Setting up a business in Germany guide

Ben Pinnock, Senior Manager, Global Business Solutions

22/09/2026

Germany has always been one of the most attractive destinations for international expansion, and choosing the correct operating structure for your business from the outset is critical, as it will affect tax exposure, payroll obligations, compliance requirements, and potential permanent establishment risks.

This insight provides an overview of the main options available to companies looking to establish a presence in Germany, together with the key payroll, tax, and compliance considerations.

Entry options for foreign companies

German subsidiary (GmbH)

The most common structure for companies expanding into Germany is a GmbH, the equivalent of a private limited company.

A GmbH is a separate legal entity from its parent company and generally provides limited liability protection. GmbH is widely recognised by customers, suppliers, banks and authorities, and gives you the option to enter contracts and employ staff directly. It also offers greater credibility for planned long-term business operations in Germany.

A GmbH is most suited for a business that is planning substantial operations, including local sales activities, warehouse/office infrastructure, manufacturing, or a large workforce.

A GmbH requires share capital of EUR 25,000, although this share capital can be used for operational needs once established.

Branch office

A branch office will allow a foreign company to operate in Germany without creating a separate legal entity. This does mean that the branch remains part of the foreign company and the foreign parent retains liability for the German operations.

A branch office still carries much of the compliance requirements of a GmbH, including corporation tax and local authority registration.

A branch can, however, be attractive where operations are expected to remain relatively small, the parent company wishes to retain direct control, or the business is testing the German market before establishing a subsidiary.

Foreign employer registration

Companies that simply wish to hire employees in Germany may not necessarily need a local entity. In many circumstances, a foreign company can register as an employer with the German authorities and operate German payroll for local employees. This is often referred to as a foreign employer registration.

This suits companies looking to explore/test the German market, with a small number of employees who will not be conducting local sales/entering into contracts or setting up any type of infrastructure (i.e. renting an office).

Employer payroll, tax and social security obligations still apply.

The risk for the business is largely that simply employing staff in Germany may create a permanent establishment for corporate tax purposes, depending on the employee's responsibilities and authority and hence will need to be carefully managed.

Key payroll, tax and compliance obligations in Germany

Payroll requirements

Germany is a heavily regulated payroll environment. Before employing staff, employers generally need to register with the relevant tax and social security authorities, obtain employer identification numbers, register for accident insurance coverage and implement compliant payroll reporting processes.

Payroll taxes

German employers must withhold employee wage tax, solidarity surcharge and, where applicable, church tax. These amounts are remitted directly to the tax authorities on behalf of employees.

Social security

Germany operates a comprehensive social security system. Contributions generally cover health insurance, pension insurance, unemployment insurance, long-term care insurance and accident insurance. Both employers and employees contribute to most of these schemes. Having such a comprehensive social security system means the need for supplementary health and welfare insurance is not common practice in Germany.

Corporate income tax

German companies are generally subject to corporate income tax, solidarity surcharge and municipal trade tax. The effective tax burden will depend on the location of the business and its specific circumstances.

VAT requirements

A German VAT registration may be required where a business makes taxable supplies in Germany, imports goods into Germany, holds inventory in Germany, or participates in local distribution activities. Germany's standard VAT rate is currently 19%, with reduced rates applying to certain goods and services.

Which option is right for you?

Scenario	Typical solution
Hiring a small team with no local operations	Foreign employer registration
Testing the market with limited activities	Branch office
Long-term investment, sales, inventory, or significant headcount	GmbH subsidiary

Final thoughts

Germany offers strong opportunities for international businesses, but selecting the right operating model is crucial.

Crowe UK’s Global Business Solutions team is happy to discuss your specific business requirements and help you select the most suitable topics, as well as provide full support along the way and beyond with ongoing operational support.