Branch Offices and permanent Establishments

Growing your business requires economic and legal resource. Where a company wishes to expand and possibly start up a new location, there is in particular the question concerning legal organisation within the company.
This leaflet is designed to provide an overview of the options for expanding commercial activity, and the associated formalities. Each section of the leaflet refers to sources of more detailed information.

If a company wishes to expand, it has three main options: Form a subsidiary, establish a branch office or create a permanent establishment. Sample contracts for these different forms can be viewed in the contract manuals in the Hamburg Chamber of Commerce 'Commerzbibliothek' library.

When a subsidiary is established, a legally independent company is formed. The legal stipulations relating to the specific legal form apply when establishing a subsidiary. The subsidiary trades under its own name and prepares its own balance sheet. Even if the founders are foreign, German regulations of company formation, business registration and entry in the commercial register apply exclusively.

Branch offices are a half-way house between forming an independent company and simply forming a division of a company. A branch office would typically on the one hand be independent of the company, and on the other hand have a certain degree of autonomy.
The branch office is described as an office that is spatially separate from the main branch, and which was created as an additional, long-term focus of the business; while it cannot conduct all the business of the main office, it does conduct the type of transactions which characterise and form the essence of the business. The independence which the branch office must demonstrate comes from it being spatially separate and having its own management with a certain freedom of authority, possibly its own accounting, its own balance sheet and its own business assets. All this must give the impression of an organisation structure established for the long-term. The branch office must be organised in such a way that it would continue if the main branch no longer existed.
The spatial separation between the main and the branch office does not, however, mean that they need to be in different locations. It is conceivable under certain circumstances that both could be accommodated in the same building.

Despite a certain degree of independence, the branch office cannot under the law in force carry its own rights and obligations. The main branch and the branch office form part of the assets of one and the same legal entity: that of the business owner. Only the business owner, for example, owns the land rights and is party to legal cases. The branch office is therefore a dependent part of the business and is not a legal entity in its own right.
As a legal and organisational part of the business, the branch office is subject to the laws of the main branch. If the branch office is established by a foreign company, the foreign legislation applicable to the parent company generally applies.

The name of the branch office can be exactly the same as the main office. The addition of appendices ("German Office" or "Hamburg Branch" etc.) is, however, permitted. An appendix is required where a power of attorney pursuant to § 50 clause 3 of the German Commercial Code (HGB) is to be restricted to the operations of a branch office with effect to third parties, or if, in the location in witch the branch office is established, a company with the same name is already registered.
Branch offices require both business registration and registration in the Commercial Register.

Another option for expansion is to set up a permanent establishment. The term 'permanent establishment' comes from commercial law, and indicates additional sites or affiliates of a company which are established as places of business, but which are dependent on the head office. Sites such as this are therefore dependent branch offices which are not permitted to run a company which differs from the main branch. From a legal point of view, it is a unitary business which is simply in spatially separate places. Invoices are also issued in the name of the head office. Dependent offices are not entered in the Commercial Register. However, each site must be registered with the appropriate Consumer Protection Office. Alternatively, this process can be done via the Point of Single Contact, directly in our Chamber of Commerce.

The term "representative office" may also be associated with establishing branch offices, particularly by foreign companies. This is not a term recognised under German commercial and trade law.
Either the company in question's office in Germany is itself commercially active as part of the main office, in which case it is a dependent permanent establishment (as described above). It would then have to be registered under commercial law.
Or the company opens an office which is managed by an external, independent businessman ( e.g. a commercial representative) who has been instructed accordingly. In this case, the company is not conducting independent commercial operations in Germany.

The formalities associated with company expansion concern business registration, entry in the Commercial Register and, in some cases, licences.

Under commercial law, all commercial activities carried out by a subsidiary, a branch office or a permanent establishment must be registered with the competent Consumer Protection Office.

The following documents must be presented to the Consumer Protection Agency:

Pieces of identification for the applicant:

Proof of identity by means of identity card or passport;
Proof of authorisation to act on the part of a third party where applicable; for managing director, board or individual with power of attorney: extract of the company's entry in the Commercial Register;
Licences where applicable (e.g. handicrafts trading permit, estate agency operating licence etc.)

Foreign nationals must present a residence permit issued by the competent aliens' registration office which includes an authorisation to be self-employed.

Evidence for the company:

A company entered in the Commercial Register must provide evidence of this by means of an extract from the Commercial Register;
A translation of any documents from foreign commercial registers must also be provided;
Foreign companies are required to produce a power of attorney for Germany as well as an address in Germany. An individual with power of attorney in Germany must produce an authorisation in his own name.
Further information about business registration can be found under Business registration and entry in the commercial register.

2.1 Subsidiaries
Independent subsidiaries must be registered in the local county court Commercial Register. Registration must be in a legally certified form.

2.2 Branch office

Registering a company based in Germany
A branch office is registered in the Commercial Register at the court in the location of the main branch or corporate headquarters. Registration must be submitted to the registration court in writing and legally certified. The necessary signatures must be lodged with the registration court in the location of the branch office.
There are some special features for limited companies: Limited companies (GmbH) must submit a certified copy of the articles of association and list of shareholders. Joint stock (AG) must submit a certified copy of the statutes in the version valid at the time of registration.

Registering a company based abroad
Please note the following when registering a company based abroad: Application for entry in the Commercial Register must be made directly to the court in the district in which the branch office is located. Registration of the branch office of a foreign company will then be handled as is if it was a main office.
When registering, evidence of the existence of the company as such must be presented and, if the company's purpose or authorisation to trade in Germany requires government approval, evidence of this should also be provided. Registration should also include the branch office's address and purpose. The registration should also state:

The register in which the company is maintained and the Registration Court number provided legislation in the country in which the company has its registered office provides for a register entry;
The company's legal form;
The company's trading name and corporate headquarters;
The persons authorised as independent representatives to represent to the company legally and out of court for the company's branch office activities, stating what authorisations they have;
If the company is not subject to the laws of a member state of the European Community or State Party to the Agreement on the European Economic Area, the law of the country to which the company is subject.

Note also that a certified copy of the statutes of a joint stock company (Aktiengesellschaft) and articles of association of a limited liability company (GmbH) must be attached to the entry, along with a certified translation if the statutes/articles of association are not in German.

2.3 Permanent establishment

Permanent establishments do not need to be entered in the Commercial Register. Business registration is sufficient in this case.

Some trades require that you apply for a licence from the competent authority before you begin trading.
In particular, any type of craft requires a licence and registration in the register of craftsmen maintained by the competent regional Chamber of Crafts. A condition of entry in the register of craftsmen is that work is done by a master craftsman although there are some restricted exceptions to this.

Freedom of trade otherwise rules. Note that most wholesale and retail trades are not regulated. Nevertheless, conducting a business may be subject to a series of special regulations.

Where subsidiaries, branch offices or permanent establishments are run by foreign individuals, this person - unless they have a residence permit for EU citizens - requires a residence permit in accordance with the Aliens' Act which permits the intended employment by means of an endorsement in their passport (visa). Employment activity is not deemed to take place if the person in question maintains their usual residence abroad and merely conducts meetings or negotiations within Germany for foreign companies or, for example, installs or services equipment, provided the total stay does not exceed three months.
These requirements do not apply to EU citizens, citizens of countries not in the EU but part of the European Economic Area (EEA) and citizens of counties with which there are special agreements (e.g. USA, Switzerland, Canada).