LLC registration as a partnership in Germany

Instructions on how to form an LLC in the USA and register it as a partnership in Germany

As a German citizen, you have the great opportunity to set up an LLC (Limited Liability Company) in the USA and have it recognized as a transparent partnership in Germany. If the tax office actually recognizes the LLC as a partnership, a world of advantages opens up! Profits are attributed directly to the German shareholders and are subject exclusively to their personal income tax. There are no separate corporation or trade taxes for the LLC itself - how brilliant is that? In addition, the The shareholders receive the profits of the LLC in your personal tax return and benefit from the progressive income tax table. Doesn't that sound fantastic?

Here you can find out how to proceed step by step:

1st LLC formation in the USA

The first step is the Formation of a Multi-Member LLC (multi-unit LLC) in the USA. Proceed as follows:

1. Complete the "Certificate of Formation" and select the "Member-Managed" option in field 2. In field 6, deactivate the taxation as a corporation (C-Corp or S-Corp).
2. In the Operating Agreement (articles of association), you must restrict the free transferability of the company shares in section 7. Formulate that shares may only be transferred with the consent of all other shareholders.
3. Specify in the operating agreement whether the LLC is to be established for a limited or unlimited period of time.
4. Submit the complete articles of association (operating agreement) to both the commercial register in the USA as well as at the tax office in Germany.

2. preparation of the operating agreement

The articles of association are crucial for the LLC to be recognized as a partnership in Germany. It must contain at least the following points:

• Taxation as a partnership:
  Explicitly state in Section 3 that the LLC is treated as a partnership for tax purposes and not as a corporation to ensure the desired tax treatment.
• Restriction on the transfer of shares:
  In Section 7, state that shares may only be transferred with the consent of all other shareholders in order to maintain control within the company.
• List of shareholders:
  In Appendix A, list all partners with name, address and capital share, whereby at least two partners are required to maintain the partnership.
• Profit distribution:
  In section 8, regulate the percentage distribution of profits and losses among the shareholders in order to create clarity for all parties involved.
• Decision making:
  Specify in section 9 which majorities are required for various decisions, such as shareholder resolutions or amendments to the contract, to ensure clear decision-making.
• Admission/removal of shareholders:
  In Section 10, regulate the conditions for the entry of new shareholders and the departure of existing shareholders so that this process runs smoothly.
• Dissolution of the company:
  In Section 11, define the conditions and procedure for a possible dissolution of the LLC in order to be prepared for an emergency.
• Further aspects:
  In other sections, cover other relevant topics such as liability, shareholder information rights and similar aspects to ensure that all important points are covered.

3. recognition as a partnership in Germany

After the LLC has been founded in the USA and the articles of association have been drawn up, the following steps must be taken to register the LLC correctly in Germany:

• Fill in the form:
  Complete the form "Registration of a foreign partnership" (form St 1a) and submit it to the competent Tax office in.
• German Tax number apply for:
  Use this form to apply for a German tax number for the LLC at the same time.
• Written explanation of the treatment as a partnership:
  Explain to the tax office in writing, for example in a covering letter, that the LLC should be treated as a transparent partnership in Germany.
• Submit relevant documents:
  Submit the complete operating agreement and other relevant documents to the tax office.

Here is a general article on the subject: Forming an LLC legally and without emigrating.

4. taxation in Germany

If the LLC is actually recognized as a partnership in Germany, the following consequences arise tax advantages:

• The profits of the LLC are attributed directly to the German shareholders and are only subject to their personal tax liability. Income tax.
• There are no separate corporation or trade taxes for the LLC itself.
• The partners can claim the profits of the LLC in their personal tax return and benefit from the progressive income tax scale.

Here is a separate article on the topic Taxation of LLCs in Germany.

Checklist - 10 steps to an LLC in Germany without disadvantages

1. Form a Multi-Member LLC in the USA
2. Select the Member-Managed" option and deactivate taxation as a corporation
3. Restrict the free transferability of shares in the articles of association
4. Specify the term of the LLC in the articles of association (limited or unlimited)
5. Make sure that at least 2 shareholders are listed
6. Regulate the distribution of profits, decision-making, admission/removal of shareholders and dissolution in the contract
7. Submit the articles of association to the USA and Germany a
8. Register the LLC in Germany as a foreign partnership
9. Apply for a German tax number for the LLC
10. Benefit from taxation as a transparent partnership in Germany

Specifically on the articles of association

Make sure that the Tax office an LLC established in the USA in Germany as a transparent partnership by taking the following key points into account when drawing up the operating agreement:

1. determine taxation as a partnership

In the section on Tax treatment of the LLC make it clear that the company is treated as a partnership for tax purposes and not as a corporation. This clarification is crucial, as it is the only way to ensure that the tax authorities attribute the profits directly to the partners. As a result, taxation is based on the personal tax situation of each individual partner. This precise wording creates the basis for transparent tax treatment and avoids potential misunderstandings regarding the classification of your LLC in the German tax system.

2. include restrictions on share transfers

To maintain the partnership structure, stipulate in section 7 that a sale or transfer of company shares is only possible with the consent of all other shareholders. This prevents the LLC from unintentionally becoming a corporation.

3. create a complete list of shareholders

Include a list of all partners with name, address and capital share in Appendix A of the Operating Agreement. At least two partners are required for a partnership.

4. determine rules for the distribution of profits

Specify the percentage distribution of profits and losses among the shareholders in section 8 of the agreement. This is crucial to ensure tax transparency and equality.

5. define clear decision-making processes

In section 9, specify which majorities are required for various decisions, such as shareholder resolutions or contract amendments. This creates clarity in company management.

6. formulate provisions on the admission and withdrawal of shareholders

In section 10, define the conditions for the entry and exit of shareholders in order to maintain the partnership structure.

7. include dissolution regulations

In section 11, define the requirements and the procedure for a possible dissolution of the LLC.

Once you have drawn up the operating agreement with these key elements, the following steps must be taken in Germany in order to achieve recognition as a partnership:

1. Registration as a foreign partnership
2. Proof of the partnership structure for the tax office
3. Recognition as a partnership with tax advantages

Recognition as a partnership in Germany

After you have founded the LLC in the USA and drawn up the articles of association, you begin the following steps in Germany to achieve recognition as a partnership:

First, register the LLC as a foreign partnership. To do this, submit the form "Registration of a foreign partnership" (form St 1a) to the relevant tax office and apply for a German tax number for the LLC at the same time. Inform the tax office that the LLC is to be recognized as a transparent partnership in Germany. To this end, write a detailed cover letter in which you set out your arguments. In addition, attach the complete operating agreement and other relevant documents to support your application and increase the chances of recognition.