German Holding Company - Guide on Holding Setup in Germany
Holding Companies in Germany
Updated on Tuesday 17th September 2024 Rate this article
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Germany is a country that encourages foreign investment and it is recognized as a very attractive destination for registration of holding companies. German holding companies represent an instrument for shareholders that want their profits distributed in an advantageous manner while financing other companies.
If you want to create a German holding company, our lawyers are at your service. You can rely on our law firm in Germany for more information on the requirements for setting up such a structure.
| Quick Facts | |
|---|---|
| Legal entities used | - limited liability company (GmbH), - joint stock company (AG) |
| Incorporation time | 5 weeks (approx.) |
| Shareholding structure | The parent company owns shares in other companies (subsidiaries); The parent company can hold between 10% to 100% of the shares in each subsidiary. |
| Minimum capital to open a company | EUR 25,000 for GmbH; EUR 50,000 for AG |
| Corporate income tax (CIT) rate | 15.825% (15% base rate + 5,5% solidary surcharge on the base rate) + trade tax (varies on the business location) |
| Accounting and reporting | Consult our accountants for advice on this matter. |
| Number of double taxation treaties | 90 (approx.) |
| General steps for opening a holding company | - determine legal structure, - select business name, - register local address, - draft Articles of Association, - deposit share capital, - register with the German Commercial Register, - obtain tax number, - assign shares to a German company |
| Company name requirements | Must reflect a connection between the parent and subsidiary companies; Our lawyers can help with the name. |
| Address requirements | Must be a local German address |
| Bank account required (YES/NO) | YES |
| Possible tax advantages for holding companies | - lower tax on dividends and capital gains, - withholding tax benefits, - Group Tax Regime (Organschaft) |
| Liquidation of a German holding company | Generally follows the standard liquidation procedure. Our attorneys assist with liquidations. |
| Hiring employees | For managerial and administrative roles. |
| Assistance and additional services | Our law firm can explain more about German holding companies. We also assist with VAT registration. |
Aspects to consider when setting up a holding company
The creation of a holding company in Germany implies completing the same steps as when starting any other business in this country, as it also falls under the provisions of the Company Law. Based on the activities that will be undertaken, a holding can be divided into:
- ultimate holdings that have full control over the assets of the subsidiary or subsidiaries they own;
- intermediate holdings that are owned by other holding companies;
- intellectual property (IP) holding companies that own IP rights in their subsidiaries;
- financial holding companies are also common in Europe.
The creation of a German holding company must also take into account the type of entity it is created under. The private limited liability and the stock corporation are the main legal form such companies can take and the main aspects to consider about are the shareholding structure and the minimum share capital.
Another important thing is that private companies cannot list their shares on the German Stock Exchange, while public companies can do that.
Our German lawyers are at the disposal of foreign investors who come here and want to create various types of businesses.
Types of holding companies in Germany
The most employed types of German holding companies are the limited liability company (GmbH) and the joint stock company (AG). Other types of holding companies available for foreign entities that want to invest in Germany are subsidiaries, branch offices and partnerships.
The limited liability company in Germany is the most common type of company because it does not require a large amount of money invested the minimum share capital required for this type of entity is 25,000 euros. The joint stock company is designed for larger companies wanting to expand in Germany and it requires a minimum share capital of 50,000 euros. The same start-up shared capital of 50,000 euros is required in cases of limited partnerships.
Advantages of holding companies in Germany
The main advantage of opening a holding company in Germany is the tax incentives provided by the “national corporation tax privilege” based on the German Corporation Tax Act (Körperschaftsteuergesetz, KStG). Germany provides 100% participation exemption on dividends and capital gains without requesting a minimum holding amount of time or a minimum shareholding requirement for taxation purposes. It is also important to know that business expenses can be deducted in cases of German holding companies, even if tax exemptions apply.
Germany’s double taxation treaties also offer an advantage for holding companies. In Germany there are no capital or stamp duties.
Taxation of holding companies in Germany
Foreign companies are subject to the German corporate tax that has a flat rate of 15%. A solidarity surcharge of 5.5% also applies that raises the corporate tax at 15.825%. German subsidiaries are also required to pay a withholding tax of 25%. The trade tax valued between 7 and 17% also applies and it calculated based on the tax base of 3.5%. Summing all the taxes applied to German companies the corporate tax is about 30%.
Differences between holdings and other entities
While form an incorporation point of view, the differences between a holding company and a trading one, for example, are not different in any way, in terms of activities, there are various things to consider before making a choice.
One of the best examples in this sense is that holding companies cannot engage in the activities of their subsidiaries, they can only own their assets. However, they are allowed to decide on matters related to the assets and financial resources they own in the respective subsidiaries. It is possible for a German holding company to have one or more subordinated enterprises (in most cases, several) that operate both locally and on other markets.
It is also possible for a foreign holding to have subsidiaries in Germany while its headquarters is in another country.
Germany is a great market to open a holding company thanks to the many opportunities it offers, but thanks to being one of the largest economies in the world.
If you need support in setting up such a company in this country, do not hesitate to ask for the support of our German law firm which can also provide guidance on the main aspects to consider after registration.
Assets that can be held by holding companies in Germany
Among the assets that can be held by a holding company are:
- real estate;
- intellectual property rights;
- shares.
Foreign entrepreneurs who want to create holding companies in Germany can rely on our local lawyers.
A special category of holdings is that of companies that own IP rights, as these can benefit from various advantages under various laws. These usually own patents, trademarks and licenses. Their subsidiaries can engage in research and development (R&D) activities and benefit from numerous tax benefits in Germany.
Our German lawyers can provide detailed information on the intellectual property legislation.
How to register a German holding company
The incorporation of a holding company in Germany implies drafting the Articles of Association, setting up the bank account in which the share capital will be deposited, reserving a trading name, and filing all the required documents with the Trade Register. A holding company must also register for taxation, however, it is not required to apply for any special license considering it does not engage in commercial activities.
The procedure of setting up a holding is not complicated or lengthy, especially since Germany has a quick registration process that enables investors and companies to start their operations as soon as possible.
The financial reporting requirements for a holding company differ from those of an enterprise that is engaged in commercial activities in the country. While the holding is not offering products or services to clients within or outside Germany, annual reporting and compliance matters are still of interest to investors. Our team of accountants in Germany can help you.
You can rely on our lawyers in Germany, no matter the type of company you want to establish.
Economic facts in Germany
Germany is one of the strongest and largest economies in the world. With industries like manufacturing and automotive that dominate the European market, Germany is one of the markets most foreign investors seek to enter. According to Heritage.org:
- in 2021, Germany was the 29th freest economies in the world;
- with a fiscal health of 92.8 points out of 100, it is also one of the most financially sound countries in the world;
- Germany is also one of the most open markets in the world with a total trade freedom score of 84 points.
Do not hesitate to rely on our lawyers for opening a German holding company.
If you want to open a company you and need details about the registration of holding companies you can contact our law firm in Germany.
