By Caitlyn Buchanan, 22.01.2021
Previously, Germany held a strong stance against the international mobility of companies. Fortunately, German Company Law has shown great progress in recent years and the country has proven to be adaptable to the changing business landscape. It is now possible to transfer the registration of a German GmbH and its registered office to another EU Member State. This Cross-border Company Conversion involves changing the GmbH to another company type with a registered office within another EU State. The new company type will be determined by the compatible structures in the country of relocation.
The Company Law Package (EU Directive) came into force on 1st January 2020 to provide a framework for cross-border conversions, mergers, and divisions across the EU Member States. By 31st January 2023, all States will have transposed these provisions into their national law.
What is a German GmbH Company? A GmbH company is the most commonly used corporate legal form in Germany. It is suitable for both German-owned groups as well as subsidiaries of international groups. The minimum share capital is €25,000 and is only required to have one director who is not required to reside in Germany.
The Benefits of Cross-Border Company Conversion
Cross-boarder Company Conversion is becoming more and more common. When a company undergoes a conversion, it is entitled to certain benefits that are not available to when using other types of transformation as Cross-Border Mergers.
The benefits of a Cross-border EU Company Conversion include:
- Preservation of company’s identity
- Assets are not required to be transferred.
- No extra costs such as real estate transfer tax
- Hidden reserves are not required to be disclosed.
- No violation of holding periods.
- Public law approvals remain valid for the company.
Why undergo an EU Company Conversion?
There are various reasons that business owners may choose to undergo a Company Conversion. In most cases, the company is looking to access a more favourable market environment and the following aspects may be available in the chosen country of conversion:
- A more attractive tax environment
- More favourable legal circumstances
- More favourable regulations for employee participation
- Simplified handling of insolvencies and liquidations
Undergoing a Company Conversion can be a viable option for many businesses. However, it is important to note that a legally regulated procedure is currently lacking in many EU jurisdictions and Germany is no exception. As stated above, the Company Law Package (EU Directive) must be transposed into law by all EU Member States no later than 31st January 2023. This will provide a framework including a shared system of registers allowing the Company Conversion process to be streamlined between EU State.
Germany as a host state
Traditionally, German law has been unwelcoming to the international mobility of companies. In the past, the director(s) of a German company could not move abroad, or it would result in the company being wound up and removed from the register. Following Germany company law reform in 2008, German companies can transfer their central management without being liquidated and even foreign-based directors can establish a company in Germany from abroad. Similarly, before 2002, if the director(s) of a foreign company moved to Germany and attempted to direct the company’s affairs from within the state the company was no longer recognised. Today companies registered in the EU, EEA and the US can be directed from within Germany without risking their company’s recognition.
EU Cross-border Company Conversion is becoming easier now that all EU States are working to create processes and move toward a shared framework.
For more information on how to set-up a company in Germany cross-border conversions, mergers, and divisions across the EU Member States please don’t hesitate to Contact Us. The experts at Euro Company Formations would be happy to advise on your country of choice.
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