German VAT registration for pan-European distributor

Reselling goods through a distributor in Germany (like Amazon) raises the question, how one can register for tax including VAT.  Should the foreign company be registered for VAT purposes as a branch or should a new company be registered in Germany. 

By Patrick Rizzo, Certified Tax Advisor

Branch registration of a foreign company is not recommended

We don’t offer tax registration for a foreign company as a branch in Germany anymore because of future issues expected following BEPS (Base Erosion and Profit Shifting). Germany has executed the authorized OECD approach on cross-border taxation (AOA). Following BEPS Action Point No. 7, the maintenance of a warehouse in Germany or elsewhere in the EU is scheduled to be considered a permanent establishment and will trigger tax nexus here.

Intentions to collaborate with one customer in Germany/Europe can be described as such as an arrangement through which you try to replace a subsidiary that traditionally acted as distributor by commissionaire arrangements with a main business partner, with a resulting shift of profits out of Germany where the sale took place without a substantive change in the functions performed of a distributor.

For example, one cannot rely on the Vietnamese tax treaty which states in Article 5 Section 4 letters a and b that warehouses maintained or leased (if it is not also the place of the distributor), or goods per say, are exempted from the definition of a permanent establishment (Action 7 - OECD BEPS). Germany has executed the so-called Mutlilateral instrument. The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting ("Multilateral Instrument" or "MLI") allows governments to modify existing bilateral tax treaties in a synchronized and efficient manner to implement the tax treaty measures developed during the BEPS Project, without the need to expend resources renegotiating each treaty bilaterally.

However, if a branch would be registered, the corporate income tax rate will typically range from 32% to 34% depending on which city/community the registered office would be.

Registration of a new company is a better solution

It’s worth your while to organize your European sales or commissionaire activities in a newly formed German company instead of having to pay German corporate income tax on a portion of your global activities in Germany and other EU markets. And we can help you stay compliant, just as requested.

Importing merchandise through a German business is also smoother, and the necessary EORI number issued quicker.

A separate German entity will ensure your books are separately kept for as long as all dealings occur at arm’s length.

With a German company, you can enjoy the freedom of goods across the EU, meaning you won’t necessarily have to pay corporate income tax in other EU countries, and I can manage VAT/sales tax reporting for your EU-wide B2C sales centrally in Germany on behalf of the newly formed German business, regardless of where across the EU your products are sold (OSS = one stop shop).

B2B sales are tax exempt given origin of merchandise in Germany and a valid EU VAT ID of the buyer, which must be printed on the invoice, and the goods flowing across at least one EU border.

Naturally, a German company comes with the obligation of legal and tax compliance:

• All legal compliance is offered by Liesegang & Partner.
• Tax compliance will be assured by Rizzo & Associates. The cost involved is far lower than you may think. See a sample quotation enclosed for a small operation.

We can help with tax advisory, tax registration, accounting, annual closing, and tax compliance for a new German entity, for example a Limited Liability Company:

Costs for formation and tax advisory services for a Limited Liability Company (GmbH or UG)

a) Costs for GmbH formation

The basis fee of Liesegang & Partner for the formation of a GmbH is 2,050 EUR. However, the final amount depends on your requirements.

The following additional services might be appropriate:

• At least one shareholder has its registered seat not in Germany but abroad + EUR 750 net (not necessary if all shareholders are individuals)
• Representation at the notarization +EUR 550 net
• Support with a bank account +EUR 500 (Please mention that only the bank decides about the account opening, hence we couldn’t guarantee a success. Furthermore the banks usually request the involved persons to appear in person in order to verify their identity and they could charge own account opening fees.),
• Bilingual formation documents in German/ English +EUR 500 net
• Registering with the Transparency Register. + EUR 250 net
• Business registration at the trade office + EUR 300 net

The fees for notarization and Commercial Register, approx. another EUR 1.000 in total, are not included; they could be paid through the new GmbH after the notarization.

Please see the website of Liesegang & Partner to get an overview about all the services and fees in this regard: https://shop.liesegang-partner.com/incorporation-german-gmbh.html

b) Costs for UG (haftungsbeschränkt) formation

The basis fee for the formation of an UG (haftungsbeschränkt) is 800 EUR net. However, the final amount depends on your requirements.

The following additional services might be appropriate:

• At least one shareholder has its registered seat not in Germany but abroad. + EUR 480 net (not necessary if all shareholders are individuals)
• Representation at the notarization +EUR 550 net
• Bilingual formation documents in German/ English +EUR 300
• Support with a bank account +EUR 500 (Please mention that only the bank decides about the account opening, hence we couldn’t guarantee a success. Furthermore the banks usually request the involved persons to appear in person in order to verify their identity and they could charge own account opening fees.)
• Registering with the Transparency Register. + EUR 250 net
• Business registration at the trade office + EUR 300 net

Please see the website of Liesegang & Partner to get an overview about all the services and fees in this regard: https://shop.liesegang-partner.com/company-formation-ug-germany.html

In addition, a German company needs a seat as well. If you don’t have a German address which you can use, you’ll have to rent at least a so-called shared office which costs approx. 180- 250 EUR net monthly + deposit. Liesegang & Partner will gladly recommend you an appropriate provider.

c) Tax advisory service fees

My fees are regulated by law (Steuerberatervergütungsverordnung). Fees vary by taxable income, balance sheet sum, and sales. Please don’t hesitate to ask for a custom quote based on your expected income and sales forecast as the sample quotation enclosed is for a small operation. Expected profit must consider the typical distributor margin that corresponds to the at arm’s length principle.