IHK Berlin

Establishing a New Branch in Berlin

Berlin offers such great business opportunities that many German and foreign companies decide to explore the options available for opening a new branch here. They are faced with three different possibilities: establishing a subsidiary, an independent branch or a dependent branch. This leaflet is intended to summarise the ways in which you can extend your commercial activities and explains the formalities which have to be observed.

Establishing a Subsidiary

Establishing a subsidiary means founding a corporate entity which is legally independent of the parent company. The respective statutory regulations governing whichever legal form the subsidiary chooses to adopt are to be found in the relevant legislation (the Commercial Code (‘Handelsgesetzbuch’ [HGB]) in the case of OHGs and KGs, the Limited Liability Companies Act (‘GmbH-Gesetz’) for GmbHs and UGs (with limited liability), and the Stock Corporation Act (‘Aktiengesetz’) for AGs). The subsidiary operates under its own name and draws up its own balance sheet; its rules of incorporation, business registration and entry in the Commercial Register are governed by German law, even if the parent company is domiciled abroad.

Establishing an Independent Branch

Under Arts. 13 ff. HGB, an independent branch is an establishment physically separate from its head office, created for the long term as an additional entrepreneurial hub, which has to be entered in the Commercial Register.
A company might decide to establish an independent branch if its head office is already entered in the Commercial Register or – if the company concerned is foreign – its head office would have to be entered in the Commercial Register if the company were based in Germany.
An independent branch is not a legal entity in its own right, and does not exist in isolation from the head office. In legal and organisational terms, it is part of the same company and governed by its procedural requirements. If the branch is established by a foreign company, its internal organisation shall comply with the company’s statute and with the applicable law of the country concerned.
Despite this internal dependence on the head office, the branch participates independently in business transactions. It must be organised in such a way that it could continue to operate even if the head office ceased to exist. The legal relationships between the branch and its customers are governed by German law, as is the treatment of the branch’s legal affairs in Germany (in particular its entry in the Commercial Register).
The physical separation between the head office and the branch does not mean that they must be situated at different geographical locations. Thus, under specific circumstances it is possible that both might maintain business premises in the same building.

Some of the typical characteristics of an independent branch are as follows:
  • the same or a similar type of business is conducted as at the head office (not merely auxiliary functions or the execution of transactions);
  • it must be intended to be operational for a certain length of time (i.e., not merely to handle temporary trade-fair business);
  • outwardly, it must be organised in a similar way to a head office (generally, but not necessarily, with a separate accounting department, its own bank account and its own business premises);
  • the branch manager must have been granted key powers and be free to act autonomously.
Establishing the branch
An independent branch is created by virtue of its actual establishment process. Its entry in the Commercial Register has only declaratory value. The decision to establish the branch is to be made by the relevant management boards at the head office.
Capital
The legal status of an independent branch requires it to have its own capital resources. However, there is no minimum capitalisation requirement. Neither is the level of capitalisation recorded in the Commercial Register.
Internal organisation
The head of the branch has independent authority to represent it vis-à-vis third parties. However, it is always the headquarters, whether in the form of a natural person or a legal entity, which is the debtor in the case of liabilities. The head of the branch is typically granted authority to act or power of attorney at the very least, which can be restricted externally to the operation of one or more places of business owned by the company’s proprietor.
Company name
The name of the branch may be identical to that of the head office, but can also differ, although in this case it should at least include an indication of its status (e.g.: ABC GmbH, Frankfurt Branch, or XY Services, a division of ABC GmbH). A suffix must be added if power of attorney pursuant to Art. 50(3) HGB is to be restricted to the operation of a branch with effect vis-à-vis third parties, or if a company with the same name is already registered at the location where the branch is to be established.
The name of the head office must appear without alteration in the company name of the branch of a foreign company (if applicable, also in the foreign language), and should include a suffix indicating its legal form. If the addition of such a suffix is not required under the law of the country concerned, or if this suffix is uncommon or not readily understood in Germany, then a clarifying suffix must be added to avoid any misunderstanding. A suffix may also be added to the branch’s company name (e.g., ‘Zweigniederlassung Frankfurt’, [Frankfurt branch]).
Information to be included in commercial correspondence
Any letters written by the branch must bear the complete company name. The Register in which the branch is listed must also be identified. In addition, the mandatory information required about the head office on the basis of its legal form must be supplied. Additional information about the company headquarters is desirable, but not actually required by law. When sending correspondence from Germany, the German branches of foreign companies are obliged to meet certain minimum requirements in terms of the information they include in commercial correspondence:
  • details of the Register in which the branch is listed,
  • its registration number,
  • the complete foreign company name, including a suffix which indicates its legal form,
  • details of the Register in which the foreign company is listed,
  • the information which German law requires companies of a particular legal form to include in their business correspondence, unless otherwise specified by the law of the country concerned.
The following information must be included in the business papers of foreign legal entities from outside the EU or the EEA: the company name, the town and country in which the company has its registered office, and its legal representatives (surnames and at least one first name).
Annual financial statements
Mandatory accounting and the obligation on an independent branch to prepare a balance sheet are governed by German law. In case of doubt, the branch should comply with the regulations applicable to the German legal form which corresponds most closely to that of the foreign company.
Independent branches and the courts
Although an independent branch is not a separate legal entity, it comes under separate jurisdiction pursuant to Art. 21 of the Code of Civil Procedure (ZPO). This means that claims may be made against a trader at the location where the branch is based, provided the dispute is of a pecuniary nature and arises from the operation of the branch.

Establishing a Dependent Branch

Another option facing a company wishing to expand is to set up dependent branches or permanent establishments. Under Trade Law, this means additional establishments or affiliates of the company which are set up as business premises, but which are dependent on the company headquarters. They are therefore dependent establishments which may not be managed under any other company name than that of their head office. In legal terms, a single business is simply deemed to be operating from more than one separate location. Invoices are also issued in the name of the head office. The dependent branch is not entered in the Commercial Register. Nonetheless, each business establishment must be registered with the relevant Tax Office and commercial businesses in addition with the relevant Trade Licensing Office. Consequently, the business correspondence of the branch must include details of the head office (company name, registration court and Commercial Register number). The designation ‘Zweigstelle Berlin’ (Berlin branch) may be added. If the head office is not listed in the German Commercial Register, the registration details of the foreign company must be given.
When considering the degree of independence of an affiliate, which is generally a matter for the company itself, a key distinction is therefore to be made between a branch whose details have to be entered in the Commercial Register and a dependent branch.

Representative Office

The term ‘representative office’ is often used when companies – especially from abroad – establish a foothold in Germany. But it is not recognised under German trade or commercial law.
If the office of the company concerned conducts commercial transactions itself as part of an organisation, it has the legal status of business premises requiring registration with the Trade Licensing Office.
Alternatively, the office which is opened may be managed by an external, appropriately commissioned self-employed trader (e.g. a commercial representative). In this case, the foreign company is not pursuing independent commercial activities in Germany.

Requirements under the Aliens Act

If subsidiaries, independent branches or dependent branches are operated by a natural person from abroad who is not an EU citizen, it is important to note that he/she will require a residence title pursuant to the Aliens Act which authorises him/her to engage in the intended form of gainful employment.
This residence title is required irrespective of whether or not the individual concerned wishes to reside in the Federal Republic of Germany in the long run. However, the residence permit may be granted under less stringent conditions if the foreign citizen wishes to remain domiciled abroad and merely conduct discussions or negotiations on behalf of a foreign company in the Federal Republic, or if, for instance, he/she is assembling or servicing plant and equipment, provided the length of his stay does not exceed three months within a twelve-month period.
If a foreign citizen already possesses a residence permit which contains an endorsement stating that he may not pursue a self-employed occupation, it may still be possible to apply to the Aliens Authority to have this endorsement amended. The outcome of the application will depend upon a statement issued by the Berlin Senate Administration in charge of economic affairs, which must determine whether such an activity is deemed to be in the overriding economic interests of Berlin, whether there is a particular need for such an activity in the locality, and whether the activity is expected to benefit the economy.

Formalities and Documents to be Submitted

The formalities which must be complied with by those seeking to expand a business relate to registering the business with the Trade Licensing Office, entering its details in the Commercial Register and, in some cases, obtaining the necessary permits.

Trade announcement at the Trade Licensing Office

In Berlin, every type of establishment (subsidiary, independent branch, dependent branch, etc.) must register as a business. This is done by submitting a form to the commercial department (Abteilung Wirtschaft) of the regulatory agency (Ordnungsamt) in the city district where the business premises are located. When registering your business, you must present the following documents to the Trade Licensing Office (Gewerbeamt):
Documents establishing the identity of the individual submitting the application:
  • Proof of identity in the form of an identity card or passport
  • If applicable, (personally written and signed) evidence of authorisation to act for a third party (an individual or legal entity); in the case of a managing director, board member or holder of a power of attorney (Prokurist): evidence of authority to represent the company in the form of an extract from the company’s entry in the (foreign) Commercial Register (German translation required)
  • Permits, if applicable (e.g. craftsman’s card, real estate licence, etc.)
  • Citizens from abroad must present a residence permit issued by the relevant Alien’s Authority which contains an endorsement to the effect that the holder is entitled to pursue a self-employed occupation
Evidence required in respect of the company:
A company entered in the Commercial Register must provide proof of this in the form of an extract from the Commercial Register. A company entered in the Commercial Register of another country must present the appropriate evidence. A German translation must also be provided; official certification is not generally required. In cases of doubt, for instance if the address of the individual submitting the application differs from that of the business, evidence of the existence of the business premises must be provided by submitting a rental agreement or having this confirmed by the landlord. If there are justified grounds for so doing, a certificate of good conduct or information from the Central Business Register may be required.
Special approval arrangements under trade legislation:
Subsidiaries established in the case of a business requiring licensing or providing craft or trade services must comply with the same conditions under trade legislation as the parent company; this is the responsibility of the partners or, in the case of corporations, of the individuals with rights of representation.
A number of special rules and regulations also apply to both independent and dependent branches in this sector:
  • If an independent branch of a business providing craft or trade services is more than 100 km distant from the head office, it must have a master craftsman who is listed in the Register of Craftsmen as its representative or a technical operations manager.
  • In the case of businesses requiring licensing (estate agencies, property development agencies, etc.), the permit will be issued to the trader, i.e., the proprietor of the main branch. Licensing shall be refused or revoked if the applicant himself, or the individual charged with managing an independent branch, is not deemed sufficiently reliable to run the business.
  • Special conditions also apply to the licensing of independent or dependent branches, if the issuing of the licence depends not only on the personal characteristics of the applicant, but also on the nature of the premises (e.g., restaurants or amusement arcades). In this case, separate licences are required for the branch.
Some trades, whilst not requiring a licence, must, however, comply with professional regulations. Examples include:
  • a certificate of competence for those handling poisons and pesticides or involved in the retail sale of over-the-counter medication
  • mandatory book-keeping and record-keeping in travel agencies and – in Berlin – for dealers in second-hand goods and precious metals
  • a hygiene certificate for those handling certain foodstuffs.

Listing the company in the Commercial Register

Subsidiaries and independent branches must be entered in the Commercial Register in addition to the trade announcement.
Subsidiaries
Independent subsidiaries must be recorded in the Commercial Register (Local Court) with jurisdiction for the location of the business premises. The registration must be certified by a notary public. The commercial register application and the articles of association of the GmbH have to be submitted in German language. Furthermore, the existence and power of representation for the mother company have to be provided by submitting an official printout from the (foreign) commercial register or by a notary certificate together with a publicly certified translation in German. In order to recognize foreign documents and notary certificates, an apostille or legalisation together with a publicly certified translation may be required due to the lack of bilateral international treaties (such as with the Republic of Austria). Further information on international document traffic can be found on the website of the Foreign Office.
The certification appointment at the notary can be carried out online via video communication with the notary. The online incorporation process first requires registration via the portal of the Federal Chamber of Notaries, which is also used to exchange documents between the founders and the notary. In addition to technical requirements, such as a stable Internet connection, a laptop or tablet with a camera and microphone and a smartphone that can read the ID using an app are required. A German electronic ID card or alternatively a German eID card for EU/EEA foreigners or an electronic residence permit for third-country nationals including the respective PIN and prior activation of the online ID function must be available; it must be possible to read the photograph. The signatures under the articles of association are replaced by qualified electronic signatures. Information from the Federal Chamber of Notaries on the online procedure is available under: https://www.onlineverfahren.notar.de/.
Registering an independent branch of a German company
The branch is to be registered at the registration court with jurisdiction for the location of the head office. The registration must be certified by a notary public. The certification appointment at the notary can also be carried out online via video communication with the notary (see above).

The following are responsible for the registration:
  • in the case of a sole proprietor, the latter or an authorised signatory with a publicly certified power of attorney (Prokurist),
  • in the case of a business partnership, partners authorised to represent the company and/or an authorised signatory with power of attorney (Prokurist),
  • in the case of a limited liability company (GmbH), the managing directors (the holder of a power of attorney (Prokurist) is expressly prohibited from doing so),
  • in the case of a joint stock company (Aktiengesellschaft [AG]), the members of the Board authorised to represent the company.
In the case of a GmbH, a certified copy of the Memorandum of Association (Gesellschaftsvertrag) and a list of partners must be submitted. For an AG, a publicly certified copy of the Articles of Association (Satzung) as last amended at the time of registration is required.
If the individual filing the application is not doing so in his/her own name but is acting for another party, a written power of attorney certified by a notary public is required.
The Commercial Registry Court shall verify whether or not the name chosen for the independent branch differentiates it sufficiently from existing businesses domiciled in Berlin, and whether it exhibits the typical characteristics of an independent branch.
Registering the independent branch of a foreign company
The head of the branch is responsible for registering it at the court within whose jurisdiction the branch is to be established. Similar regulations apply as for the establishment of an independent branch by a German company; in some respects, they go further, because these branches are to be treated in a way similar to that applicable to the establishment of head offices in Germany. In practice, this means that:
  • The registration court in Berlin checks every aspect of the application document, and not just the choice of company name.
  • The head of the independent branch bears full responsibility for all matters relating to statutory registration.
  • The naming of the company is to be based on German legislative provisions.
The following information must be supplied:
On the parent company:
  • details of the Register in which the company is listed, if registration is required under the law of the state to whose jurisdiction the company is subject,
  • the legal form of the company,
  • if the company is not governed by the law of a Member State of the European Community or of a State party to the Agreement on the European Economic Area, the state law to whose jurisdiction the company is subject,
  • the name and registered office of the company,
  • the object of the company,
  • the date on which the Memorandum of Association was signed,
  • personal details of members of the management team and/or board and their powers,
  • the level of nominal capital/share capital,
  • any time limits relating to the existence of the company.
On the independent branch:
  • the address and object of the independent branch,
  • the level of branch's capital,
  • the date when the decision was made to establish the branch,
  • personal details of members of the management team and/or board who are entitled to represent the company at branch level both judicially and extra-judicially, and the extent of their representative powers,
  • any time limits relating to the existence of the branch.
Enclosures:
  • evidence of the existence of the parent company, e.g., in the form of an extract from the home country’s Commercial Register in the original language in a publicly certified form, together with a publicly certified translation into German
  • a publicly certified copy of the company’s Memorandum of Association in the original language, together with a publicly certified translation into German
  • In order to recognize foreign documents and notary certificates, an apostille or legalisation together with a publicly certified translation may be required due to the lack of bilateral international treaties (such as with the Republic of Austria). Further information on international document traffic can be found on the website of the Foreign Office.
  • if German law requires a licence to be granted because of the nature of the operation or object of the company, evidence must be supplied that such a licence has been issued
  • evidence of authorisation to act for a third party (a natural person or legal entity) in a publicly certified form, together with a publicly certified translation into German; If the signature on a power of attorney was certified by a foreign notary public, legalisation (or an apostille) may be required, depending on the country concerned. This can be issued by a consulate of the Federal Republic of Germany. Further information on international document traffic can be found on the website of the Foreign Office. In the case of a managing director, board member or holder of a power of attorney (Prokurist), an public extract from the Commercial Register shall suffice as proof of power of representation.
If a foreign company wishes to establish more than one branch in Germany, one Commercial Register may be selected as the main register. All of the aforementioned documents need to be submitted to this Commercial Registry alone. Whether the foreign company’s independent branch is listed in Section A or Section B of the Commercial Register will depend on which legal form in use in Germany is similar to that of the foreign company.

The Tax Requirements which Apply to Foreign Branches

If a foreign company has a base in Germany (business premises, a manufacturing facility, etc.), its profits are taxable in Germany. The taxes payable will depend on the legal form of the company, and will correspond to the taxes which a company of a similar German legal form would be liable to pay.
The profits of the establishment which are taxed in Germany will either be exempt from taxation in the other country or will be subject to taxation there, in which case the taxes paid in Germany will be offset against the amount payable in the other country. The finer details of this are regulated by the agreements to avoid double taxation (DBA) negotiated between Germany and the other state.
The taxes payable include income tax/corporation tax, the solidarity surcharge, wage tax, trade tax (Gewerbesteuer) and sales tax.

IHK Berlin publishes professional articles as a service for its member companies. These are intended to provide a brief introduction to the legal principles involved, and do not claim to be exhaustive. They are no substitute for the extensive advice available from a lawyer/tax advisor who has carried out a detailed assessment of your individual circumstances.