Zweigniederlassung (Registered Office)

Independent branch establishment and dependent operating facility

Information on legal form for branches: independent branch establishment and dependent operating facility (branch)

 

I. Possibilities of industrial activity, in particular of foreign enterprises


Many enterprises wish to expand and found a new location. This gives rise to the question of how the new branch establishment can be legally organised in the enterprise’s structure.

Three alternatives are available for this:

  • foundation of a subsidiary with its own legal personality; information on the individual German legal forms can be found in the section Law and Taxes
  • set up of a dependent branch (operating facility)
  • set up of an independent branch (branch establishment) 
     

1. Dependent branch (operating facility)


The same enterprise can have a number of business premises (branch establishments, branches). Such a branch, also called operating facility under commercial law, is dependent on the headquarters in every regard. Invoices are also issued in the headquarters’ name. As there is a standardised business operation merely at geographically differing locations, branches may not have their own corporate name deviating from the company headquarters. Each operating facility must be registered with the competent trades office, it is not entered in the Register of Commerce. It does not manifest any independence in the relationship to the company’s headquarters. As a dependent operating facility, merely a business notification (business registration) is to be submitted to the borough trades office. 

 

On letterheads, not only the corporate name, but also the register court of the headquarters with the Register of Commerce number must be stated. For operating facilities not entered in the German Register of Commerce, the register information for the foreign companies itself are to be stated.

 

The same foreigners’ law and fiscal law requirements (see Section V. und VI.) apply to the operating facility as for the branch establishment.

 

 

2. Independent branch (branch establishment)


A branch establishment is not an independent legal entity separate from the enterprise of the headquarters. It is legally and organisationally a part of the enterprise of the headquarters and, to this extent, subject to the law of the headquarters. If the branch establishment has been set up by a foreign enterprise, its internal constitution is based on the corporate statutes and the competent foreign law.


Despite internal dependence on the headquarters, it participates in trading activity independently. The legal relationships of the branch establishments to its clients are subject to German law.

German law is also applicable to the legal treatment of the branch establishment in Germany (in particular entry in the Register of Commerce).


According to §§ 13 et seq. HGB (German Commercial Code), a branch establishment is a branch geographically separate from the headquarters, created as an additional centre of the enterprise intended to last, which has to be entered in the Register of Commerce.



The typical features of a branch establishment:

  • A geographical separation from the headquarters must exist.
  • The branch establishment must be organised such that independent participation in trading activity is possible. This is guaranteed above all by separate accounting. 
  • It attends to business typical for the entire enterprise, but not necessarily all similar transactions and not only mere ancillary or implementation business.
  • The branch establishment must manifest a certain independence by having its own management with its own freedom of disposal and its own business assets allocated by the headquarters. The business incidents of the branch establishment are stated on the balance sheet of the headquarters.
  • The branch establishment is not independently capable of insolvency.


Set-up


The branch establishment originates through the factual process of its set-up. Entry into the Register of Commerce merely has a declaratory significance. The resolution to set up the branch establishment is to be passed by the pertinent management boards of the headquarters. Relinquishment of the branch establishment is also to be notified to the Register of Commerce.



Capital


The legal position of an independent branch establishment requires its own provision with capital. However, a minimum capital is not necessary. The amount of provision with capital is also not entered in the Register of Commerce.



Object


An independent branch establishment can only be set up by a commercial enterprise. A non-commercial enterprise can only set up an operating facility (= dependent branch).



Internal constitution


The branch establishment manager represents it independently to the outside.

However, the debtor of liabilities is always the headquarters, even if certain asset rights have been assigned to the branch establishment internally as its own business assets. Typically, the branch establishment manager is given at least a power to act or limited commercial powers of attorney, which can be limited with an effect to the outside to the operation of one or more branch establishment(s) of the proprietor of the company.



Corporate name


The corporate name of the branch establishment can match that of the headquarters, but can also deviate from it, although a reference to the branch establishment is then required (ABC GmbH, Frankfurt branch establishment; XY Services, branch establishment of ABC GmbH). The corporate name of the headquarters and thus of the branch establishment is based on the law of the state in which the headquarters are located. Entry of the branch establishment is however only to be rejected if the corporate name breaches the German ordre public (Art. 6 Introductory Act to the German Civil Code) because it is obviously not compatible with the essential fundamentals of German law.


In the corporate name of the branch establishment of a German or foreign enterprise, the corporate name of the headquarters must appear unchanged as a matter of principle (if applicable, in a foreign language) including the suffix for the legal form. If use of a corporate suffix is not necessary according to the foreign law in question or if this corporate suffix is not customary or comprehensive in Germany, a clarifying suffix is then necessary in order to avoid possible errors. In addition, a suffix can be added to the corporate name of the branch establishment (e.g. Frankfurt branch establishment).



Acting executive organs


Appointment of the acting executive organs (branch manager) is based on the law of the company, in particular foreign corporate statutes. However, appointment of a branch manager is not prescribed by law.


A holder of a limited commercial power of attorney can also be appointed to represent the branch establishment and be entered in the Register of Commerce. The power of representation (limited commercial power of attorney) can also be limited to the operation of the branch establishment. German law applies here.



Information on letterheads

On letterheads the branch establishment must state the complete corporate name. Further, the register at which the branch establishment has been entered must be stated as well as the further compulsory information prescribed for the legal form of the headquarters.

German branch establishments of foreign enterprises must provide certain minimum requirements in correspondence on letterheads sent from Germany:


- the register at which the branch establishment has been entered

- the register number

- the complete foreign corporate name with suffix of legal form

- the register of the foreign company

- the information on letterheads prescribed by German law for the legal form in question, unless foreign law provides for something else.


The following information is to be given on the letterheads of foreign legal entities outside the EC or the EEA: corporate name, place and state of the headquarters of the company according to the statutes, legal representative(s) (surname with at least one first name).



Notarial certification


Entry into the Register of Commerce is to be applied for in writing at the locally competent Local Court (Amtsgericht). The signature and the signing of the corporate name must be certified by a Notary Public.


Founders not known to the Notary Public must prove their identity by valid identity papers. In the event of a person appearing not acting on his own, but on a third party’s behalf: written power of attorney or a subsequent approval in a notarially certified form is necessary. If the signature under a power of attorney is certified by a foreign Notary Public, a legalisation (or apostille) is necessary, depending on the country of origin. The former can be granted by a Consul of the Federal Republic of Germany.


If a legal entity founds the independent branch establishment, its existence must be proven by a certified extract from the Register of Commerce (for foreign enterprises: corresponding official registration documents).



Application to the Register of Commerce

 

The German branch establishment is registered at the Register Court of the headquarters.


The application to the Register of Commerce for an independent branch establishment of a foreign enterprise is to be done by the responsible executive organs.


If a foreign enterprises wishes to found a number of branch establishments in Germany, one Register of Commerce can be chosen as the main register. All the aforementioned documents (complete) only need to be presented to this Register of Commerce.


The question whether the branch establishment of the foreign company is entered in Section A or B of the Register of Commerce depends on the legal form with which the foreign company is comparable.



Business registration


In addition, a business must be notified to the Trades Office of the borough in question for the branch establishment.



Comments by the Chamber of Industry and Commerce


In cases of doubt, the  competent Chamber of Industry and Commerce makes comments to the Local Court on the admissibility of the corporate name and capability of entry (independence) of the branch establishment. In order to rule out a possible risk of confusion or possible reservations with a view to the identity and clarity of the company at an early stage, contact with the competent CIC is recommended.



Control and annual financial statements


The control of the business activity by the responsible instances is based on the law of the headquarters and thus, if applicable, on the foreign law of the headquarters.


Accounting and balance sheet duties with a view to the branch establishment are subject to German law. In cases of doubt, the directives valid for the German legal form to which the legal form of the foreign enterprise is most similar are to be applied.


 

 

II. Overview of formalities


1. Business registration


All industrial confirmations of a branch establishment must be registered under commercial law with the responsible trades office (in Frankfurt am Main, this is the Trade Register at the Office of Public Order, Kleyerstraße 86, 60326 Frankfurt am Main).



2. Register of Commerce entry


For a branch establishment, not only the business registration, but also an entry in the Register of Commerce is necessary. The entry must be applied for at the Register of Commerce in a notarially certified form.


The question whether the branch establishment of the foreign company is entered in Section A or B of the Register of Commerce depends on the legal form with which the foreign company is comparable.



3. Necessary approvals


For various trades, it is necessary to obtain permission from the authority competent in the individual case before the start of operation. It is to be presented with the business registration.

(Exemplary list of trades requiring approval)


In particular, the start of any handicraft operation is subject to permission. The operation must be entered in the Handicrafts Register of the regionally competent Chamber of Trades. The prerequisite for entry in the Handicrafts Register is that the company is managed by a master craftsman. Exceptions from the requirement of the master craftsman’s examination are only admissible to a limited extent.


Apart from this, there is freedom of trade. In particular, most trading companies (retail and wholesale trade) are not regulated. If applicable, exercising of a trade is subject to a series of specific directives in the individual case.




III. Statements and documents


1. For the business registration


In a business registration, the following documents are to be presented to the trade office:



1.1. Identity documents for the applicant:


-   Proof of identity by personal identity card or passport

-   If applicable (private) proof of authorisation to act on behalf of a third party

    (natural or legal entity), for managing directors, members of the Board or holders of a

    limited commercial power of attorney: extract from the Register of Commerce for the company

-   If applicable, permissions (e.g. craftsman’s card, broker’s permission etc.)

-   A foreign citizen is to present a residence permit from the competent

    foreigners’ authority containing the permission to commence independent     

    commercial activity


1.2. Documents for the enterprise:


An enterprise entered in the Register of Commerce must prove the entry in the Register of Commerce by an extract from the Register of Commerce.

An enterprise entered in a foreign Register of Commerce must likewise present the corresponding entry documents. In addition, a German translation in to be presented, certification not being necessary as a rule. In cases of doubt, e.g. if the address of the person making the application differs from that of the company, the existence of the operating facility must be proven by presentation of a lease agreement or a confirmation from the landlord. For justified reasons, the requirement of a police clearance certificate or information from the Central Commercial Register can be necessary.



2. For the application to the Register of Commerce


2.1. Registration of a branch establishment of a German partnership


Registration is done at the court of the headquarters or domicile of the company. The same information necessary for the entry of the headquarters is also to be given for the branch establishment.



2.2. Registration of a branch establishment of a German capital company


The branch establishment of a capital company is registered for entry at the court of the headquarters by the managing director/Board of Directors.


The same information must be given as above for the branch. In addition, the following documents are to be enclosed:


-   the Articles of Association

-   a list of the shareholders in an LLC



2.3. Registration of the branch establishment of a company based abroad in Germany


The registration is done by the branch manager at the Court in the area of which the branch establishment is to be set up.


The following information is necessary:

On the parent company:

-   The register at which the company has been registered, to the extent that entry

    is provided for by the laws of the state to which the company is subject

-   The legal form of the company

-   If the company is not subject to the law of a member state of the European

    Community or any other contracting state of the Convention concerning the

    European Economic Area, the law of the state to which the company is subject

-   The corporate name and the registered office of the company

-   The object of the enterprise

-   The date of conclusion of the Articles of Association

-   The members of the management or board of directors, as the case 

     may be, and their powers

-   The amount of the authorised/share capital.

-   Any limitation in time of the company


On the branch establishment:

-   The address and the object of the branch establishment

-   The amount of the business capital

-   The date of the set-up resolution

-   The members of the management or board of directors, as the case 

    may be, who are allowed to represent the branch establishment

    judicially and extra-judicially and the scope of their representation power

-   Any limitation in time of the branch establishment


Enclosures


-   If applicable, proof of authorisation for action for a third

    party (natural or legal entity): for managing director, member of

    the board or holder of a limited commercial power of attorney:

    extract from the Register of Commerce;

-   Proof of the existence of the parent company

-   To the extent that German law provides for approval for the operations

    or the object of the company, proof of the existence of the approval is

    to be presented

-   A publicly certified copy of the Articles of Association

    and, if the original document was not written in the German

    language, a certified translation thereof



IV. Branch establishment in legal proceedings

 

Although a branch establishment is not an independent legal subject, a specific place of jurisdiction is opened according to § 21 Code of Civil Proceedings. A merchant can be sued at the place of the branch establishment to the extent that it is a question of a dispute under asset law and it has been substantiated in the operations of the branch establishment.

 

 

V. Requirements under foreigners’ law


If subsidiaries, branch establishments or operating facilities are to be managed by foreign natural entities, they require a residence permit entitling them to exercising of the intended trade according to the Aliens’ Act. It is documented by a corresponding entry in the passport. This residence permit is necessary if the person in question wishes to stay in Germany for a longer period of time (residence of a foreign managing director). If the activity is to take place maintaining the customary abode abroad by occasionally entering the Federal Republic of Germany, the specific residence permit with permission for activity for a gain is not necessary.

These requirements do not apply to EU foreigners, citizens of countries not belonging to the EU but to the European Economic Area (EEA) and to citizens from states with which specific agreements have been made (e.g. USA, Switzerland, Canada).



VI. Taxation of a foreign operating facility or branch establishment


If a foreign enterprise runs a branch in Germany (office, production location or similar), its profits must be taxed in Germany. The taxes due in this context depend on the legal form of the enterprise. They are equivalent to the taxes which an enterprise with the German legal form in question would have to pay.


The profits of the branch which are taxed in Germany are either exempted from taxation in the other country or they are subject to taxation there, in which case the amount of taxes paid in Germany is offset against the corresponding taxes in the other state. Details can be seen from the Agreement to Avoid Double Taxation which Germany has concluded with the other state.


In particular, income tax or corporation tax, solidarity surcharge, tax on wages, trade tax and turnover tax are due for payment.