UK subsidiaries for German companies

Germany sends 62 investment projects to the UK in a year. UK company formation is light by comparison: no notary, no minimum capital, no trade register entry, no commercial register extract to obtain before anything can happen. A UK limited company is incorporated online in a day and one share is enough.

What differs from Germany

Lighter: formation, share capital, changing directors, and the absence of anything resembling the Handelsregister process. Heavier, or at least less familiar: the accounts of even a small company go on a public register that anyone can read, payroll reports to the tax authority on every single payday rather than monthly, and a workplace pension with a compulsory employer contribution applies from the first employee.

Goods, VAT and customs

Goods from Germany cross a customs border. The UK subsidiary needs an EORI number and postponed import VAT accounting so the VAT is declared and recovered on the same return rather than paid at the border. Services bought from the parent are handled by the UK company under the reverse charge.

Money and people

Dividends to the German parent leave the UK without withholding tax. Interest and royalties carry 20% UK tax at source unless the UK–Germany treaty reduces it and the claim is made in advance. Social security for staff posted between the two is covered by the UK–EU protocol, so a posted German employee can usually stay in the German system with a certificate.

Three things we set up differently for a German parent

1. The share structure. A GmbH shareholder is straightforward. The control a Gesellschaftervertrag would carry has no automatic UK equivalent. That belongs in the articles or a shareholder agreement as reserved matters, agreed before incorporation. Exercised informally instead, head office executives risk being treated as shadow directors of the UK company.
2. The accounting standard. HGB accounts do not translate directly. We use FRS 102, or FRS 101 where the group reports under IFRS, and map the chart of accounts to the group's at set-up so the monthly reporting pack needs no rework.
3. Customs and the goods flow. Movements from Germany cross a customs border. EORI, a customs agent, commodity codes and postponed import VAT are set up with the VAT registration, and the Incoterms in your customer contracts are checked, because those decide who is the importer of record and therefore who bears the import VAT.

Against the German set-up

Lighter: no notary, no €25,000 of capital, no commercial register extract to obtain before anything can happen, no supervisory board, and changing a director is a fourteen-day online filing rather than a notarial process.

Heavier, or at least less familiar: the accounts of even a small company are published and readable by competitors. Payroll reports to HMRC on every single payday rather than monthly. A workplace pension with a compulsory employer contribution applies from the first employee, with no equivalent of the German scheme structure. And there is no works council regime, which German groups sometimes assume must exist in another form and does not.