Germany · Foreign Relationships · Reporting
Section 138 AO: Reporting Foreign Companies and Ownership Interests
German taxpayers who form businesses abroad, maintain foreign permanent establishments or acquire, change or dispose of interests in foreign entities can have special reporting obligations toward the German tax authorities. Section 138(2) of the German Fiscal Code covers considerably more than traditional foreign corporations.
Foreign-relationship reporting
A foreign company can be reportable even if no German tax is currently payable
The reporting obligation under Section 138(2) AO is a separate German tax information requirement. It does not depend on whether the foreign investment has already made distributions or whether German tax becomes immediately payable.
The key question is whether one of the statutory foreign-relationship events has occurred. These include foreign businesses and permanent establishments, interests in foreign partnerships, certain interests in foreign corporations and entities, and controlling or determining influence over certain third-country entities.
Who is affected?
Who can be required to report under Section 138(2) AO?
The rule applies to German taxpayers with a residence, habitual abode, registered office or place of management in Germany. Individuals, corporations and partnerships can therefore be affected.
Resident in Germany
An individual can become subject to the reporting requirement, for example when acquiring a relevant interest in a foreign entity.
German registered office or management
German companies can also be affected when establishing foreign businesses, permanent establishments or ownership interests.
Separate reporting obligations
Partnerships can also qualify as taxpayers for purposes of the reporting provision.
Core reporting events
Which foreign activities and interests must be reported?
Section 138(2) AO contains several separate reporting categories. The requirements differ depending on whether the case involves a foreign business, partnership, corporation or third-country entity.
- formation or acquisition of a foreign business
- formation or acquisition of a foreign permanent establishment
- acquisition, disposal or change of an interest in a foreign partnership
- certain acquisitions or disposals of interests in foreign corporations, associations or pools of assets
- first ability to exercise controlling or determining influence over a third-country entity
- information about the entity's economic activity
Foreign Business & PE
Foreign businesses and permanent establishments
The formation and acquisition of businesses and permanent establishments outside Germany are reportable events under Section 138(2) AO.
This can become relevant, for example, where a German business opens a permanent location abroad or acquires an existing foreign operation.
Foreign business
Formation or acquisition of an independent foreign business can directly trigger a reporting obligation.
Foreign permanent establishment
A foreign permanent establishment can also create its own reporting requirement.
Foreign Partnerships
The 10% threshold does not apply to foreign partnerships
Interests in foreign partnerships are subject to different rules from interests in foreign corporations.
Section 138(2) sentence 1 no. 2 AO covers the acquisition, disposal or change of an interest in a foreign partnership.
Important distinction
The familiar 10% ownership threshold and the EUR 150,000 acquisition-cost threshold relate to the rule for foreign corporations, associations and pools of assets. The statutory rule for foreign partnerships is formulated differently.
Corporations & Pools of Assets
10% ownership or more than EUR 150,000 in acquisition costs
For the acquisition or disposal of an interest in a corporation, association or pool of assets with both registered office and place of management outside Germany, the reporting requirement can apply where one of the statutory thresholds is met.
At least 10%
The acquisition results in a direct and indirect interest totaling at least 10% of the capital or assets.
More than EUR 150,000
Alternatively, the reporting obligation can arise if the total acquisition cost of the relevant interests exceeds EUR 150,000.
Direct and indirect interests are combined
For the 10% threshold, direct and indirect ownership interests are aggregated. Holding structures should therefore not be reviewed only at the immediately owned level.
Listed Companies
An exception can apply to certain small publicly traded interests
Section 138 AO contains an exception for acquisitions and disposals of interests below 1% where the principal class of shares of the foreign company is substantially and regularly traded on a qualifying stock exchange.
This exception is particularly relevant when distinguishing diversified listed investments from significant interests in privately held foreign companies.
Third-Country Entities
Controlling influence can be reportable even without a traditional ownership threshold
Section 138(2) AO also covers the first time a German taxpayer, alone or together with related persons, can directly or indirectly exercise controlling or determining influence over the corporate, financial or business affairs of a third-country entity.
For this purpose, a third-country entity is a corporation, association or pool of assets with its registered office or place of management in a state or territory outside the European Union and EFTA.
Direct influence
Control can arise from direct corporate, contractual or actual influence.
Indirect influence
Indirect ownership and control structures can also be relevant.
Related persons
The analysis can also take into account influence exercised together with related persons.
Typical Structures
Where Section 138 AO commonly needs to be reviewed
Formation of an LLC
For a U.S. LLC, the legal and German tax classification must first be considered. Depending on the classification, the rules for foreign partnerships or corporations can become relevant.
Shares or ownership interests
For an interest in a U.S. corporation, the ownership percentage, acquisition costs and potentially the third-country control rule should be reviewed.
Partnership interest
Acquisition, changes and disposal of an interest can be relevant without applying the corporation thresholds.
Indirect ownership
Intermediate foreign holding companies can be relevant for calculating indirect ownership and determining additional reporting requirements.
Expansion abroad
Formation or acquisition of a foreign business or permanent establishment can create a separate reporting event.
Foreign asset structure
Pools of assets can fall within the statutory wording. Trust structures require careful classification under German law.
LLCs & Foreign Legal Forms
The foreign legal label does not by itself determine the German reporting category
A foreign legal form must be classified from a German tax perspective. This is particularly important for hybrid entities such as a U.S. LLC.
A U.S. LLC can, depending on its governing documents and legal characteristics, be treated more like a corporation or more like a partnership for German tax purposes. That classification can affect which Section 138(2) AO reporting category applies.
Do not simply assume “LLC = corporation”
For German tax purposes, the actual characteristics of the LLC should be analyzed. Section 138 AO reporting can also exist alongside additional German income, corporate, trade-tax or registration consequences.
Deadline
Generally with the tax return – not within one month
The deadline for foreign-relationship reporting under Section 138(2) AO is different from the one-month rule that applies to certain domestic business-registration events.
The foreign-relationship notification is generally filed together with the income tax, corporate income tax or separate assessment return for the tax period in which the reportable event occurred.
- report together with the relevant German tax return
- no later than 14 months after the end of the tax period
- for calendar-year taxpayers, typically no later than the end of February of the second following year
- electronic filing where the related tax return must be filed electronically
- 14-month outside deadline can also apply where no tax return is otherwise required
- do not confuse this with the one-month rule in Section 138(4) AO
Deadline Example
Formation of a foreign company in 2026
If a reportable event occurs during calendar year 2026, the notification is generally filed with the German tax return for 2026.
Regardless of when that return is actually submitted, Section 138(5) AO generally provides an outside deadline of 14 months after the end of the relevant tax period.
For a calendar-year 2026 tax period
The 14-month period generally ends on February 29, 2028, because 2028 is a leap year. In practice, however, the notification should generally be submitted together with the 2026 German tax return.
Form & Information
What information must be provided?
The notification is submitted using the officially prescribed data format or, where applicable, the official form. In addition to information about the foreign structure itself, the nature of its economic activity must also be reported.
Foreign entity
Name, registered office, place of management and other identifying information of the company, investment or permanent establishment.
Ownership interest
Type and extent of direct or indirect ownership and the reportable event that occurred.
Economic activity
The nature of the foreign entity's economic activity is expressly part of the statutory information requirement.
Indirect Ownership
Multi-tier holding structures must be reviewed as a whole
For indirect interests, it may not be sufficient to look only at the top or bottom entity in the structure. Direct and indirect interests are combined for certain ownership thresholds.
For multi-tier structures, it is therefore useful to document the ownership chain and the resulting economic ownership percentages.
Late or Missing Notification
Violations can be treated as a tax-related administrative offense
A person who intentionally or recklessly fails to comply with a reporting obligation under Section 138(2) AO, or files incompletely or late, can commit an administrative offense under Section 379 AO.
Fine of up to EUR 25,000
Section 379 AO provides for a fine of up to EUR 25,000 for violations of the Section 138(2) AO reporting obligation. If a required filing has been missed, the position should therefore be reviewed and the notification completed correctly.
Other German Obligations
Section 138 AO is often only one part of the German tax analysis
Foreign income
Profits, distributions, disposals and other foreign income may also need to be reported in German tax returns.
CFC taxation
German CFC rules under the Foreign Tax Act can additionally apply to certain low-taxed foreign companies.
German tax liability of the foreign company
If a foreign company is effectively managed from Germany, the company itself can have German tax and registration obligations.
German and foreign PEs
Permanent establishments can create separate tax registration, profit allocation and filing obligations.
Transfers of ownership interests
Gifts or inheritances involving foreign ownership interests can create additional German inheritance or gift tax obligations.
Tax treaties
The taxation of income can also be affected by the applicable double tax treaty.
Common Mistakes
What is frequently overlooked with foreign ownership interests
Reporting only distributions
The notification requirement can arise upon formation, acquisition or change of an interest, independently of later distributions.
Applying the 10% threshold to partnerships
The thresholds for foreign corporations do not apply in the same way to foreign partnership interests.
Ignoring indirect ownership
Direct and indirect interests are combined for certain statutory thresholds.
Applying a one-month deadline
Foreign reporting under Section 138(2) generally follows the special deadline in Section 138(5), not the one-month rule in subsection 4.
Accepting the foreign legal form without analysis
German classification can be decisive for LLCs and other hybrid legal forms.
Reviewing only Section 138 AO
Foreign structures can simultaneously create German income, corporate, trade-tax or international tax consequences.
Further Guidance
Foreign Structures & German Compliance
Frequently Asked Questions
Section 138 AO and Foreign Interests
What must be reported under Section 138(2) AO?
At what ownership percentage does an interest in a foreign corporation become reportable?
Does the 10% threshold also apply to foreign partnerships?
Does the formation of a U.S. LLC have to be reported?
When is the notification due?
Does a one-month deadline apply to Section 138(2) AO?
Do indirect interests have to be taken into account?
What is a third-country entity?
Can failure to file result in a fine?
Does the Section 138 AO filing replace reporting the related income?
German Tax Advice
Do you own or plan to form a foreign company?
We review whether a Section 138 AO notification is required, how the foreign legal form is classified for German tax purposes and which additional German tax and filing obligations can arise from the structure.
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