[ESTABLISHING A BUSINESS ENTITY IN GERMANY]
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replaced barrier (Zinsschranke)), which limits the deduction of interest expenses to 30 % of the taxable EBITDA. The interest barrier only applies if the aggregate net interest expenses of a fiscal year amount to at least EUR 3.0 m. Up to this threshold (Freigrenze), interest on loans (including loans from foreign shareholders) is fully deductible for tax purposes to the extent that they comply with arms’ length principles. If the net interest does not fall short of the threshold, the application of the interest barrier is not limited to the excess amount but includes the entire net interest from the first euro. Debt push down: If a foreign investor wants to acquire an already existing German enterprise, the interposition of a German acquisition vehicle in the legal form of a corporation enables to setup a debt push down. This means that the non-capitalized expenses resulting from the transaction – including interest on acquisition loans – can be offset with the operating income of the target company. c. Limited Liability Company (GmbH) aa. Characteristics by the interest The German limited liability company (Gesellschaft mit beschränkter Haftung, GmbH) is the “smaller” version of the capital corporation and the most widely used legal form for corporations in Germany. It combines high flexibility with relatively few statutory obligations. Setting up a GmbH is uncomplicated and can be accomplished within a short period of time. bb. Share Capital The minimum share capital required to establish a GmbH is EUR 25,000 (this can be made up of contributions in kind). At
the time of registration, at least half of the minimum capital (i.e. EUR 12,500) must be actually and verifiably contributed on a bank account. cc. Formation Procedure The formation procedure of a GmbH is fairly uncomplicated, as it is established by the founding shareholder(s) executing a deed of formation and articles of association before a notary public qualified in Germany (Notar). Ideally, the time period required for the formation of a GmbH is up to four weeks. The estimated court and notary costs for the formation of a standard GmbH are approximately EUR 800 plus the fees for legal counsel. dd. Management A GmbH is managed and legally represented by its managing directors. There must be at least one managing director (who must be an individual but does not have to be a shareholder, a resident of Germany or a German citizen). By issuing binding instructions or directions to the managing directors, the shareholders may exercise direct influence on the management of the GmbH. ee. Registration In order to be valid, the GmbH must be entered into the commercial register ( Handelsregister ). All managing directors ( Geschäftsführer ) must sign the commercial register application in person in the presence of a notary. Once registered in the commercial register, the GmbH becomes a legal entity. The GmbH must then be
ILN Corporate Group – Establishing a Business Entity Series
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