As Brexit approaches, we are seeing an increasing number of British companies that are looking to incorporate subsidiaries and branches in Germany. This seems to be borne out in recent research carried out by the Institute of Directors, which found that nearly one-third of British businesses are looking overseas as a result of Brexit.
Most UK Limited companies most commonly choose to incorporate wholly owned subsidiaries in Germany in the form of a GmbH [Gesellschaft mit beschränkter Haftung]. This type of company is, broadly speaking, equivalent to a private limited company in the UK. However, there are some notable differences when it comes to the procedure for setting up a GmbH. If you fail to appreciate them, they can cause considerable headaches and be quite costly. Therefore, this guide aims to give you an overview of the steps involved in setting up a new GmbH in Germany.
It often frustrates many UK directors how seemingly bureaucratic the German incorporation process can be, especially compared to the relatively seamless online procedure offered by Companies House. However, it is worth remembering that the additional hurdles arise because the German notary and commercial register are required, by law, to undertake detailed checks to ensure all procedural steps for incorporating the company have been followed.
Prerequisites for Incorporation
Before you can formally incorporate a company in Germany, there are a few preliminary steps that you need to follow.
- You will need to ensure that the UK company has sufficient liquid assets to cover the minimum share capital requirements.
- You need to decide where the company will have its registered office (known as its ‘seat’ or ‘Sitz’ in Germany) and arrange, if necessary, a lease on suitable office space.
- You will need to make arrangements with a German bank to open a bank account in the name of the new company.
- You will need to arrange an appointment with a German notary to sign the deed of incorporation.
- You will have to hold a board meeting of the English company to approve the creation of the new German subsidiary and to authorise one or more directors to deal with the incorporation process.
Signing the Deed of Incorporation
In the first instance, it will be necessary for a representative of the UK company (normally a director, but other options are available) to attend an appointment in Germany with the German notary. The German notary’s job is to draw up a deed of incorporation, which sets out key information about the proposed new company, such as its name, its founding member(s), the location of its seat, the amount of its share capital and the names of its initial director(s).
Before the deed of incorporation can be signed, however, the German notary will require evidence that the person purporting to act on behalf of the UK company is, in fact, authorised to do so. This is most often achieved by means of a certificate of existence and representation from an English notary (an ‘Existenz- und Vertretungsbescheinigung’ – for more details see our blog here.)
Upon signing the deed of incorporation, the new German company will, technically speaking, come into existence. However, a word of caution: until the new GmbH is registered in the commercial register, the liability of its shareholders will be unlimited, and anyone acting on behalf of the new GmbH will be personally liable for losses incurred. Therefore, it is always advisable to wait until the new German company has been registered before commencing operations.
Minimum Share Capital Requirements
It is a legal requirement in Germany that all GmbHs have a minimum share capital of €25,000, of which at least 50% (i.e. €12,500) must be fully paid-up in cash before the company can be registered in the commercial register.
After you’ve been to see the German notary, therefore, you will be issued with a certified copy of the deed of incorporation, which you must present to a German bank to enable them to complete the account opening formalities. Once the account is open, you will be required to deposit the minimum amount of the share capital, whereupon the bank will issue a letter of confirmation that the funds have been paid in.
Registration of the New German Company
Once in possession of this letter, it is possible to complete the final stage of the incorporation process, namely registration of the new GmbH with the commercial register.
The registration requires a representative of the UK company to sign a notice, known as an ‘application for registration of a new GmbH’ [Anmeldung einer neuen GmbH], which sets out certain particulars about the new company. It is also necessary for each newly-appointed director of the GmbH to sign a declaration confirming that there are no grounds that would disqualify them from acting as such (e.g. prior convictions, bankruptcy, etc.). The notice and declaration(s) must be signed in the presence of a notary; which can be organised here in London, if convenient.
Provided all the paperwork is in order, the commercial register will then register the new GmbH; it then formally exists. However, before being able to trade, you may need an appropriate licence from the German government, known as a ‘Gewerbeerlaubnis’. Common activities that require a licence include financial services and credit-broking, surveillance and security guard services, construction and associated trades, recruitment agency and courier delivery services.
Registration with the Tax Authorities
It is obligatory for every new German company to register with the German tax authorities as soon as possible after they are incorporated. This process can be quite complicated and, if you are in any doubt, you should seek specialist advice. Your company will be issued with a tax identification number [Steueridentifikationsnummer], which is used in all domestic dealings. If you need (or wish) to register for VAT (known as ‘Umsatzsteuer’), you can also do so at the same time.
The team at Vanner Perez are always happy to help you with setting up a new GmbH in Germany. Please contact us to get a quote.