Germany–Switzerland · Businesses
Scenario 01 · Switzerland → GermanySwiss Companies Investing in Germany
A Swiss AG or GmbH can operate in Germany through its own subsidiary, an interest in a partnership, a permanent establishment or a registered branch. The chosen structure determines not only how profits are taxed, but also the requirements for bookkeeping, annual financial statements, electronic tax balance sheets (E-Bilanz), disclosure, trade tax, VAT, transfer pricing and ongoing German compliance.
Starting Point
Entry into the German market can be structured in different ways
A Swiss company does not necessarily need to establish a German GmbH to conduct business in Germany. Depending on the business model, the structure may involve a German subsidiary, an interest in a German partnership, a permanent establishment for tax purposes or a registered branch under commercial law.
These structures are not interchangeable for tax purposes. A German GmbH is a separate taxpayer. A partnership’s taxable results are generally allocated to its partners. A permanent establishment, by contrast, remains legally part of the Swiss enterprise.
Before German operations begin, the structure should therefore be selected by considering not only formation costs and liability, but also taxation, profit repatriation, accounting, financing and ongoing compliance.
Swiss tax perspective
This page covers the German tax, accounting and compliance consequences. The Swiss treatment of the investment and the Swiss head office is covered on TaxRep Switzerland.
Structure Comparison
Subsidiary, partnership or permanent establishment?
The following overview shows the principal differences from a German perspective.
| Structure | Legal status | Taxation of profits in Germany | Typical compliance requirements |
|---|---|---|---|
| German GmbH / AG | Separate German company | Corporate income tax and trade tax at company level | Bookkeeping, HGB financial statements, tax returns, E-Bilanz and disclosure |
| KG / GmbH & Co. KG | German partnership | Profits allocated to partners; trade tax at partnership level | Determination of taxable income, trade tax, bookkeeping and, where applicable, E-Bilanz and disclosure |
| German permanent establishment | Part of the Swiss enterprise | Germany taxes the profit attributable to the permanent establishment | Permanent establishment accounts, tax returns, profit attribution and, where applicable, E-Bilanz |
| Registered branch | Legally part of the Swiss company; a branch registered under commercial law | Generally requires a permanent establishment analysis for tax purposes | Commercial register, permanent establishment compliance and additional disclosure obligations |
German Subsidiary
A Swiss parent company with a German GmbH or AG
If the Swiss company establishes or acquires a German GmbH or AG, the German company is a separate taxpayer. Its income is generally subject to German corporate income tax, and its business operations are subject to German trade tax.
The German company needs its own accounting records, its own tax returns and, generally, annual financial statements under German commercial law.
- Corporate income tax return
- Trade tax return
- VAT and, where applicable, periodic VAT returns
- Bookkeeping and annual financial statements under the German Commercial Code (HGB)
- E-Bilanz
- Publication or deposit of financial statements
Subsidiary
The Swiss parent and the German subsidiary remain separate enterprises
Although the Swiss company controls the German subsidiary, the two enterprises are generally treated separately for tax purposes. Charges between them therefore cannot be set arbitrarily.
The German subsidiary generally needs a separate calculation of its taxable profit. Payments for management, IT, financing, goods, licences, personnel or other intragroup services must comply with the arm’s length principle.
Equity
The Swiss parent can finance the German company through share capital and additional equity contributions.
Loans
Intragroup financing must be structured on arm’s length terms, particularly regarding interest, maturity and economic viability.
Management services
Intragroup administrative and management services should actually be provided, clearly documented and appropriately remunerated.
Partnership
A Swiss company invests in a German KG or GmbH & Co. KG
An interest in a German partnership creates a different tax structure from an interest in a German GmbH.
In a business partnership treated as a Mitunternehmerschaft, the taxable results are generally allocated to the partners. The Swiss company may therefore directly earn German business income.
At the same time, the German partnership is generally itself liable for trade tax. Where there are several partners, taxable income is generally determined through a separate and uniform determination procedure.
Partner taxation
The Swiss partner is allocated a share of the German partnership’s taxable results.
Income determination
The common tax bases are generally determined separately and uniformly for all partners.
Trade tax
For a commercial partnership, trade tax is generally charged at partnership level.
Distinguish corporate distributions from partnership withdrawals
For a partnership, ongoing income tax or corporate income tax generally does not depend on whether the profit is actually paid out to the Swiss partner. Allocation of profit and withdrawal of cash are separate events.
GmbH & Co. KG
Tax transparency can coexist with extensive commercial law obligations
A GmbH & Co. KG is generally treated as a partnership for income tax and corporate income tax purposes. Under commercial law, however, certain commercial partnerships without an individual as a personally liable partner are subject to accounting requirements similar to those for corporations.
A structure can therefore be tax-transparent while still involving substantial compliance work for annual financial statements and disclosure.
German Permanent Establishment
German tax liability without a German subsidiary
A Swiss company can become subject to German tax even if it has not established a German GmbH. If it maintains a German permanent establishment, Germany may tax the business profits attributable to it.
Typical connecting factors include fixed places of business, offices, sales or production facilities and other premises available to the enterprise on an ongoing basis. Arrangements involving agents may also require a separate review.
- Tax registration in Germany
- German corporate income tax on permanent establishment profits
- Generally German trade tax
- German VAT issues
- Permanent establishment accounts
- Profit attribution between Switzerland and Germany
Profit Attribution
How much profit belongs to the German permanent establishment?
The German permanent establishment’s profit is not automatically the same as the revenue generated in Germany. Instead, the functions, assets and risks actually attributable to the German permanent establishment must be examined.
For German tax profit attribution, the permanent establishment is generally analysed as if it operated economically as a separate enterprise in relation to the head office. This concerns personnel, assets, risks and internal dealings in particular.
| Area | Typical question |
|---|---|
| Personnel | Which employees perform which functions in Germany? |
| Assets | Which assets serve the German permanent establishment? |
| Risks | Which economic risks are allocated to the German activities? |
| Sales | Who acquires customers, negotiates prices and concludes contracts? |
| Financing | Which financing is economically attributable to the permanent establishment? |
| Head office services | How are central Swiss functions taken into account in relation to the German permanent establishment? |
Registered Branch
A registered branch is not a German subsidiary
A German registered branch of a Swiss company remains legally part of the Swiss company. It must therefore be distinguished from a German GmbH.
Registering a branch in the German commercial register can trigger additional registration and commercial law requirements alongside the tax obligations.
German branches of foreign corporations are also subject to specific German disclosure rules concerning the foreign head office’s accounting documents.
A permanent establishment and a registered branch are different concepts
“Permanent establishment” is primarily a tax concept. “Registered branch” describes an organisational form under commercial law. A permanent establishment for tax purposes can therefore arise without a registered branch.
Profit Repatriation
Dividends from the German subsidiary to the Swiss parent
When a German corporation distributes profits to its Swiss parent, the Germany–Switzerland tax treaty must be considered alongside German dividend withholding tax.
The treaty provides particularly extensive relief for qualifying shareholdings. If the beneficial owner is a company (other than a partnership) resident in Switzerland that directly holds at least 10% of the capital of the German distributing company for a period of 365 days that includes the day of payment of the dividend, Article 10(3) of the treaty provides for full exemption of the dividend from German withholding tax. Changes of ownership that result directly from a merger, division or conversion of the company holding the shares or paying the dividend are disregarded when calculating this period.
If these conditions are not met, it is necessary to determine the limited German withholding tax remaining under the treaty and the procedure for claiming relief or a refund.
Withholding tax relief is not automatic
The ownership percentage and holding period alone are not always sufficient to obtain relief in practice. The requirements of the German relief procedure and the applicable anti-abuse and documentation rules must also be satisfied.
Bookkeeping & Financial Reporting
Which German accounting and disclosure obligations arise?
| Structure | Bookkeeping / financial statements | Tax filings | Public disclosure |
|---|---|---|---|
| German GmbH / AG | Separate bookkeeping and annual financial statements under the HGB | Tax returns and generally E-Bilanz | Publication or deposit in accordance with the statutory rules |
| GmbH & Co. KG | Bookkeeping and specific commercial law financial reporting | Determination of taxable income, trade tax and generally E-Bilanz | Disclosure requirements similar to those for corporations may apply |
| Other partnership | Depends on bookkeeping obligations under commercial and tax law | Determination of taxable income and, where applicable, E-Bilanz | Depends on the legal form |
| German permanent establishment | German records and, where applicable, bookkeeping | Tax returns; E-Bilanz where the relevant accounting method applies | No automatic application of GmbH disclosure requirements |
| Registered branch of a Swiss corporation | Coordination with the Swiss head office’s accounting | German permanent establishment compliance | Specific disclosure requirements for foreign accounting documents may apply |
E-Bilanz
Tax balance sheet data is submitted electronically
Where taxable profit is determined under the relevant balance sheet accounting rules, tax balance sheet and profit and loss data must generally be transmitted electronically to the tax authorities using the officially prescribed data format.
This requirement is not limited to conventional German GmbHs. Depending on the structure, E-Bilanz may also be relevant to partnerships and German permanent establishments of foreign enterprises.
Transfer Pricing
Dealings between the Swiss head office and German operations must be on arm’s length terms
German international tax law generally requires arm’s length conditions for transactions between related enterprises. Functions, risks and assets employed are particularly important in this analysis.
For a German permanent establishment, attributable profit must likewise be determined on the basis of an appropriate functional and risk analysis.
- Management and administrative services
- Supplies of goods
- Financing and loans
- Software and licences
- Transfers of personnel and business functions
- Attribution of profits to permanent establishments
VAT & Payroll
Business income taxation is only one part of German compliance
Depending on the business model, a Swiss company can incur German VAT obligations even without a German subsidiary. Relevant factors include the nature and place of supply, movements of goods, warehousing arrangements and the customers’ VAT status.
Employing staff in Germany may also raise German wage tax, payroll and social security issues.
These matters should be analysed separately from corporate income tax and permanent establishment taxation, because the relevant connecting factors are not identical.
Real Estate & Special Investments
German real estate can create German tax obligations without an operating permanent establishment
If a Swiss company acquires German real estate, the tax analysis is not limited to whether a conventional permanent establishment exists.
Germany may have taxing rights because the property is located there. Real estate transfer tax, ongoing taxation of income, options to charge VAT on lettings and the structure of a subsequent sale must also be examined.
For real estate investments, direct ownership by the Swiss company should therefore be compared with investment through a German property company or partnership.
Practical Approach
Review a German investment structure in eight steps
Business model
Define the German activities: sales, production, services, real estate or other operations.
Legal structure
Compare a subsidiary, partnership, permanent establishment and registered branch.
Taxation of profits
Analyse corporate income tax, partner taxation, trade tax and the tax treaty.
Financing
Determine the equity, loans and ongoing financing arrangements.
Transfer pricing
Document functions, risks and intragroup transactions.
Accounting
Organise bookkeeping, annual financial statements, determination of taxable income and E-Bilanz.
Registration
Review commercial register, disclosure and other German registration obligations.
Profit repatriation
Plan dividends, withholding tax, repayments and exit arrangements in advance.
Choosing a Structure
Which structures are typically relevant for different objectives?
| Objective | Frequently relevant structure | Key issue to review |
|---|---|---|
| A lasting German market presence with its own organisation | German subsidiary | Separate tax and accounting arrangements |
| Joint venture with German partners | Corporation or partnership | Allocation of profits and governance |
| Direct German operations of the Swiss enterprise | Permanent establishment | Profit attribution and liability remaining with the Swiss enterprise |
| A visible German branch without a subsidiary | Registered branch | Registration and disclosure obligations |
| German real estate investment | Direct ownership or a German property company | Income taxation, trade tax, real estate transfer tax and exit |
Frequently Asked Questions
Swiss companies investing in Germany
Does a Swiss company need to establish a GmbH to do business in Germany?
What is the main tax difference between a GmbH and a permanent establishment?
Is a GmbH & Co. KG treated in the same way as a GmbH?
Does the Swiss parent company need to file a German tax return?
Does a German subsidiary need to maintain its own accounting records?
Does a Swiss company with a German permanent establishment need to submit an E-Bilanz?
Can a Swiss parent receive dividends from a German subsidiary without German withholding tax?
Do transfer pricing rules apply between the Swiss parent and the German subsidiary?
Is a German registered branch the same as a permanent establishment?
Which structure is the most tax-efficient?
Further Tax Knowledge
Related Germany–Switzerland topics
Switzerland → Germany Tax Advice
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