German Investments in the U.S.
Choosing the Right Vehicle for a German Investment in the U.S.
Structuring U.S. investments by German individuals or companies — comparing LLCs, C-Corporations, and partnerships. Key tax, legal, and treaty aspects for inbound investors under the U.S.–Germany tax treaty.
Vue d'ensemble
German individuals and corporations investing in the U.S. face a complex mix of federal, state, and local tax systems. The choice of entity — typically LLC, C-Corporation, ou Partenariat — determines not only tax exposure but also legal liability, reporting duties, and the application of the U.S.–Germany tax treaty.
The optimal vehicle depends on factors like investment size, activity level (active vs. passive), expected repatriation of profits, and whether German investors are private individuals or corporations.
LLC (Limited Liability Company)
LLCs are popular for domestic U.S. investors due to flexibility and limited liability. However, for German investors they often create tax mismatches: the U.S. treats an LLC as a pass-through (transparent) entity unless it elects to be taxed as a corporation, while Germany generally treats it as a corporation.
- Pour : simple setup, limited liability, flexible profit allocation.
- Cons : possible double taxation; no treaty protection if Germany doesn’t recognize the pass-through status; complex filings (Form 5472, 1120).
C-Corporation
The standard form for non-U.S. investors seeking clear treaty protection and separation of liability. A C-Corporation is a U.S. tax resident subject to corporate income tax (≈ 21% federal + state taxes). Distributions to German shareholders are typically subject to 30% U.S. withholding tax on dividends, reduced to 5 %–15 % under the U.S.–Germany treaty.
- Pour : clear corporate form, treaty-eligible, predictable compliance.
- Cons : potential double taxation on dividends; ongoing state and federal filings.
Partnerships (LP / LLP)
Used for real-estate or joint-venture investments. Partnerships are transparent for U.S. tax purposes: income is taxed at the partner level. For German investors, this can trigger direct U.S. filing obligations (e.g. Forms 8805, 1040NR/1120-F) and recognition of “Effectively Connected Income (ECI)”.
- Pour : flow-through taxation, flexible allocation of profits/losses.
- Cons : direct U.S. filing obligations; potential German double taxation unless structured properly.
U.S.–Germany Tax Treaty
The bilateral tax treaty governs taxation of dividends, interest, royalties, and business profits. Key points:
- Business profits taxable in the U.S. only if there is a établissement permanent.
- Reduced withholding rates: 5 % for substantial corporate shareholders, 15 % for individuals.
- Tax credits in Germany for U.S. taxes paid.
- Information exchange and FATCA/CRS compliance requirements.
Withholding & Reporting
German investors must provide the correct Formulaire W-8BEN (individual) or W-8BEN-E (entity) to claim treaty benefits. U.S. payors otherwise apply 30 % default withholding.
Other obligations may include:
- FATCA registration (where applicable)
- U.S. EIN application for entities
- U.S. tax return filings (Forms 1120-F, 5472, 1040NR, 8805)
Comparison table: LLC vs. C-Corp vs. Partnership
| Aspect | LLC | C-Corporation | Partenariat |
|---|---|---|---|
| U.S. tax treatment | Pass-through by default; may elect corporate tax | Entity-level tax (21 % + state) | Pass-through |
| German tax view | Corporation (no pass-through) | Société | Partnership (transparent) |
| Treaty protection | Limited / uncertain | Full | Depends on structure |
| Typical use | Small business, real estate | Operating company, long-term hold | Joint venture, fund, passive holding |
Who we advise
- German companies setting up U.S. subsidiaries (Delaware, California, Florida, etc.).
- Private investors acquiring U.S. real estate or participating in U.S. partnerships.
- Family offices and holding structures seeking efficient cross-border setup.
FAQ
Does Germany recognize U.S. LLCs?
Germany usually treats an LLC as a corporation, not as a transparent entity. This can cause hybrid mismatches and double taxation if not structured properly.
Can a German investor use a U.S. C-Corporation?
Yes. C-Corporations are the most common structure for German inbound investments, providing clear separation and treaty benefits.
Are partnership interests covered by the treaty?
Generally yes, but allocation and U.S. reporting must be carefully managed to avoid classification conflicts and ensure creditability of U.S. taxes in Germany.