Selling in Germany has become increasingly attractive to a broad range of companies providing services or consumer products. Whereas the German market provides consistency, growth potential and political security, setting foot can be tough. As an entrance option to the European Single Market with its demanding customer protection and tax regimes, opening a branch office in Germany requires early and thoughtful preparation.
There are quite a few roads to Rome: German law offers several ways to enable a foreign – not necessarily EU-member – participation in the German market. While companies with their seat registered within EU-member-administrations may not be restricted in cross-border sales, purchases and services, non-EU-based companies may face difficulties that can make an own branch office seem attractive. While foreign companies are free to incorporate a subsidiary company in Germany instead, this may involve extra assets / liquidity and control risks that exclude this option. The branch office, as the name tag suggests, a non-self-governed, dependent vehicle and as such merely the “prolonged arm” of the foreign company, is often the better choice. In this article we therefore aim to give a quick overview of the work involved to set up the German Branch.
101 of setting up a Branch Office in Germany
Rule No. 1: Find a trusted, efficient and well-connected (especially with regard to the local authorities) legal adviser. The process of setting up a Branch office is – although streamlined – still bureaucratic and time consuming.
Rule No. 2: Co-operate. Your designated task force “German Branch” at your Company’s head-quarters and the local (German) adviser should work closely together and have a mutual understanding of the processes and documents required. A pre-discussed step plan may help along the way:
Pros and Cons of the Branch Office
The branch office is not an independent entity, but a prolongation of the foreign main office. This provides both, advantages and disadvantages in comparison to other forms of market access. The foreign main office will be liable and responsible for damage claims; it is employer and competent for any management decision. It can delegate business activities in part to the permanent representative, who may also be authorized the specific power of attorney to represent the Company in any matter related to the branch office. The permanent representative should be at the branch office regularly to take care of all business mail and correspondence with authorities in particular, but does not need be a German citizen himself.
Depending on the business and the goals of market access of the foreign company, setting up a branch office can be an attractive alternative to the incorporation of a subsidiary company. In either case, preparation and thorough consulting is the key to a successful endeavor onto the German market.