Business Operations
Setting Up a Subsidiary in Germany (GmbH): Capital, Liability & Tax
A German subsidiary (GmbH) gives the foreign parent limited liability: €25,000 capital (€12,500 paid in), notary, Handelsregister, tax ~30-33%. Full guide.
A German subsidiary is a legally independent company, almost always a GmbH, that is owned by a foreign parent but is itself a German-resident legal entity. The decision between a subsidiary and a branch office in Germany is fundamentally about liability and permanence, not about the tax rate.
A subsidiary (Tochtergesellschaft) is a separate German-resident legal entity that trades under its own name and prepares its own balance sheet, with its own entry in the Handelsregister. In group terms it is controlled by the foreign parent, but in legal terms it stands on its own and ring-fences the parent from its debts. Below we set out the capital mechanics, the statutory liability shield, the formation path and the tax position, all with their sources, accessed 10 June 2026.
What is a subsidiary in Germany?
A German subsidiary is a legally independent German company, and in practice almost always a GmbH (gesetze-im-internet.de; Handelskammer Hamburg; gtai.de, accessed 10 June 2026). It is owned and controlled by a foreign parent, yet it is itself a German-resident legal entity. As the chambers describe it, the subsidiary "trades under its own name and prepares its own balance sheet" and registers separately in the Handelsregister.
That separateness is the whole point. Unlike a branch, which is an extension of the foreign company, a subsidiary is its own legal person. It can hold its own assets, sign its own contracts, build its own credit standing, hire locally and be sold or restructured as a discrete unit. For a foreign group, the subsidiary is the vehicle of choice when a permanent, locally incorporated and ring-fenced presence is the goal. If you are still weighing the structures, see branch vs subsidiary in Germany.
Subsidiary (GmbH) vs branch office
| Feature | Subsidiary (GmbH) | Branch office | |
|---|---|---|---|
| Separate legal entity? | Yes | No | |
| Share capital | €25,000 (€12,500 paid in) | None | |
| Liability | Limited to the GmbH (§13(2) GmbHG) | Full parent liability | |
| Handelsregister | Yes, via notary | Autonomous branch only | |
| Tax | ~30–33% | Same on PE profit | |
| Best when | Permanence + liability shield | Speed + low cost |
The liability shield - why a subsidiary protects the parent
The reason most foreign groups choose a subsidiary is the statutory liability shield in the GmbH-Gesetz.
Under §13 GmbHG, the GmbH is an independent legal person that holds its own rights and duties ("selbständig ihre Rechte und Pflichten"). Crucially, §13(2) GmbHG provides that, for the company's liabilities, "haftet den Gläubigern derselben nur das Gesellschaftsvermögen", meaning only the company's assets are liable to its creditors (gesetze-im-internet.de/gmbhg/__13.html, accessed 10 June 2026).
Under §13(2) GmbHG, only the company's own assets answer to its creditors. The foreign parent's assets sit behind that wall.
This is the separation principle (Trennungsprinzip): the parent company is not liable for the debts of the subsidiary, and the subsidiary is not liable for the parent's liabilities, regardless of how closely the two companies are connected (firma.de, corroborating §13 GmbHG, accessed 10 June 2026). For a parent entering an unfamiliar market, that ring-fence is the decisive advantage a branch cannot offer.
Share capital - the €25,000 / €12,500 rule
The capital rule is exact, and it is widely misstated. Under §5 GmbHG, "Das Stammkapital der Gesellschaft muß mindestens fünfundzwanzigtausend Euro betragen", so the minimum share capital (Stammkapital) is €25,000, with each share's nominal value expressed in whole euros (gesetze-im-internet.de/gmbhg/__5.html, accessed 10 June 2026).
You do not have to deposit the full €25,000 to register. At registration, at least half, €12,500, must actually and verifiably be contributed to the company's bank account. Until the balance is paid in, the shareholder remains personally liable for the unpaid amount (§5 GmbHG; GTAI; firma.de, accessed 10 June 2026). So the headline is €25,000 of capital, €12,500 paid in at registration, with residual personal liability for the rest. Do not let anyone tell you the whole €25,000 must be deposited.
UG (haftungsbeschränkt) - the sub-€25,000 variant
If €25,000 is more than you want to commit upfront, the UG (haftungsbeschränkt), often called the "Mini-GmbH", allows formation with under €25,000 (firma.de; GTAI, accessed 10 June 2026). It is not a free lunch, however: a UG must retain profits until it reaches the €25,000 threshold and can convert into a full GmbH. For a group that wants the full liability shield from day one, the standard GmbH remains the cleaner choice.
How to set up a German subsidiary (step by step)
The formation path is procedural and predictable (GTAI; §5/§11 GmbHG, accessed 10 June 2026):
- Notarise the articles of association (Gesellschaftsvertrag). A German notary is mandatory, with the foreign parent acting as the founding shareholder.
- Appoint a managing director (Geschäftsführer).
- Open a German bank account and pay in at least €12,500 of the €25,000 capital.
- The notary files for Handelsregister entry. This is the pivotal moment: the GmbH becomes a legal entity and limited liability arises only on registration.
- Register the business (Gewerbeanmeldung) with the local trade office.
- Register with the Finanzamt and for VAT.
Note the timing point: between notarisation and register entry the company is a Vor-GmbH (pre-GmbH) with a different, less protective liability exposure. Limited liability is not retroactive to signing; it begins on entry. For the mechanics in detail, see how to open a GmbH in Germany.
Director and registered address requirements
A German subsidiary needs at least one managing director (Geschäftsführer), who may be foreign-resident subject to practical and banking constraints, and a German registered business address for the Handelsregister and the Gewerbeamt (GTAI; firma.de, accessed 10 June 2026). In practice, sorting out the director, the German registered business address and banking and KYC for a foreign-owned newco is the real timeline bottleneck, so set expectations honestly here.
Can a foreign company own 100%?
Yes. A GmbH can be a one-shareholder company (Einpersonen-GmbH) wholly owned by a foreign corporate parent, with no German co-shareholder required (firma.de; Handelskammer Hamburg, accessed 10 June 2026). Full foreign ownership of a German subsidiary is entirely standard.
How a German subsidiary is taxed
A German subsidiary is a German-resident corporation taxed on its worldwide income. The tax stack is as follows (PwC Tax Summaries; GTAI, accessed 10 June 2026):
- Corporation tax: 15% plus a 5.5% solidarity surcharge = 15.825%.
- Trade tax: a base rate of 3.5% multiplied by the municipal Hebesatz of 250%-580%, giving an effective ~8.75%-20.3%.
- Combined: approximately 30% (Berlin) to about 33% (Munich).
The honest framing matters here: there is no special branch tax. A branch's German permanent establishment (PE) is taxed under the same corporate rules, so a subsidiary and a branch carry broadly the same German tax burden on the same profit. Looking ahead, the corporation tax rate is scheduled to fall, with cuts to 14% (2028) and then to 10% (2032 and after), while the solidarity surcharge continues. Cross-border interest, dividend, treaty and profit-attribution effects can differ between a subsidiary and a branch, so model these with a Steuerberater rather than assuming the choice is tax-driven.
Subsidiary vs branch - which to choose
Because the tax is broadly the same, the decision turns on liability and permanence. The table below sets out the difference (firma.de; lawyersgermany.com; PwC, accessed 10 June 2026):
| Subsidiary (GmbH) | Branch office | |
|---|---|---|
| Separate legal entity? | Yes | No |
| Share capital | €25,000 (€12,500 paid in) | None |
| Liability | Limited to the GmbH (§13(2) GmbHG) | Full parent liability |
| Handelsregister | Yes, via notary | Autonomous branch only |
| Tax | ~30-33% | Same on PE profit |
| Best when | Permanence + liability shield | Speed + low cost |
Honestly stated: "the fastest, easiest and cheapest way to start a business in Germany is through a branch office", and a branch can be the right call when speed and low cost dominate and full parent liability is acceptable. Choose a subsidiary when limited liability and a permanent German-resident entity matter: ring-fencing, a standalone balance sheet and credit standing, local hiring, and holding or group preparation. If a branch fits you better, our pillar on the branch office in Germany covers it in full.
Group reporting & consolidation
For group reporting, the subsidiary's results are consolidated with the parent's, with intra-group receivables and payables offset against each other (firma.de, accessed 10 June 2026). This is purely an accounting overlay: legally the two entities stay separate, and the liability shield is unaffected by consolidation. Where a foreign group is building out a multi-entity structure, the subsidiary is a natural building block for a German holding company.
Setting up a German subsidiary (GmbH)
- 1Notarise the articlesNotarise the Gesellschaftsvertrag; a German notary is mandatory, with the foreign parent as founding shareholder.
- 2Appoint a directorAppoint a managing director (Geschäftsführer).
- 3Pay in capitalOpen a German bank account and pay in at least €12,500 of the €25,000 capital.
- 4Handelsregister entryThe notary files for entry; the GmbH becomes a legal entity and limited liability arises only on registration.
- 5Register the businessComplete the Gewerbeanmeldung with the local trade office.
- 6Register for taxRegister with the Finanzamt and for VAT.
Frequently asked questions
A legally independent German company, almost always a GmbH, owned by the foreign parent. It trades under its own name, has its own balance sheet and its own Handelsregister entry.
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