Branch vs Subsidiary in Germany: Which Structure to Choose

Head-to-head comparison

Dimension	Branch (Zweigniederlassung)	Subsidiary (GmbH)
Separate legal entity	No (part of the parent)	Yes (§13(1) GmbHG)
Liability	Parent fully and unlimitedly liable	Limited to company assets (§13(2)); parent shielded
Minimum share capital	None	€25,000 (§5), at least €12,500 paid in (§7)
Commercial register	Independent: yes (HGB §13d–§13e, via notary); dependent: no (Gewerbeanmeldung only)	Always, via notary
Trading name	Parent's name + German location indication	Own company name
Taxation	German PE, attributable profit	Resident corporation, worldwide profit (both ~30–33%, no branch tax)
Accounting	Profit attributed to the parent	Own balance sheet; consolidated in group accounts
Setup speed / cost	Faster, cheaper	Slower, costlier (notary + capital)

[§13/§5/§7 GmbHG; HGB §13d/§13e; taxsummaries.pwc.com; gtai.de, accessed 2026-06-10]

Liability: the real difference

The subsidiary's shield is statutory. Under §13(2) GmbHG, "Für die Verbindlichkeiten der Gesellschaft haftet den Gläubigern derselben nur das Gesellschaftsvermögen" (only the company's assets answer to its creditors). The GmbH is its own legal person (§13(1)), so creditors reach the company, not the foreign parent. The parent's exposure is, in principle, limited to the capital it put in.

A branch has no such shield. Either type of branch is part of the parent, not a distinct legal person, so there is no entity to ring-fence: the debtor is always the company's headquarters, and the parent is fully and unlimitedly liable for all of the branch's obligations. This, not tax, is the reason most expanding companies choose a subsidiary. If protecting the parent's balance sheet matters, you want the GmbH and its §13(2) shield. You can read the full structure on our set up a German subsidiary page. [§13 GmbHG; ihk-bonn.de, accessed 2026-06-10]

Capital: €25,000 vs none

A branch needs no share capital, because it is not a separate entity.

A subsidiary needs €25,000 of Stammkapital (§5(1) GmbHG), but a common misconception is that the full €25,000 must be deposited before you can register. It does not. Under §7(2) GmbHG, to register you must pay in at least a quarter of each shareholder's cash contribution and reach a total of at least €12,500. The shareholder remains personally liable for the unpaid balance until it is contributed. So do not write "€25,000 must be deposited": the registration threshold is €12,500, with the rest owed.

If €25,000 is a barrier, the UG (haftungsbeschränkt) is the sub-€25,000 variant: capital from €1, but it must be paid in full, and the company carries a profit-retention obligation until it builds up to GmbH-level capital. The capital mechanics are the same ones you use when you open a GmbH in Germany. [§5/§7 GmbHG; gtai.de; lawyersgermany.com, accessed 2026-06-10]

Tax is NOT the tie-breaker

This is where most comparisons go wrong. A branch is a German permanent establishment (PE) and is taxed only on the profit attributable to that PE. A subsidiary is a German-resident corporation taxed on its worldwide income. Those are different tax bases, but the rate is essentially the same:

• Corporation tax at 15% plus the 5.5% solidarity surcharge = 15.825%, and
• trade tax at 3.5% × the municipal Hebesatz (~250–580%, so roughly 8.75–20.3%),

giving a combined burden of about 30% in Berlin to around 33% in Munich, with Frankfurt near 32%. There is no special branch tax. The honest headline: the rate is roughly the same; liability is the real difference.

PE status (under §12 AO and the applicable double-tax treaty) drives which profit is taxed in Germany, and that is genuinely fact-specific, so defer the specifics to a Steuerberater. [taxsummaries.pwc.com; gtai.de, accessed 2026-06-10]

"Branch" is two things: dependent vs independent

German law splits the branch into the dependent (unselbständige) Zweigniederlassung and the independent or autonomous (selbständige) Zweigniederlassung. Many English-language guides blur or even invert these two. The difference matters for registration, but it does not change the liability answer: either way the parent, not the branch, is fully liable.

Dependent (unselbständige): trade-office only, no Handelsregister

A dependent branch has no own management discretion and invoices in the parent's name. It is not entered in the Handelsregister: a trade-office registration (Gewerbeanmeldung) is sufficient, with no notary involved. It is a permanent establishment for tax only if the conditions of §12 AO are met, so a dependent branch may or may not be a PE depending on the facts. [ihk-bonn.de; nrwglobalbusiness.com, accessed 2026-06-10]

Independent (selbständige): Handelsregister via notary (HGB §13d–§13e)

An independent branch has its own management, accounts, bank account and working capital. It is entered in the Handelsregister via a notary under HGB §13d–§13e: the establishment is notified by the parent's Vorstand or Geschäftsführer at the branch's local district court, with proof of the parent's existence and a German certified translation of the articles. The filing must state the domestic business address, the branch's purpose, the foreign register and registration number, the legal form, and the permanent representatives. An independent branch is generally regarded as a permanent establishment. The permanent representative is, in practice, often the person you would appoint as a German managing director for a subsidiary. [gesetze-im-internet.de HGB §13d/§13e; handelskammer-hamburg.de, accessed 2026-06-10]

Registration & perception

A branch must trade under the parent's name (with a German location indication), and a dependent branch may not trade under any other name. A subsidiary trades and balances under its own company name.

Perception follows from that. A subsidiary, with its own name, its own balance sheet and status as a German-resident company, often reads as more permanent and credible to German banks, customers and suppliers. A branch visibly remains part of the foreign parent. None of this is a legal rule, but it matters in practice when you are opening accounts, signing leases or pitching German counterparties (and you will need a registered address in Germany either way). A GmbH can be a wholly foreign-owned Einpersonen-GmbH (a single shareholder, with no German co-shareholder required), so the credibility of a subsidiary does not cost you control. [handelskammer-hamburg.de; firma.de, accessed 2026-06-10]

Consolidation and the pre-registration window

For group reporting, branch profit is attributed directly to the parent. A subsidiary stays a separate legal entity but is consolidated into the group accounts, with intra-group receivables and payables offset on consolidation. Both ultimately feed the parent's numbers; they just get there differently.

One timing nuance: between notarisation and Handelsregister entry, the subsidiary exists as a Vor-GmbH (pre-registration company) with different and greater exposure. The §13(2) shield only exists once the company is registered (§11 GmbHG). So the liability protection you are paying for crystallises on registration, not on signing the deed. [firma.de; §11 GmbHG, accessed 2026-06-10]

The decision matrix

If your priority is…	Lean Branch	Lean Subsidiary
Limiting parent liability		Yes (§13(2) shield)
Avoiding €25,000 capital	Yes
Permanence / standalone entity		Yes
Speed & low setup cost	Yes
Credibility / own name & balance sheet		Yes
Hiring / a holding structure		Yes
Tax rate	tie (~30–33% either way)	tie

Bottom line in one sentence: choose a branch for speed, low cost and exploratory activity where full parent liability is acceptable; choose a subsidiary for limited liability, permanence, standalone credit, hiring, or a holding structure. [lawyersgermany.com; firma.de, accessed 2026-06-10]

Bottom line and next step

Liability is the decider, tax is a tie. If you want the parent shielded, a long-term presence, your own name and balance sheet, or you plan to hire, the subsidiary is almost always the answer. If you want to test the market quickly and cheaply and can accept full parent liability, the branch may be enough.

When you are ready to go deeper, route to the full how-to pages: the branch office in Germany guide covers HGB §13d–§13e, dependent vs independent, the notary and tax; set up a German subsidiary covers capital, the separation principle and formation; and company formation in Germany is the general hub if you are still deciding. To start the GmbH itself, see how to open a GmbH in Germany.

Author: Anna Müller, Legal Consultant, gmbh-germany.com.