Not every foreign entrepreneur, who hasn‘t yet build a strong network in Germany, wants to form a corporation just to do business in Germany. The required amount of work and capital (to incorporate a GmbH for instance) may seem rather high compared to an American LLC. Opening up a representative office would be a viable alternative.
Independent branch, dependent commercial unit or office managed by a commercial agent
However, German law is not familiar with that term. Depending on the office’s organization, different options should be taken into account. The foreign entrepreneur can choose, if he/she opens an independent branch, a dependent commercial unit or an office managed by a commercial agent.
An independent branch functions as unincorporated body. From an organizational standpoint, it belongs to the parent company, but may engage in business transactions independently. This shows through separate accounting and balances. You have to register the branch with the “Gewerbeamt” (local trade office) und the “Handelsregister” (commercial register).
A dependent commercial unit is entirely connected to headquarters. In most cases, it engages in business transactions and thus needs to be registered with the “Gewerbeamt” (local trade office).
If the office is managed by an independent commercial agent, said individual engages in business transactions, instead of the company.
To explore the German market and gain a first impression, opening a representative office might be a suitable solution. However, if you regularly engage with German clients, you should strongly consider registering a German corporation.