Thinking about entering Germany from the U.S.? The right legal form determines your tax rate, liability shield, speed to market, and cash-repatriation options. This guide walks you through the practical choices, models the biggest tax levers, and shows how we can set up and run your German operations end-to-end.
Need a tailored answer fast? Talk to our cross-border tax team—we’ll model your entity, city, and funding mix and show the after-tax impact.
Contents
- Snapshot: how Germany taxes businesses (your baseline)
- Your main structuring choices
- Cash repatriation & financing: what usually moves the needle
- Operating, compliance & perception
- How to choose (quick decision guide)
- Formation timelines & first-90-days checklist
- Everything beyond entity choice: we can execute it end-to-end
- Bottom line
- FAQs
Snapshot: how Germany taxes businesses (your baseline)
Corporate income tax (KSt): 15% Solidarity surcharge (Soli): 5.5% on KSt Trade tax (Gewerbesteuer): municipal, typically ~14–20% depending on location.
Effective combined burden often lands around ~30%, but varies by municipality. Run your numbers with our city-level calculator inside the German Business Tax Guide (computes KSt + Soli + Gewerbesteuer by city).
Outbound withholding: Dividends generally face WHT (treaty relief often 5%/15%). Interest & royalties can be treaty-exempt when conditions are met. Interest limitation: net interest is generally capped at 30% of EBITDA—model leverage before funding.
Shortcut: The German Business Tax Guide has rates, forms, deep dives—and the interactive calculator to compare locations before you pick an entity.
Your main structuring choices
German subsidiary — GmbH (the practical default)
Why it works: strong market perception, ring-fenced liability, straightforward governance. Typical tax ~30% (city-dependent). Capital: €25,000 stated; minimum €12,500 paid in before registration.
Best for: durable operations, employees, inventory, regulated activity. Tip: model the trade-tax differences with the calculator in our German Business Tax Guide.
UG (haftungsbeschränkt) — lean entry
Minimal capital (from €1), fast setup. Trade-offs: optics with counterparties; mandatory profit retention until conversion to a full GmbH is common.
GmbH & Co. KG — partnership economics + limited liability
Partnership transparency with a GmbH as GP; flexible allocations and co-investment friendly. Expect trade tax on commercial activity and more admin (two entities). Useful for asset holding or JV-style setups.
German branch (PE) of the U.S. company
Fast (no share capital), simple exit—suited for pilots. Trade-offs: parent-level exposure to German liabilities; some counterparties prefer a local company. Branches are often migrated into a GmbH after product-market fit.
AG / SE — for larger transactions
Capital markets access and broader participation; heavier governance and disclosure. Overkill for most greenfield mid-market entries.
Cash repatriation & financing: what usually moves the needle
- Dividends: Structure to qualify for treaty WHT (often 5%/15%); maintain LOB/substance files.
- Interest & royalties: Often treaty-exempt with the right facts and documentation; align with transfer pricing.
- Debt vs. equity: Germany’s 30% EBITDA cap can degrade interest deductions—stress-test leverage before funding.
Want a side-by-side cash-tax vs. book-tax for each structure and city? Book a consult and we’ll run it with our models + the municipality calculator in the German Business Tax Guide.
Operating, compliance & perception
- Substance/treaty: local director, bank, office, and real decision-making support LOB and audit defense.
- Transfer pricing: contemporaneous documentation for services, IP, and distribution margins.
- VAT (not U.S. sales tax): plan registrations, invoicing, and filing cadence early to avoid blocked input VAT.
- People & payroll: immigration, social security totalization (U.S.–DE), wage tax—set up from day one.
How to choose (quick decision guide)
Pick a GmbH for a durable footprint and clean liability separation. Start with a branch to learn quickly and migrate to GmbH as you scale. Use a GmbH & Co. KG for partnership economics/co-investors. Consider a UG for ultra-lean pilots when capital is tight.
Formation timelines & first-90-days checklist
Indicative timing: GmbH via notary → bank KYC → capital in → commercial register typically 2–6 weeks (banking drives timing). Branch is faster on paper, but banking/KYC still sets the pace.
- Choose municipality (model Gewerbesteuer with the calculator).
- Lock governance (local director, signatory matrix, D&O).
- Bank account + funding; UBO/KYC pack.
- VAT/CIT/trade-tax registrations; payroll if hiring.
- Intercompany agreements & transfer-pricing policy.
- Repatriation plan (dividend vs. interest/royalty) with treaty documentation.
Everything beyond entity choice: we can execute it end-to-end
We don’t just advise—we implement. Our team handles company formation & corporate housekeeping, tax office registrations, the opening balance sheet, and ongoing bookkeeping, financial statements, and tax returns.
For requirements on bookkeeping and financial reporting in Germany, see our German Bookkeeping & Accounting Guide (with sub-pages).
Service pages (Germany): Tax Returns • Accounting • Consultation
Ready to move? Contact us and we’ll map your structure, timeline, and filings in one session.
Bottom line
For most U.S. investors with real operations, a GmbH is the clean, defensible default. Your effective tax rate hinges more on municipality (trade tax), treaty eligibility/LOB, and interest-limitation planning than on the label alone. Use the German Business Tax Guide and its municipality calculator to quantify outcomes—then talk to us to lock in the right setup and get it executed.
Frequently Asked Questions about German Entity Choice (for U.S. Investors):
ℹ️ Click a question to reveal the answer:
What is the most common legal form for a U.S. investment in Germany?
For most operating businesses, a GmbH (limited liability company) is the practical default: strong market perception, clear liability ring-fence, and straightforward governance. A branch (PE) can work for a quick market test; many investors later migrate to a GmbH.
How much capital do I need to form a GmbH and how long does it take?
The GmbH has stated capital of €25,000; at least €12,500 must be paid in before registration. Typical formation timing is 2–6 weeks (bank KYC often sets the pace). We can handle formation end-to-end—contact us.
When should I use a branch instead of a GmbH?
A branch is fast (no share capital) and suits pilot sales or a light presence. Trade-offs: the U.S. parent is directly exposed to German liabilities and some counterparties prefer a local company. Branches can be rolled into a GmbH later.
What effective tax rate should I model—and does the city matter?
Germany has CIT (15%) plus solidarity surcharge and a municipal trade tax. The effective rate typically lands around ~30%—but it varies by municipality. Use our city-level calculator inside the German Business Tax Guide to compare locations (KSt + Soli + Gewerbesteuer).
Is a GmbH & Co. KG better for tax than a GmbH?
It can be—especially for co-investment and flexible allocations—because the partnership is transparent for income tax. However, commercial activity still triggers trade tax. Administration is heavier (two entities). We model both paths before you decide.
Are German dividends subject to withholding tax when paid to a U.S. parent?
Yes. Treaty relief under the U.S.–Germany treaty typically reduces WHT to 5% for ≥10% corporate parents or 15% otherwise, subject to LOB and substance. We prepare the documentation and align repatriation with your funding plan.
How do interest deductions work in Germany (30% EBITDA rule)?
Net interest is generally limited to 30% of tax EBITDA. This caps the benefit of shareholder loans. We stress-test your leverage and mix equity/interest/royalties accordingly—start with our models, then refine in a consult.
Do I need VAT registration and German bookkeeping from day one?
Usually yes—Germany is a VAT jurisdiction with frequent filings. You also need local bookkeeping and financial statements under HGB. See our German Bookkeeping & Accounting Guide and our service pages for Accounting and Tax Returns.
What substance do I need for treaty benefits and audit defense?
Local decision-making, a German director, bank account, office, and contemporaneous transfer-pricing documentation strengthen LOB and treaty positions. We set up governance and documentation with you.
Can we start with a UG (haftungsbeschränkt) and upgrade later?
Yes. The UG allows minimal capital to start; retained profits build equity until conversion to a full GmbH. It’s a lean entry, but some counterparties prefer GmbH from day one. We advise based on optics, budget, and timeline.
How do we choose a city and quantify the tax impact quickly?
Trade tax varies by municipality and can shift your effective rate by several points. Use the calculator inside our German Business Tax Guide to compare cities, then book a consult for a full model (cash-tax & book-tax).
What filings follow formation (first 90 days)?
Tax office registrations (CIT, VAT, trade tax), payroll setup if hiring, opening balance sheet, intercompany agreements and pricing policy. We execute these steps end-to-end—see Consultation and Accounting.
How do we handle dividends, interest, and royalties for repatriation?
Plan repatriation up front: dividends with treaty WHT relief (5%/15% if eligible), interest subject to the 30% EBITDA cap, and royalties often treaty-exempt with proper substance and pricing. We tailor the mix and keep the files audit-ready.
Can you handle formation, registrations, bookkeeping, and annual filings for us?
Yes. We support company formation, corporate documentation, tax office registrations, the opening balance sheet, ongoing bookkeeping, financial statements, and tax returns. See our Bookkeeping & Accounting Guide and service pages: Tax Returns, Accounting, Consultation, or contact us to get started.