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International businesses need to understand and meet expectations on all business and cultural fronts when expanding global trade and establishing a foreign office in Germany.

Global Trade: How to Open a Foreign Office in GermanyARTICLE

By Debra Donston-Miller

In 2016, Germany overtook the United Kingdom as the fastest-growing economy among the G7 states.1 It’s no wonder, then, that U.S. businesses engaged in global trade may look to open foreign offices in Germany.

History of GDP in Policy-Making and Business Finance

The United States already has a healthy trade relationship with Germany. As of March 2017, the U.S. Census Bureau ranked Germany as the United States’ number five trading partner, with 4.4 percent of total U.S. global trade for year-to-date 2017. Indeed, international business ties between the U.S. and Germany run long and deep. A November 2016 White House Fact Sheet notes that in 2015 the U.S. became Germany’s fourth-largest supplier of goods, as well as Germany’s No. 1 global customer.2 “Together, our companies have created over one million jobs on both sides of the Atlantic,” the report states.

When it comes to international business in Germany, U.S. companies setting up a German office must ensure not only that legal and regulatory requirements are met, but also that cultural expectations are understood and demonstrated. This article helps companies get started, answering key questions about extending business operations into Germany. Of course, specific requirements will vary with the nature of each individual international business.

Types of German Foreign Offices for Global Trade

There are a number of ways international businesses can choose to expand business into Germany, including opening a subsidiary or a branch office in Germany.3 Before conducting any business in Germany, companies must register in the public Commercial Register (Handelsregister) and/or the local trade office (Gewerbe-/Ordnungsamt). The Commercial Register provides information about relationships between merchants and commercial companies, and is publicly available.4

  • Subsidiary:

    A subsidiary is an independent legal entity that is established by a parent company for global trade in Germany. Foreign companies can choose from among several types of corporations and partnerships when setting up a subsidiary.5 These include a Liability Company (Gesellschaft mit beschränkter Haftung, GmbH); Stock Corporation (Aktiengesellschaft, AG); and Partnership Limited by Shares (Kommanditgesellschaft auf Aktien, KGaA)

  • Branch office:

    A branch office has no independent legal form; it is part of the head office business and is thus subject to the laws and taxation system governing the head office. Further, its name must be the same as the foreign company’s, with the addition of the term “German division.” According to the Hamburg Chamber of Commerce, “A branch office is a suitable business form for a foreign company wanting to establish a presence in Germany for the purpose of initiating business and maintaining contacts with business partners.”6

Setting Up a German Branch

For foreign businesses, the process of setting up a German branch is similar to that of German resident companies (although it may take longer).7 There are two types of branches that can be registered in Germany: the independent branch office and the operational location (also called the dependent branch office).8

The independent branch office is part of the foreign company, but it can keep its own accounts. The activities of this type of branch cannot be different from the ones of the foreign company. Special licenses are necessary for a few business types, including banking, investments, insurance, restaurants, transportation and telecommunication. To found an independent branch office for global trade, foreign companies must acquire a business registration certificate and enter the office into the Commercial Register. The application must be certified and submitted by a notary, and German law applies during the registration process.9

The dependent branch office is separated from company headquarters only by its location; it cannot perform any activity independently of the foreign company. Dependent offices are not entered in the Commercial Register.10 However, they must register with the local trade office, which will require certain documentation on the foreign company.11

There are a number of documents required to open a German branch, including notarized articles of association of the foreign company, proof of registration of the foreign company, and the names of directors and members of the board of managers.12 To avoid any delays or issues, companies should check to see which documents are required and work to put them together as quickly as possible.

All costs and fees for registering a company are established by law and depend on the number of partners and the share capital.13 Branch offices in Germany are subject to taxation if the office is considered a permanent establishment according to the applicable double taxation agreement (DTA).14

Hiring Workers

As in the U.S., workers in Germany can be hired as contractors or employees.

  • Free agents(freie Mitarbeiter):

    Free agents assume responsibility for their own taxes and insurance. Companies can utilize their services only when needed, and it is relatively easy to end the relationship when a particular job is completed or if the worker doesn’t meet expectations.

  • Full- or part-time employee(Angestellter):

    With full- or part-time employees, companies must deduct taxes and insurance premiums from pay, provide a certain amount of vacation time each year, and observe laws that protect employees from arbitrary dismissal. Premiums for German national retirement, unemployment and health insurance programs are split equally between employer and employee.15

Cultural Awareness

In addition to understanding the legal and regulatory requirements of opening an office in Germany, it’s important for companies expanding their global trade into Germany to carefully consider the country’s culture, values, and attitudes.16

According to Passport 2.0 to Trade, a website presenting research from the University of Manchester’s Salford Business School with the aim to help companies expand their international trade, Germans tend to be reserved, formal and conservative.17 Courtesies such as handshakes are extended even to longtime colleagues. Handshakes are sometimes accompanied by a slight bow (a gesture that should be reciprocated). Germans make frequent eye contact as a sign of attentiveness and interest.

Germans draw a distinct line between their home and work lives. When they are in the workplace, they take business very seriously. Humor is considered unwelcome in business contexts, and surprises are not welcome, even if they result in a positive outcome.18 Indeed, Germans are generally not spontaneous people. Instead, in the words of Pasport 2.0 to Trade: “Germans can be considered the masters of planning. This is a culture that prizes forward thinking and knowing what they will be doing at a specific time on a specific day. The German thought process is extremely thorough, with each aspect of a project being examined in great detail.”19

Appearance is very important. Germans take pride in dressing well, especially in business environments. Men wear conservative business suits and ties, while women wear dark suits and white blouses or conservative dresses. Time is also strictly managed, so it’s important to be punctual for appointments and to be respectful of deadlines. Most businesspeople in Germany have a strong command of the English language.

The Takeaway

U.S. companies seeking growth through global trade may find opportunity in Germany. When establishing a foreign office in Germany, understanding and meeting expectations on all business and cultural fronts will help to ensure a profitable and positive relationship for both U.S. businesses and their German colleagues.

The Author

Debra Donston-Miller

Debra Donston-Miller is a veteran journalist, specializing in IT, business, career and education content. Formerly editor of eWEEK magazine and content director of eWEEK Labs, Donston-Miller currently develops content and content strategy for multiple organizations.

Sources

1.“Germany’s Overtakes UK as Fastest-Growing Economy,” The Guardian; https://www.theguardian.com/world/blog/2017/feb/23/germanys-gdp-shows-19-rise-over-last-year
2.“Fact Sheet: United States-Germany Relations,” The White House: Office of the Press Secretary; https://obamawhitehouse.archives.gov/the-press-office/2016/11/17/fact-sheet-united-states-germany-relations
3.“Expansion Possibilities for Foreign Companies in Germany,” Hamburg Chamber of Commerce; https://www.hk24.de/en/produktmarken/international/expansion-possibilities-foreign-companies/1159254
4.“Business Registration,” GTAI Germany Trade & Invest; http://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/Establishing-a-company/business-registration.html
5.“Expansion Possibilities for Foreign Companies in Germany,” Hamburg Chamber of Commerce; https://www.hk24.de/en/produktmarken/international/expansion-possibilities-foreign-companies/1159254
6.Ibid.
7.“Open a Branch in Germany,” OpenAeuropeancompany.com; http://www.openaeuropeancompany.com/open-a-branch-in-germany/
8.“Open a German Company,” Company Formation Germany; http://www.companyformationgermany.com/establish-a-branch-in-germany
9.“Expansion Possibilities for Foreign Companies in Germany,” Hamburg Chamber of Commerce; https://www.hk24.de/en/produktmarken/international/expansion-possibilities-foreign-companies/1159254
10.Ibid.
11.“Dependent Branch Office,” GTAI Germany Trade & Invest; https://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/Establishing-a-company/Company-forms/Branch-offices/dependent-branch-office.html
12.“Open a German Company,” Company Formation Germany; http://www.companyformationgermany.com/establish-a-branch-in-germany
13.“Business Registration,” GTAI Germany Trade & Invest; http://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/Establishing-a-company/business-registration.html
14.“Company Forms,” GTAI Germany Trade & Invest; https://www.gtai.de/GTAI/Navigation/EN/Invest/Investment-guide/Establishing-a-company/company-forms,t=quick-facts-branch-offices,did=6342.html
15.“Starting a Business in Germany,” How to Germany; http://www.howtogermany.com/pages/busi-setup.html#hiring
16.“Business Communication,” Passport 2.0 to Trade; http://businessculture.org/western-europe/business-culture-in-germany/business-communication-in-germany/
17.“Business Communication,” Passport 2.0 to Trade; http://businessculture.org/western-europe/business-culture-in-germany/business-communication-in-germany/
18.Business Etiquette,” Passport 2.0 to Trade; http://businessculture.org/western-europe/business-culture-in-germany/business-etiquette-in-germany/
19.Ibid.

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