Permanent establishment in Germany
Whereas the founding of a German subsidiary company brings tax liability as a matter of planning.
If a permanent place of business is established (“permanent establishment”) then this is often unplanned according to the regulations of a double taxation agreement or German rules. As well as permanent establishment, construction activities and installation services may lead to the establishment of a taxable place of business.
If the following information does not answer your questions about the establishment of a German place of business or, if you need immediate help in supporting your German business activities, please send an email to firstname.lastname@example.org and we will contact you without delay.
Characteristics of a taxable place of business
German tax administration views all fixed business facilities as places of business, if they are set up to be permanent (§ 12 German Tax Code [AO]). „Permanent setup“ means longer than six months at least. Additionally, the business facility must serve the company’s activity. There must also be a „non-temporary“ authority to govern over the premises in which the place of business is located.
In some double taxation agreements made between Germany and other states, there may be different definitions of a permanent establishment. In particular, the time period of six months may be extended to twelve months. The regulations in double taxation agreements always precede the German regulations.
Advantages and disadvantages of a place of business
One advantage of a permanent establishment (place of business) over a German subsidiary company is that the administrative costs are lower. Additionally, there are generally no founding costs for a permanent establishment in Germany. A German permanent establishment may also be terminated at any time without having to follow certain regulations.
The disadvantage of a German permanent establishment is that foreign companies in Germany are not perceived as national companies. Generally, contracts in Germany are preferred to be made with other German companies. Another disadvantage is that it is necessary to have your own determination of income for the permanent establishment. The differentiation of income between Germany and the state where the foreign company is located is often very complex.
WW+KN services for German places of business
WW+KN offers the following services for the permanent establishments of companies with business activities in Germany:
- Checking German regulations and the regulations in the relevant double taxation agreement as to whether a German permanent establishment is considered to be established
- Support in fulfilling German administrative and formal regulations (local business registration, tax registration, etc.)
- Basic advice on founding a German permanent establishment and demonstration of the taxation consequences when a German permanent establishment is founded
- Taking care of the German accounting for the permanent establishment
- Support in tax registration for employees in Germany
- Taking care of payroll and salary accounting for the employees at the permanent establishment
- Creating the annual determination of income and tax returns for the permanent establishment in Germany
- Support in determining the transfer pricing and profit distribution between the German permanent establishment and the foreign company
- Representing the German permanent establishment vis-à-vis the German authorities
- Strategic support for the management of the foreign company with regard to the German permanent establishment