Direct distribution

Ownership structures

May a foreign supplier establish its own entity to import and distribute its products in your jurisdiction?

Yes. However, specific restrictions may apply if (foreign or domestic) investors do business in the defence, pharmaceutical or financial sectors.

May a foreign supplier be a partial owner with a local company of the importer of its products?

Yes. There is no specific investment legislation and no minimum percentage of German shareholders required.

What types of business entities are best suited for an importer owned by a foreign supplier? How are they formed? What laws govern them?

The types of business entities that are best suited are:

  • limited liability companies (GmbH and UG);
  • stock corporations (AG); and
  • limited partnerships (KG).


The criteria for the choice of entity used are liability, taxation, financing, personal involvement and control, and flexibility. For larger companies, a GmbH or an AG are typically best suited. Their shareholders’ liability is limited to the respective share capital.

The minimum share capital varies between €50,000 (AG), €25,000 (GmbH) and €1 (for the GmbH subtype, UG). The transfer of shares in a GmbH or a UG typically has to be approved by the other shareholders and notarised, whereas shares in an AG are freely transferable. However, the GmbH is a more flexible and procedurally less demanding form of entity than the AG.

GmbH, UG and AG entities are formed by one or more founding shareholders, who adopt the articles of association and appoint the managing directors, and additionally, in the case of an AG, a supervisory board (of at least three members) in a notarial deed. These entities exist upon registration at the commercial register. Alternatively, a supplier may purchase an existing, inactive shelf company and, as an advantage, start operating immediately.

Partnerships are often preferred for tax reasons, especially the KG, which – for reasons of limiting liability – is often combined with a corporation as a general partner (GmbH & Co KG or AG & Co KG). They require at least two partners.

The governing laws are as follows:

  • the Limited Liability Companies Act for the GmbH and UG;
  • the Stock Corporation Act for the AG; and
  • the German Civil Code and the German Commercial Code for partnerships.

Does your jurisdiction restrict foreign businesses from operating in the jurisdiction, or limit foreign investment in or ownership of domestic business entities?

Generally, no. Foreign businesses operate under the same rules as domestic businesses. By way of exception, the Federal Ministry for Economy and Technology can restrict or prohibit acquisitions of or participations in domestic business entities by individuals or business entities seated outside the European Union, Iceland, Liechtenstein, Norway (together, the European Economic Area) or Switzerland. Preconditions to this are:

  • the foreign investor acquires 10 per cent of the voting rights in a German company where the domestic business entity pertains to critical infrastructure sectors (eg, energy, information technology, telecommunications, transport, traffic, health, water, food, finance and insurance); or
  • the foreign investor acquires 25 per cent or more of the voting rights of any other German company; and
  • the acquisition endangers national public order or security (sections 55 to 59 of the Foreign Trade and Payments Ordinance).
Equity interests

May the foreign supplier own an equity interest in the local entity that distributes its products?


Tax considerations

What are the tax considerations for foreign suppliers and for the formation of an importer owned by a foreign supplier? What taxes are applicable to foreign businesses and individuals that operate in your jurisdiction or own interests in local businesses?

A foreign supplier especially has to consider:

  • whether the importer itself shall pay income tax or the supplier as owner, or both; and
  • whether the supplier might be subject to double taxation (both in Germany and its state of origin) and whether it can be avoided.


To foreign businesses and individuals that operate in Germany, two levels of taxation apply, namely:

  • trade tax, which applies to all businesses and individuals in Germany and is paid on taxable earnings (as a local tax, its rate differs from municipality to municipality); and
  • income tax, which depends on the business entity.


Corporations are subject to corporate income tax (15 per cent flat rate) and their shareholders are subject to a tax on capital gains and dividends. The average overall tax burden for corporations in Germany is 30 per cent (corporate income tax and trade tax).

A partnership itself is not subject to income tax, but its partners are subject to either corporate (if business entities) or personal (if individuals) income tax.

Individuals pay personal income tax. The tax rate increases with the income (to a maximum of 45 per cent for an income of €250,000), but trade tax payments can be set off against it. Special tax rates apply for dividends and capital gains.

For dividends, capital gains, interest payments and licence fees, withholding tax may apply. It amounts to 25 per cent of the capital gain distributed to the owning business (plus a further solidarity surcharge of 5.5 per cent, which is added to the tax amount). These taxes may be refunded in the case of double taxation if a treaty with the country of origin of the owning business exists.

Law stated date

Correct as of

Give the date on which the information above is accurate.

21 January 2021.