A branch is characterized by a certain degree of organizational and economic independence and is thus distinguished from an independent office / establishment. We explain the differences and legal consequences.

The branch is a permanently spatially and organisationally separated part of the company, which is largely independent. It can also do essential business independently.

Although the establishment must be physically separate from the main establishment. However, it is possible that the establishment and main establishment are located in the same commercial district. It must also serve as the main establishment. However, it can also be larger and more important than the main establishment. However, the business activity must be the same as that of the main establishment. It shall also not be limited to mere ancillary or executive activities. The establishment is materially independent if it is organised in such a way that it can continue to operate as a separate company even if the main establishment ceases to exist. This is usually the case if she has her own resources, a separate accounting and her own bank account. However, the establishment must also be independent in personal terms. This is it if it has its own leader with power of action or Prokura. The establishment and termination of an establishment shall be subject to a decision by the representative bodies of the main establishment.

The establishment must be distinguished from the subsidiary and the permanent establishment.

The subsidiary has its own legal personality and is a legally independent company. The subsidiary accounts independently and is managed under its own company. It is established by the existing parent company. Therefore, they are subject to the general rules of constitution applicable to a company of their legal form. The relevant law is the law in which the subsidiary has its registered office, even if the parent company is foreign. In Germany, business registration is also required. For this purpose, the trade registration form must be completed and presented to the trade office. In addition, proof of identity, any permits and the company’s commercial register extract must be attached. In addition, the subsidiary must be registered with the commercial register in certified form.

The dependent branch is also called a company or branch. It is dependent on the main establishment in every respect and therefore not independent. It is not allowed to run its own company and must issue an invoice on behalf of the main establishment. A business registration is sufficient so that operating sites are not to be entered in the commercial register. How franchise can be considered an alternative to the branch and the subsidiary, we explained in another post.

The establishment is not a separate legal entity separate from the company of the main establishment. This is how it separates itself from the subsidiary. Legally, it is therefore part of the main establishment. Nevertheless, in many ways it is treated as an independent trading company and thus as legally independent.

The branch may have its own company. However, the company of the main branch must also be named there and it must become clear that it is a branch. Otherwise, the company can of course also be identical to the main office. In letters of business of the branch, it must indicate its full company and the registration number.

The branch also has its own seat. Furthermore, it must be registered and entered separately to the commercial register. Special features arise with a GmbH. It shall be accompanied by a certified copy of the articles of association, a list of shareholders, the signatures of all managing directors and persons authorised to represent the establishment. In the case of an AG, on the other hand, a publicly certified copy of the statutes in the version valid at the time of application must be submitted. In addition, the establishment must be registered with the competent trade office.

The Procura can also be limited to the area of a branch. For this purpose, the establishment must be managed under its own company to mark its independence. Such a Prokura is then called Filialprokura (§ 50 paragraph 3 HGB). It shall be entered in the commercial register.

Only merchants and trading companies can set up an independent branch. For companies not registered in the commercial register (small businesses and GbR companies) only the establishment of a permanent establishment is considered. What exactly you have to consider when setting up a branch and what reasons would possibly speak for a branch are explained in another article.

Should a foreign company operate a branch in Germany, their profits will be taxed in Germany. They correspond to the taxes that a company with the corresponding German legal form would have to pay. The profit of the establishment or permanent establishment taxed in Germany is either exempt from taxation or subject to taxation in the other State, in which case the amount of tax paid in Germany is counted against the corresponding tax of the other State. Details emerge from the respective agreement on the avoidance of double taxation (DTA), which Germany has concluded with the other state.

In particular, income tax or corporation tax, solidarity surcharge, payroll tax, business tax and sales tax are incurred.