | None |
| Related costs | - utilities, - rent, - employees salaries, - office supplies, - equipment, etc. |
| Differences from a subsidiary | A subsidiary has its own legal personality; A subsidiary can engage in commercial business activities; Setting up a subsidiary may require a significant capital contribution. |
| Differences from a branch office | A branch office allows a company to conduct commercial operations in the country without creating a separate legal entity; A branch office in Germany is subject to taxes. |
| Transitioning to another legal entity (YES/NO) | Yes, our German lawyers can provide support in this process. |
| Alternatives | - branch offices, - subsidiaries |
| Advantages of opening a representative office in Germany | - market research, - simple process, - cost-efficient, - flexibility, - local presence, etc. |
| Assistance | You can seek assistance from our German law firm in this process. |
The legal premises of a German representative office
Although most of the European countries allow the incorporation of a representative office as an entity which does not conduct any commercial activities, the German legislation does not provide this type of structure. However, the representative office can be registered here, under several conditions.
The German commercial legislation considers that the opening of a representative office of a foreign company would represent a commercial activity, as the office set up in Germany is a part of a commercial legal entity. In this case, the office will have to be registered following the procedure established under the commercial law as a branch office.
The only way to set up a representative office with non-commercial activities is if the office is set up by an external and independent businessman, who, from a legal point of view, is a commercial representative.
In this case, the office can conduct non-commercial activities; our team of German attorneys can offer more details on this matter.
Taxes for a representative office in Germany
Because the term is not legally recognized in Germany, one must be careful if the company's office directly engages in commercial activities as part of its operations. Therefore, it is considered a business location and needs to be registered with the Trade Licensing Office and must comply with certain legal requirements.
If the liaison office in Germany does not engage in profit-generating activities or commercial transactions, it does not have taxable income.
There are some business expenses for representative offices in Germany with non-commercial activities such as costs related to rent, utilities, employee salaries and benefits, office supplies and equipment, as well as any licenses or permits that may be required.
For more specific information regarding the process of opening a liaison office in Germany, as well as details about taxation and registration, it is recommended to reach out to our German lawyers.
Subsidiary vs. Representative office
Both subsidiaries and representative offices are ways for companies to establish a presence in a foreign country. Our German lawyers have highlighted some of the most important differences between them and will explain them to you in short detail.
Firstly, a subsidiary is a legally independent entity with its own legal personality. It is incorporated under German company law and can make independent business decisions specifically for the German market. A representative office in Germany is not legally independent, but a part of the parent company and carries out auxiliary business activities.
The subsidiary has its own legal form under German company law, such as a limited liability company (GmbH) or a public limited company (AG). It can also operate under its own company name, separate from the parent company.
A subsidiary can engage in independent business activities, make entrepreneurial decisions, and operate as a separate entity in the German market. The liaison office is limited to activities that do not generate profit, generally marketing, advertising, or market research.
Lastly, setting up a subsidiary may require a significant capital contribution, depending on the chosen legal form. Opening a liaison office in Germany does not require a capital contribution.
Our law firm in Germany also provides assistance in opening a subsidiary in the country, if you are interested.
Branch office vs. Representative office
A branch office in Germany serves as a foreign business presence that allows a company to carry out operations in the country without the need to create a different legal entity.
A liaison office in Germany for non-commercial activities is a non-independent entity established by a foreign company to represent its interests and promote its business in Germany.
The main difference between the two is that a representative office is limited in its activities and cannot engage in direct profit-generating activities, sign contracts, or carry out commercial transactions. Its primary function is to gather market information, provide customer support, and facilitate communication between the parent company and potential clients or partners.
A branch office in Germany is also subject to taxes. Since it is considered an extension of the foreign company, it is generally liable for corporate income tax, trade tax, and other applicable taxes based on its operations and income generated in Germany. We can help you with VAT registration in Germany if you are interested in opening a branch office.
Establishing a branch office can be more complex compared to setting up a representative office. For more details on this subject, feel free to contact our law firm in Germany.
We invite you to watch a short video on the liaison office:
How to open a representative office in Germany
Setting up a liaison office in Germany involves going through the process of establishment, but there is no requirement to register it in the German commercial register.
However, for companies from non-EU countries, the representative office needs to be registered with the relevant consumer protection office in Hamburg. Additionally, the representative's residence permit must be presented during the registration process.
Our German lawyers can also help non-EU businesses when opening a representative office in Germany.
The activities of a German representative office
The purpose of a representative office is to establish a business presence on the local market, which can be set up only through non-commercial activities that do not provide any type of financial gain.
The most common activities of a representative office are:
• market research;
• feasibility studies;
• liaison office for negotiation matters;
• customer support.
Transitioning from a representative office to a formal business entity
If you opened a liaison office in Germany and wish to transition to a formal business entity, our German lawyers can provide support.
Before beginning this process, one should carefully consider whether it is a suitable choice to make this transition. You should evaluate whether the benefits and goals you have for your company align with the idea of changing from a representative office to a more formal legal entity like a subsidiary or branch.
You also have to determine the legal form you want to adopt for your new entity in Germany and make sure you have the minimum capital required for them. Common options include a limited liability company (GmbH) or a public limited company (AG).
Once you make a decision, you can begin the incorporation process, specific to each business entity. This includes preparing and submitting the necessary documents to the German Commercial Register and fulfilling any regulatory requirements.
Additionally, you might also need to open a bank account in the country and possibly hire staff for your company.
It is also important that you comply with all legal, taxation, and regulatory requirements associated with the establishment of a new legal entity in Germany. Our accountants in Germany can help.
Advantages of opening a liaison office in Germany
Opening a liaison office in Germany can serve several purposes and offer various benefits for foreign companies. Some of the advantages include:
- Allowing you to assess the German market's potential and understand the local business environment before making a more significant commitment, like opening a company;
- Helping you identify potential risks and challenges associated with operating in Germany, and discover new market entry strategies;
- Helping you establish initial contacts with potential clients, partners, suppliers, and other stakeholders in the German market;
- Having a physical presence in Germany, even in the form of a representative office, can enhance your brand visibility and credibility among local stakeholders.
We recommend reaching out to our attorneys in Germany if you wish to start a company in the country.
For those interested in opening a company or liaison office in Germany, here are some facts and statistics to consider about the country’s economic status:
- In 2020, Volkswagen was the company with the highest annual revenue among all German-based companies with an approximate revenue of 282 billion dollars;
- In 2021, the manufacturing sector in Germany contributed 26.6% of the total gross value added (GVA) to the country's economy;
- German industry is primarily dominated by four key sectors: automotive, mechanical engineering, chemical, and electrical industries;
- In 2018, the non-financial business economy in Germany consisted of approximately 2.6 million enterprises.
Businessmen interested in setting up a representative office in Germany can address to our law firm in Germany for legal assistance.
