GmbH, Branch, or Employer of Record: Choosing the Right Vehicle for DACH Market Entry

Every DACH expansion eventually meets a question that sounds administrative and turns out to be strategic: through which legal vehicle do we actually operate? The answer shapes liability, tax, hiring, customer trust, and — for regulated businesses — whether the market entry is even permissible. Three options dominate: a local subsidiary, a registered branch, or an employer of record that hires on your behalf.

The right choice depends less on preference than on what the entity has to carry. A two-person sales pilot needs something different from a team that signs enterprise contracts, and both need something different from a firm that performs a licensed activity. The most common mistake is choosing the fastest vehicle for month one and discovering in month nine that it cannot carry the business that has grown on top of it.

Option 1: The Subsidiary (GmbH)

The German GmbH is the default vehicle for serious market entry. It requires share capital of EUR 25,000, of which at least half must be paid in before registration, a notarised articles of association, and registration in the commercial register. Since 2022, formation can be completed by video notarisation — without a trip to Germany, provided every party can identify with a German eID or an electronic ID of another EU or EEA state recognised at the high assurance level; founders from third countries generally still need an in-person notary appointment or a notarised power of attorney. Realistic timelines run from a few weeks to two months, with the bank account for the capital contribution and the tax registration usually the slowest steps. The beneficial owners must be entered in the transparency register.

Austria and Switzerland follow the same logic with different numbers. Austria lowered the GmbH minimum capital to EUR 10,000 in 2024 and introduced the FlexCo as a startup-friendly variant. Switzerland requires CHF 20,000 for a GmbH, fully paid in, and — a detail that surprises many founders — at least one person authorised to represent the company must be resident in Switzerland.

The subsidiary's strength is credibility and separation: German procurement departments are comfortable contracting with a GmbH, liability stays in the local entity, and a licensed or regulated activity can later be anchored there. Its cost is administration — bookkeeping, annual accounts, transfer pricing with the parent, and a managing director with genuine local responsibility.

Option 2: The Branch (Zweigniederlassung)

A branch is not a separate legal person: the foreign parent registers a branch in the German commercial register and operates through it. There is no minimum capital, but the parent is fully liable for everything the branch does. For tax purposes, a branch is a permanent establishment — its profits are taxed in Germany, which requires a profit allocation between head office and branch. German law also requires branches of foreign corporations to publish the parent's financial statements in Germany, a disclosure some founders prefer to avoid.

For EU-licensed financial firms, the branch has a special role: a payment institution, e-money institution, or bank authorised in another member state can establish a German branch through the passporting procedure instead of obtaining a German licence. For firms from outside the EU, a branch conducting licensed business requires its own German authorisation.

Option 3: The Employer of Record — and Its German Limits

An employer of record (EOR) employs staff on your behalf, handles payroll and social security, and lets you start hiring within days. It is the fastest route — and in Germany, the most legally constrained. Because the EOR provides workers who are integrated into your organisation and follow your instructions, German law generally treats the arrangement as temporary agency work under the Temporary Employment Act (AÜG).

• Licence requirement: the EOR must hold an agency work licence. Without one, the employment relationship is deemed to exist directly with the client — you.
• Maximum assignment period: as a rule, a worker may be assigned to the same client for no more than 18 months.
• Equal treatment: agency workers are in principle entitled from day one to the same essential working conditions and pay as comparable permanent staff. Where the EOR applies a collective agreement for agency work, pay may deviate from that — but as a rule for no more than nine months.
• Switzerland and Austria: Swiss law does not permit staff leasing from abroad into Switzerland, so the EOR must be a licensed Swiss entity; Austria requires a trade licence for staff leasing.

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An employer of record is a bridge, not a building. In Germany, the bridge has a legal length of eighteen months.

The Decision in Practice

1. 01Clarify whether any activity in the market is licensed or regulated — if so, the vehicle follows the licence, not the other way round.
2. 02Assess the permanent-establishment risk: a sales team with authority to conclude contracts can create German tax presence regardless of the vehicle.
3. 03Consider what your customers expect: enterprise and public-sector buyers often prefer, or require, a German contracting party.
4. 04Plan the transition: if you start with an EOR, fix the date by which the team moves into your own entity — before the 18-month limit forces it.
5. 05Budget for the running costs of a GmbH honestly: accounting, annual accounts and their publication (plus a statutory audit from medium size upwards), transfer pricing, and a managing director with real authority.

The Hybrid That Usually Works

In practice, the options are usually combined in sequence. A small team starts via a licensed EOR while the GmbH is formed; the first enterprise contracts are signed through the GmbH as soon as it is registered; the employees transfer once payroll and benefits are in place. Regulated firms add a fourth track in parallel: the passport notification or licence application that determines which entity may carry the regulated activity at all.

Two practical details deserve early attention. First, German banks open business accounts for new entities with thorough KYC checks — plan for documentation of the full ownership chain. Second, employment contracts, works-council rules, and social-security registrations follow German law as soon as people work in Germany, whichever vehicle employs them.

Conclusion

The choice between GmbH, branch, and EOR is less about speed than about what the vehicle must carry in eighteen months. Founders who decide with that horizon in mind avoid the costly restructuring that follows a convenient start. Aegiron Capital Group supports market entrants in structuring their DACH setup; legal and tax advice come from the law firm and tax advisor you engage.