The business entities most used by investors are the German Limited Liability Company (GmbH)

Society Constitution
offshore in Germany

Country analysis: legal structures

Everything you need to know to set up an operating company with a bank account.

1. Exchange of banking information

β€’ There are no legal penalties for disclosing the customer's bank details to third parties.

β€’ Banks are partially subject to strict customer due diligence regulations (old FATF recommendation 5 / new FATF recommendation 10).

β€’ Banks are largely required to maintain sufficient records of their customer and transaction data for law enforcement (old FATF recommendation 10 / new FATF recommendation 11).

β€’ Banks and / or other covered entities are not required to report large transactions in currency or other monetary instruments to designated authorities.

β€’ The national administration has sufficient powers to obtain and provide bank information on request without qualifications.

β€’ There are undue notification and recourse rights against the exchange of banking information upon request, but with some problems.

2. Legal forms

LThe business entities most used by investors are the German Limited Liability Company (GmbH)

The German Limited Liability Company (GmbH)

β€’ LLC formation is the most common way to start a business in Germany. This type of company is most often used by international companies establishing a German subsidiary and has traditionally been used by entrepreneurs to establish their small businesses. This entity does not face commercial restrictions and can be incorporated into any sector of the economy.

β€’ To establish an LLC, our Clients must i) appoint a shareholder and a director ii) deposit a minimum paid-up share capital of € 25.000 in the corporate bank account and iii) register the company in the German Commercial Registry.

Best for entrepreneurs: UG's limited liability company (mini-GmbH)

β€’ The UG company allows entrepreneurs to put less capital at risk when setting up a company in Germany, as there is no minimum capital requirement for this form of company. Instead, 25% of the company's profits must be contributed to its reserves each year until those reserves total € 25.000, at which point the company becomes a standard GmbH. This means that there is less capital at stake until the business is successful and profitable, reducing our Client's risk and lowering the cost of capital.

β€’ We recommend UG to entrepreneurs trying to establish a business in Germany. UG has earned the nickname "mini-GmbH" thanks to having the same limits on its liability and no restrictions on the business it can undertake, while eliminating the requirement of having € 25.000 of share capital. Companies with more than 3 shareholders cannot use the UG and must instead incorporate a GmbH.

The German Stock Company (AG)

EThis entity is recommended for companies planning to receive outside investments or to be listed on a stock exchange, which requires an easy transfer of shares. The constitution requirements for German public limited companies stipulate a minimum share capital increase of € 50.000. The incorporation and management of an AG also implies more bureaucratic requirements and red ribbons.

GbR (Gesellschaft bΓΌrgerlichen Rechts)

EThis flexible business model equates to civil society, which is the simplest form of partnership. This type of company can be constituted by an individual or by means of a contract agreed by two or more people. GbRs have limited legal capacity which are listed in the German Civil Code (BGB 705).

Limited partnership with an LLC as general partner (GmbH & Co. KG

EThis form of business entity is a combination of an LLC and an LP. The LLC is designated as the sole general partner of the partnership. Limited partners are only liable to the extent of their registered shares. As a result, this entity combines the advantages of a partnership and an LLC.

Subsidiary (Tochtergesellscha)

UA subsidiary company in Germany has independent legal personality from its parent company.
However, it is predominantly in the hands of its parent company and its legal responsibility lies with the
own parent company. This form of business entity is legally incorporated in Germany either in
form of:

  1. i) a German LLC (GmbH).
  2. ii) a German joint stock company (AG).

A German subsidiary must meet its paid-up share capital requirement and its management and accounting activities can be carried out independently. In addition, you can sign contracts, maintain assets and conduct business autonomously in Germany. It is an obligation for a German subsidiary to pay corporation tax, trade tax and solidarity surcharge under the German Company Law.

A subsidiary must register its name in both the Commercial Registry and the local Commercial Registry
Germany

Dependent branch (unselbstΓ€ndige Zweigniederlassung)

EThis type of business branch is totally dependent on the parent company and does not have autonomy. The parent company also manages the central administration of a dependent branch. When negotiating, the dependent branch should always use the name of the parent company. However, it is mandatory for all dependent branches to report their business activities to the local Commercial Register in Germany.

Dependent branches are generally used for marketing and research activities, as well as for starting businesses in Germany.

Dependent branches are not registered in the Mercantile Registry, but details about the entity can be found in the Mercantile Registry

Autonomous branch (selbstΓ€ndige Zweigniederlassung)

UAn autonomous branch is a part of the parent company that is permanently separated from it both geographically and internally.

This structure can carry out its operations independently in Germany within the limits of the scope of activity of the head office. Furthermore, the operations of an Autonomous Branch are not limited to support and implementation activities.

A autonomous branch you can use your own name while doing business in Germany.

You have the right to have your own management team; bank account and capital resources, as well as a separate accounting record separate from its parent company.

However, the liabilities of the branch are accrued by the parent, as it is not an autonomous entity and remains an integral part of the parent.

Independent Commercial Agent

LRepresentative offices are not recognized by German law; instead, foreign companies hire an agent who will work independently.

The shares of the agent are not shares of the parent company, so our Client does not need to register in the German Commercial Registry.

General Conference (OHG)

EThis is a partnership between two or more people in which all partners have unlimited personal liability for the debts of the company.

Business entities can form a general partnership; the entity formed will be GmbH & Co. OHG

Limited partnership

EThis differs from OHG with respect to partner liability. One or more partners enjoy limited liability, while there must be at least one general partner with unlimited liability.

The names of the limited liability partners must be registered in the Commercial Registry for the purposes of
legal.

European Stock Company (SE)

DThe or more existing companies in different EU states can merge to create a European Stock Company. This allows them to do business in Europe with a single vehicle, rather than establishing
a network of subsidiaries.

  • The combined entity requires a share capital of at least € 125.000.

REMEMBER

Nor a German resident Director is required for all business entities. Holding companies are available in Germany.

OFFICES

Foster Swiss helps our Clients secure offices or we provide an office address. Most emerging markets require our Clients to have a 12-month office lease before company registration is approved.

We help our Clients overcome this challenge in the following ways:

Virtual office service

DDepending on the country and city, the rates range from US $ 900 to US $ 2000 and the annual active virtual office services range from US $ 1500 to US $ 4000).

Shared office space

LThe one-time fee is US $ 850. Thereafter, our Client pays the monthly rent directly to the owner).

Permanent office space

D Depending on the country and the city, the rates range from US $ 5.000 to US $ 8.000).

Accounting and taxes

TAX OBLIGATIONS

German tax returns must be filed by May 31 following the end of the company's financial year. However, this period can be extended on request.

The tax declaration and filing requirements for a German company are as follows:

  • - A small business needs to produce a balance sheet and related notes.
  • - A medium-sized company needs to produce a balance sheet, a profit and loss statement, related notes, and a management report.
  • - A large company needs to produce a balance sheet, a profit and loss statement, related notes, and a management report.

All reports submitted by medium and large companies must be audited.

TAX REGULATIONS

Resident companies pay taxes on their worldwide income, whereas a non-resident German company only pays taxes on their income derived from Germany.

The profits of a German company are taxed on two levels. The tax is paid at 16% at the federal level; municipal municipal tax at rates between 7% and 17%. The average effective tax rate for German companies is 30%.

The standard rate of VAT (value added tax) in Germany is 19%; A lower rate of 7% applies to daily items such as food, water, medicine, etc.

Once the company is registered for VAT, it is necessary to submit monthly reports.

Municipalities also collect taxes on real estate property from companies; the average property tax rate is approximately 1% of the property's value.

Companies will pay customs duties on the first imports into the EU. Applicable rates can be found here; no duty applies if the exporting country has a trade agreement with Germany.

A company established in Germany is entitled to a 95% exemption from capital gains tax on the sale of a domestic or foreign subsidiary.

German corporations are entitled to a 95% exemption from taxation of their income from dividends received; Dividends to a foreign company are subject to a 26% withholding tax. The rate is reduced between 5 and 15% if a DTA has been signed and is 0% for dividends paid to other companies in the EU.

All people working in Germany pay personal taxes, which are assessed on a progressive scale. Is the next:

β€’ 0% for residents who earn up to € 8.130 per year.
β€’ 14% for residents who earn between € 8.130 and € 52.882 per year.
β€’ 42% for residents who earn between € 52.882 and € 250.731 per year.
β€’ 45% for residents with income over € 250.731 per year.

Germany currently has double taxation agreements (DTAs) with 90 countries including Australia, Canada, China, Indonesia, Japan, Malaysia, New Zealand, Singapore, South Africa, the United Arab Emirates, the United Kingdom, and the United States.

Legal and compliance

β€’ The German legal system is efficient in resolving trade disputes. The court's decision is binding on all parties, but appeals can be filed with a higher court.

β€’ German law requires all companies operating in the country to provide compulsory occupational accident insurance.

β€’ The German Federal Data Protection Act prohibits companies from publicly disclosing private information about an individual.

β€’ Germany's General Equal Treatment Law prohibits discrimination against employees on the grounds of religion, race, gender and sexual orientation.

β€’ German competition law prevents companies from entering into contracts that form cartels or monopolies; companies must obtain permission from the Bundeskartellamt for mergers and acquisitions.

β€’ German law against restricting competition prevents dominant players in a market from driving out competitors through predatory tactics such as excessive price cuts.

β€’ Germany is a party to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (UNCITRAL); arbitration in other countries party to the convention will be enforceable in Germany.

β€’ German companies must ensure that all employees have a residence / settlement permit before starting to work for the company; companies that do not offer these guarantees will be legally responsible.

β€’ A resident company must notify the Central Bank if money transfers of more than € 12.500 are made abroad. This is not an exchange control, but it is done for statistical purposes.

β€’ Goods such as food products, agricultural products, pharmaceuticals, etc. are subject to import restrictions; Appropriate licenses and approval documents are required before importing

Country problems

- Foreign entrepreneurs must submit the office space lease to the German embassy to obtain visa approval.

- Company registration in Germany is an expensive process; The paid-up capital of € 25.000 must be deposited as part of the German GmbH registration, although the new UG company is more entrepreneur-friendly.

- Hiring a non-EU citizen is challenging as companies have to prove that an EU citizen could not adequately fill the position.

- A company resident in Germany faces a high tax burden ranging from 30% to 33%.

- German labor law makes it difficult to dismiss low-performing employees.

- Each German company must pay 50% of each employee's health insurance premiums.

- The country follows strict environmental protection rules, which require new products to obtain certifications and license approvals.

- Germany has a complex series of incorporation procedures. This makes the country 125th in the world in Ease of starting a business by the World Bank and the International Finance Corporation (IFC) in 2020. Also, it is not easy to get credit for your business in Germany.

- German banks require our Client to travel for an hour-long interview. Furthermore, German banks are reluctant to open corporate bank accounts when a Panama, a Venezuelan or residents of tax haven countries are involved in the corporate structure of the company.

- The vast majority of German banks are reluctant to incorporate non-resident companies.

- Few German banks offer Internet banking in English

MORE CONFIGURATION SERVICES SOLUTIONS

  • Shareholders and Agents
  • Office permits
  • Protection of trademarks and copyrights. - Market study.
  • Legal support
  • Proportion of details of temporary unions or associations
  • Fusions and acquisitions.
  • Internal control.
  • Group restructuring.
  • Financial management consulting.
  • Buy a business.
  • Valuation of companies.
  • Credit recovery
  • Job solutions
  • Due diligence search on existing companies and individuals

3. Commercial register

β€’ The national registry does not include all the identity information of the legal owner.

β€’ Information on legal owners is not always available online (up to 10 EUR / GBP / USD).

4. Transparency of society

β€’ Available companies where only some legal owners are registered.

β€’ Updating the information on the identity of the legal owners is not mandatory.

5. Shareholders

β€’ All companies require the registration of all final beneficiaries at a threshold of more than 25% (FATF).

β€’ All names plus countries of residence plus addresses or NITs or dates of birth, passport or personal identifications are always recorded.

β€’ Updating the information on the identity of the final beneficiaries is not mandatory.

β€’ Real property is not always available online (up to 10 EUR / GBP / USD)

6. Company accounting

β€’ It is mandatory to keep accounting data.

7. Country-by-country financial reports

β€’ There is no public report on a country-by-country basis.

8. Corporate tax return

β€’ The secondary mechanism is not subject to the restrictions imposed by the OECD model legislation: any national affiliate of a group would have to submit the CbCR in all cases where the jurisdiction cannot obtain the CbCR through AEoI.

β€’ Unilateral cross-border tax rulings (eg advance tax rulings, advance tax rulings) are available in laws or regulations, or administrative practice

9. Identifier of legal entities

β€’ The use of an annually updated Legal Entity Identifier (LEI), developed under the guidance of the Financial Stability Board, FSB, is not mandatory.

β€’ The use of a Legal Entity Identifier (LEI) updated annually, developed under the guidance of the Financial Stability Board, FSB, is mandatory only for derivatives trading (OTC).

β€’ The use of an LEI updated annually for the identification of reporting financial institutions (in accordance with the Common Reporting Standard (CRS) is not mandatory

10. Measures to avoid tax evasion

<br>β€’ Dividend payments: Unilateral relief for double taxation through a tax credit system for a payment scenario (if the recipient is an independent or related legal person, or a natural person).

<br>β€’ Interest payments: Unilateral relief for double taxation through a tax credit system for both payment scenarios (recipients always receive a unilateral tax credit, regardless of whether it is a legal person or a natural person).

11. Tax matters judicial secrecy

β€’ None or restricted access to both criminal and civil tax procedures.

β€’ None or restricted access to both criminal and civil tax judgments / verdicts.

12. Opaque structures

β€’ The jurisdiction issues or accepts large banknote circulations / cash notes of your own currency (value over 200 EUR / GBP / USD).

β€’ Unregistered bearer shares are available / outstanding or registered by a private custodian.

β€’ Series LLC / Shielded Cell Companies are not available.

β€’ trusts with escape clauses are not prohibited.

13. Anti-money laundering legislation

Germany is not on the FATF List of countries that have been identified with strategic AML deficiencies. At its June 2014 meeting, the FATF Plenary recognized that Germany had made sufficient progress in addressing the deficiencies identified in its 2010 mutual evaluation report, and could be removed from the regular monitoring process.

In February 2010, Germany was placed in the regular monitoring process as a result of a rating of partial compliance with certain key and basic Recommendations in their mutual evaluation report. Since then, Germany has reported to the FATF Plenary on the progress it has made to correct these deficiencies.

The June 2014 follow-up report contains a detailed description and analysis of the actions taken by Germany with respect to all Recommendations rated as partially compliant and non-compliant. Significant actions taken with respect to the Key and Basic Recommendations are:

- Amendments to the Penal Code by including the use of privileged information and manipulation of the market, as well as the counterfeiting and piracy of products as predicate offenses for money laundering.

- Amendments to the AML Law to ensure that verification of the beneficial owner is required in all cases and that in low-risk cases, a minimum level of due diligence continues to be carried out. Germany has also adopted a much broader definition regarding beneficial ownership in the context of a trust agreement.

- Amendments to a number of other laws to strengthen the overall AML / CFT framework.

- Greater cooperation between relevant ministries, the regulatory and supervisory authorities, as well as other organizations involved in the fight against money laundering and terrorist financing.

There are still some shortcomings in the implementation of the technical requirements of the key and basic Recommendations regarding the freezing of terrorist assets. Overall, the level of progress achieved by Germany was considered sufficient to remove it from the regular monitoring process.

Overall non-compliance score with FATF standards in percentage: 46,9%.
(100% = all indicators rated as not met / low level of effectiveness; 0% = all indicators rated as completed or highly effective)

14. Automatic exchange of information

You signed the MCAA and committed to sharing information on or before 2019.

Number of significant activated AEOI relationships (under the MCAA) published by the OECD as of October 2019: 97.

What type of private banking exists in Germany?

International Banking
Local banking

Central bank security ⭐⭐⭐

Each filtering bag international banks and digital are available.

CRS: SI.

Real bank operations: 90%.

Visa type:€, $.

Joint accounts: Yes

Remote management account: To consult.

Asset management Depending on the rating of the company.

Rates: It depends on the type of account.

Credit / debit cards in local currency

Why with Foster Swiss?

Foster Swiss is an international company registered in Switzerland aimed at providing financial and compliance advice on a variety of topics related to company formation
and commercial banking internationally. We are specialized in the implementation of businesses in different jurisdictions, which means that we offer value-added services helping our clients in their expansion abroad.

Some of these services include:
Advice and consultancy,
visas, offices, nominated director / shareholder / secretary,
accommodation if necessary… to name a few.
Check with your assigned consultant for more information.