LLC or GmbH? Rarely an either-or.

The LLC is seen as the “American GmbH” — faster to form, no notary, no share capital. That is true. But the question is rarely which of the two: the GmbH is made for business at home, the LLC for business in the US. Often the GmbH owns the LLC.

In brief

The GmbH is formed with a notary and entry in the commercial register and needs €25,000 in share capital; the LLC is filed with the state and needs neither a notary nor minimum capital. Both limit liability, and both are taxable where they are managed. For businesses with operations in both countries, the typical solution is not a choice but a structure: the GmbH at home as the shareholder of the LLC in the US.

The comparison

Simplified overview. The entrepreneurial company (UG) has its own rules on share capital.

Formation · GmbH: notary and commercial register · US LLC: filing with the state
Minimum capital · GmbH: €25,000, at least half paid in on formation · US LLC: none
Constitution · GmbH: articles of association, notarised · US LLC: operating agreement, simple written form
Liability · GmbH: limited to the company’s assets · US LLC: limited to the company’s assets
Tax · GmbH: where it is managed · US LLC: where it is managed — plus US reporting duties
Annually · GmbH: annual financial statements, publication · US LLC: state fee, registered agent, Form 5472
Made for · GmbH: business in Germany · US LLC: business in the US

The typical structure: GmbH and LLC

Anyone who runs a business in Germany and is building business in the US generally does not form an LLC instead of the GmbH, but an LLC under the GmbH. The GmbH is the shareholder; the LLC enters into contracts in the US, holds the US account and builds its own history there. This keeps the liability and the figures of the US business separate. For tax purposes, it must be clarified where the LLC is managed and how it is classified — our partner tax adviser reviews this before formation. If a GmbH owns a Florida LLC, the GmbH also files its own tax return in Florida.

What you need to know

An LLC does not replace a GmbH for business in Germany — and vice versa.
A US company that is managed from Germany, Austria or Switzerland remains taxable there; its formation must be reported to the tax office (in Germany under section 138 of the German Fiscal Code, AO).
The GmbH’s shareholding in the LLC must be reported to the tax office under section 138 of the German Fiscal Code (AO).

Frequently asked questions

Is an LLC the same as a GmbH?

Not quite. Both limit liability, but the LLC needs neither a notary nor minimum capital, and its constitution — the operating agreement — can be drafted freely.

Can my GmbH form a US LLC?

Yes. The GmbH becomes the shareholder of the LLC. We then need the GmbH’s commercial register extract and the passports of its managing directors.

Does an LLC pay less tax than a GmbH?

As a rule, no. Both are taxable where they are managed; the LLC also brings reporting duties in the US with it.

Read on

The subsidiary in the US. For companies with real US business. – US subsidiary for SMEs: formation, EIN, account, compliance calendar in one place. With a partner tax adviser, lawyer and team on the ground. Fixed price.
LLC or corporation? The choice that shapes everything else. – LLC or C corporation: liability, taxation, investors, formalities and costs compared — and when each legal form suits your plans.
Subsidiary or branch? Taking your GmbH to the US. – Taking your GmbH to the US: a branch, or an LLC or corporation as a subsidiary — liability, tax, withholding tax and filings compared.
Does a US LLC reduce your tax? The honest answer. – Can a US LLC reduce your tax? For owners in Germany and Switzerland usually not: place of management, classification, reporting duties — with sources.