1) Corporation (e.g., GmbH, AG)

Overview

A German corporation is a separate legal person with limited liability. Common forms are the GmbH (private limited) and AG (public). Incorporation, governance and financial statements follow the Handelsgesetzbuch (HGB) and corporate law; tax rules are primarily in Körperschaftsteuergesetz (KStG), Gewerbesteuergesetz (GewStG), Umsatzsteuergesetz (UStG), and procedures in Abgabenordnung (AO).

Tax profile (Germany)

• Corporate income tax: 15% plus solidarity surcharge on that tax (effective ≈ 15.825%).
• Trade tax: municipal tax based on location (overall effective corporate+trade burden commonly ~23–32% depending on the municipality).
• Withholding tax: dividends generally subject to German withholding; treaty or EU rules may reduce. Interest is typically not subject to withholding (exceptions exist); royalties may be, subject to treaty relief. VAT rules under UStG apply to supplies.

Legal & operational

• Limited liability at the entity level; substance, capitalization, and governance are important.
• Financial statements: HGB accounts, electronic filing/publication via Bundesanzeiger; audit may be required depending on size.
• Reorganizations: tax-neutral options may be available under Umwandlungssteuergesetz (UmwStG) if conditions are met.

U.S. investor lens

• For U.S. C-corporate parents, foreign tax credits and the §245A DRD may be relevant for dividends (subject to hybrid/holding period/FTC limitations).
• GILTI/Subpart F analysis applies for controlled foreign corporations; model cash-tax outcomes depend on German rate vs. U.S. regime and creditability.
• Treaty benefits (U.S.–Germany) can reduce dividend withholding for qualifying corporate shareholders satisfying limitation-on-benefits (LOB) provisions.

2) Partnership (e.g., KG, GmbH & Co. KG)

Overview

German partnerships are generally tax-transparent for income tax purposes: profits are allocated to partners, while the partnership itself is subject to trade tax if it operates a trade. Legal basics are in civil/commercial law and the HGB; tax allocation and assessment follow the AO.

Tax profile (Germany)

• Income allocation: flows to partners (corporate or individual); the partnership files a return for allocation purposes.
• Trade tax: levied at the partnership level if a trade/PE exists; for individual partners a credit against personal income tax may be available (not for corporate partners).
• Withholding: distributions themselves usually do not trigger German dividend withholding (not a corporation), but nonresident partners may have German filing/assessment due to German-source business income.

Legal & operational

• GmbH & Co. KG: commonly used to combine limited liability (via a GmbH as general partner) with partnership tax transparency.
• Agreements (profit allocation, preferred returns, exit waterfalls) must be carefully drafted; HGB accounting applies, with publication where thresholds are met.

U.S. investor lens

• Classify the entity correctly for U.S. purposes (check-the-box). A German partnership often maps to a U.S. partnership—enabling pass-through treatment but also potential effectively connected German business income exposure.
• Potential PE attribution through the partnership creates German filing for U.S. partners; treaty relief depends on PE status and LOB.
• State-by-state U.S. conformity (and basis tracking) matters for crediting German trade tax and partner-level liabilities.

3) Branch / Permanent Establishment (PE)

Overview

A foreign company (e.g., U.S. Inc.) can operate in Germany via a registered branch. For tax, a permanent establishment (PE) exists if business is carried on through a fixed place or dependent agent. Profit attribution follows authorized OECD approach; German assessment is based on the AO and relevant tax acts.

Tax profile (Germany)

• German tax on PE profits: subject to corporate income tax (for corporate head office) and trade tax if a PE exists.
• No branch remittance tax: amounts remitted to the head office are not subject to a separate German withholding tax.
• VAT: local registration may be required; PE status can affect place-of-supply and input VAT recovery under UStG.

Legal & operational

• Register the branch, maintain local books for the PE, and keep transfer-pricing documentation for head-office/PE dealings.
• Substance (people, premises, risks) is critical to support profit attribution.

U.S. investor lens

• PE profits may be foreign branch category income for U.S. foreign tax credit purposes.
• The U.S.–Germany treaty can protect non-PE activities (no German tax absent a PE), but once a PE exists, Germany has primary taxing rights on the PE profits.

Compliance: Accounting, Filings & VAT

• Books & records: HGB governs commercial accounts; record-keeping, assessments and penalties are under AO.
• Financial statements: annual HGB statements; size-based disclosures and possible audit. Publication via Bundesanzeiger.
• Corporate income & trade tax returns: annual returns; trade tax depends on municipality of the PE/registered office.
• VAT (USt): standard rate 19% (reduced 7% for qualifying supplies). Monthly/quarterly reports and annual return; intra-EU rules and reverse charge can apply under UStG.
• Payroll: wage withholding and social security if hiring in Germany.

U.S.–Germany Treaty, Withholding & Credits

• Treaty relief: the income tax treaty can reduce dividend withholding for qualifying corporate shareholders, and generally eliminates withholding on most interest and royalties where conditions are met. Access is subject to limitation-on-benefits tests and documentation.
• Procedures: relief at source or refund via the German Federal Central Tax Office (BZSt); coordinate forms (e.g., certificate of residence) and keep ownership/holding-period proofs.
• U.S. foreign tax credits: model outcomes depend on category (general, passive, branch), expense allocation, and high-tax combinations; plan for GILTI/Subpart F where a corporation is used.

Quick Comparison & Typical Use Cases

Corporation (GmbH/AG)

• Pros: limited liability; familiar to counterparties; easier profit retention; treaty-navigable dividend payouts.
• Cons: dividend withholding to manage; potential GILTI/Subpart F; double-layer (corporate + trade tax).
• Use when: operating company with staff and scaling; need ring-fencing of liabilities; external investors.

Partnership (KG / GmbH & Co. KG)

• Pros: tax transparency; flexible allocations; popular for real assets and co-investments.
• Cons: trade tax still applies; nonresident partners may have German filings; classification must align with U.S. goals.
• Use when: asset holding (real estate, renewables), JV structures, flexible waterfalls.

Branch / PE

• Pros: no dividend withholding; simpler repatriation; start fast without forming a local company.
• Cons: PE exposure; U.S. foreign branch basket; less ring-fencing than a subsidiary.
• Use when: testing the market, early sales/support presence, limited headcount with centralized functions.

Note: Specific rates, incentives and municipal coefficients change from time to time. Always verify current rules before executing transactions.