Societas Europaea (SE) – Formation, Law, Taxes, Advantages & Co.

Societas Europaea (SE) – The Societas Europaea is a legal form that was introduced with regard to harmonization efforts at the European level. In German usage, the terms “Europäische Gesellschaft” or “Europäische Aktiengesellschaft” and Europa AG are therefore also commonly used. Characteristic features of a Societas Europaea are above all the simplification of cross-border business activities in EU member states and EEA countries by means of largely uniform legal bases and the personnel policy framework with regard to the co-determination rights of employees of the company. You want to set up your own (real estate) company? Here you can find all types of companies and legal forms in Germany.

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Societas Europaea (SE) – Forms of incorporation, legal basis & Co

In the German-speaking world, the Societas Europaea – or SE for short – can also be found under the names European Company, European Stock Corporation or casually: Europa AG and describes in the legal sense a corporation and thus a legal entity with its own legal personality. As its German name suggests, the chapter of this corporate legal form is divided into shares. The legal introduction of the Societas Europaea as a transnational legal form came in 2004 within the framework of the so-called Law on the Introduction of the European Company – abbreviated: SEEG.

The background to the introduction of the Societas Europaea is, on the one hand, the possibility of merging companies from different EU member states or establishing a holding company. On the other hand, the aim of the SE was to establish joint subsidiaries between economically active companies and legal entities from different countries of origin in the EU by subscribing to shares.

Other typical corporations in Germany:

Primary formation of an SE – merger, conversion, holding, subsidiary

A European Company is not founded “just like that” out of thin air. The formation process is – as already mentioned – bound to certain requirements… moreover, the Societas Europaea can only arise from certain situations. According to the numerus clausus of the forms of formation mentioned in the Societas Europaea Regulation – in short: SE Regulation – the formation of a Societas Europaea can primarily take place in four different ways: by merger, by transformation, by formation of a holding company or by formation of a subsidiary.

  • Merger for inclusion/start-up
  • Conversion foundation
  • European holding company (Holding-SE)
  • European subsidiary (subsidiary-SE)

Secondarily, it is possible to establish a European Subsidiary through a parent SE. However, the SE Regulation does not provide for the formation by natural persons or a spin-off from existing companies under national law.

Option 1 – Merger for incorporation or for new incorporation: 2+ public limited companies

You can form a European Company classically by merging – that is: merging – several existing companies. For the formation, at least two national public limited companies are required, which have a so-called cross-border European element. In a nutshell: the companies must either come from different member states of the European Union or, if their respective registered offices are in the same country, they must have had subsidiaries in other EU countries for at least two years. The latter is also referred to as a multi-country relationship.

The merger can be established either for the purpose of absorption or for the purpose of new formation. In the former case, the acquiring company takes the legal form of an SE, while the transferring company is absorbed into the SE at the time the merger takes effect. A new formation means that both merging companies cease to exist as soon as the merger becomes effective. The new legal entity can then also be established in a third EU country, since the multi-nationality requirement is already covered by the registered offices of the two founding companies. In this case, the merger is also referred to as a third-country merger.

How exactly does the merger of two public limited companies into one Societas Europaea work?

In the case of a merger, two legally independent companies come together and thus form a single entity in both an economic and a legal sense. For this purpose, at least one company must cede its legal independence, which is why the merger represents a typical form of corporate takeover. The purchase price for the takeover of the company can be paid elegantly in shares of the acquiring company.

The merger between companies is legally subject to the so-called Merger Directive 90/434/EEC as well as the European Merger Directive 2005/56/EC. Within Germany, the German Transformation Act (Umwandlungsgesetz, UmwG) also applies, while antitrust law is governed by the Act against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkung, GWB), which, however, only uses the term “merger” for mergers.

Variant 2 – Conversion foundation: Joint stock company + foreign subsidiary

Ultimately, a stock corporation existing at the national level can also be converted into a transnational stock corporation – i.e. an AG into an SE – provided that the stock corporation has maintained a subsidiary or branch in another EU country for at least two years. A conversion to a Societas Europaea is comparable in nature to a change of legal form under the German Transformation Act (Umwandlungsgesetz, UmwG).

However, in contrast to the change of the legal form, the Societas Europaea Regulation – in short: SE Regulation – provides for the preparation of a conversion plan, whereby it is unclear which legal basis must be used with regard to the scope and, above all, also the content of this plan. A transfer of the previous registered office of the national stock corporation is in principle not permissible on the occasion of the conversion into a Europa AG.

Reverse conversion: Europa AG into conventional AG

The conversion of a conventional public limited company into a Societas Europaea is no problem if all the necessary requirements are met in advance. But what about the reverse case? Can you reverse the conversion and turn your Europa AG back into a normal public limited company on a national level? In fact, it is possible to convert an existing European Company into a classic AG. Provided that the Europa AG has existed in its European legal form for at least two years, a conversion plan can be drawn up to return the company to its original form. However, the approval of the general meeting is mandatory.

You can find out more about the national public limited company (AG) here:

Variant 3 – European holding company/SE: 2+ public limited companies/GmbHs

Alternatively, two or more companies from different EU member states may form a European Holding or Holding-SE together. This applies to any combination of stock corporations (AG) and limited liability companies (GmbH), whereby at least two of the companies must be from different EU countries. Alternatively, two or more participating corporations from the same member state each maintain a subsidiary or branch in another EU country for a minimum of two years and thus satisfy the multiple nationality requirement.

In concrete terms, the participation of companies in a holding SE means an exchange of shares: the companies buy shares in the European holding company and in return contribute their existing company shares, whereby their shares in the holding company must thereby convey more than 50 percent of all voting rights of the respective founding company.

You can find out more about national public limited companies (AG) and limited liability companies (GmbH) here:

How exactly does the formation of a European holding company work?

A holding company – short for: Holding company, holding organization or umbrella company – is created when several companies are hierarchically structured in a certain way and therefore does not describe a legal form in its own right, but rather a form of structuring companies that are related to each other. The individual companies hold shares in each other, which creates an economic dependency. Central tasks are usually performed by the parent company, which is at the top of the hierarchy of the holding structure.

Similar to the formation of a partnership under civil law (GbR), holding companies are formed for a specific operational purpose, in this case the holding of equity investments or company participations in other companies. As a holding company, you therefore organise the acquisition and management of shareholdings and thus form the capital provider or shareholder through which the subordinate companies finance their equity.

You can find out more about civil law partnerships (GbR) here:

  • Civil law partnership (GbR)

Variant 4 – European Subsidiary/Subsidiary-SE: 2+ legal entities

Legal entities – companies, firms, etc. – may also jointly form a European Subsidiary or Subsidiary-SE. This is possible provided that at least two legal entities are governed by the law of different EU countries or at least two of the legal entities involved have maintained a subsidiary or branch in another EU country for a period of two or more years at the time the formation becomes effective.

This flexibility makes it possible for both civil law companies and commercial law companies – including for-profit cooperatives – to establish a joint subsidiary SE. Furthermore, legal entities under public and private law – irrespective of profit-making purposes – can establish an SE subsidiary if at least two of the founding companies originate from different EU countries or meet the multiple nationality requirement via subsidiaries or branches in other EU member states.

In addition to the option of also involving companies without limited liability in the formation process, probably the most decisive difference to the formation of a holding SE is that the individual companies do not form a joint SE umbrella company, but rather a joint subsidiary in the legal form of an SE.

How exactly does the formation of a European Subsidiary work?

In general, a subsidiary is a corporation that is directly dependent on its parent company. A parent company is in turn defined as a corporation that owns the majority of shares in other companies. The establishment of a parent company with subsidiaries offers the advantage that different business areas can be managed by different companies and individual areas of activity can be clearly and transparently distinguished from one another.

If the parent company establishes its own subsidiaries, this is referred to as affiliation: a term that originates from Middle Latin and can be translated as adoption – i.e. adoption as one’s own child – or takeover in the sense of appropriation. If external companies are acquired on the basis of synergy potential or potential increase in market power and subordinated to the parent company, this procedure is referred to as affiliation. In Germany, the formation procedure of a subsidiary SE is largely subject to German stock corporation law; in other countries, the respective national legal bases apply.

Secondary establishment of SE subsidiary: SE by SE

A Societas Europaea can indeed also come into being as a result of a one-man formation, namely SE by SE. This is of particular interest to providers of shelf companies where multi-nationality is not or only insufficiently present. Moreover, the shares of a shelf SE can also be acquired by natural persons. As with the subsidiary SE, the formation procedure of an SE subsidiary is also subject to the national law of the country in which the company has its registered office. Thus, for the formation of an SE subsidiary in Germany, the information in the German Stock Corporation Act must be followed.

The SE is formed by establishing an SE subsidiary through an existing European company, which then acts as the parent SE. As the establishing SE itself already has a cross-border European element, the multi-nationality requirement generally does not apply to the subsidiary, which in a sense “inherits” the multi-nationality. At the same time, there is no need for the involvement of other companies in the secondary formation.

Legal basis: directives, regulations & laws

Since the Societas Europaea is a legal form under European law, various EU and national legal bases must be taken into account. Primarily, there is Regulation (EC) No. 2157/2001, also known as the Societas Europaea Regulation (SE Regulation), which takes over the introduction of the new legal form and creates a common legal framework between the EU member states and the countries of the European Economic Area (EEA). With regard to employee involvement, Directive 2001/86/EC was introduced as a complementary measure to ensure that the regulations and practices in place prior to the establishment of the SE do not simply disappear.

  • CouncilRegulation (EC) No 2157/2001 of 8 October2001 on the Statute for a European company (SE)
  • CouncilDirective 2001/86/EC of 8 October 2001 supplementing the Statute for a European company with regard to the involvement of employees

Based on the Treaty establishing the European Community, Regulation (EC) No. 1435/2003 was introduced, which enables and organises the establishment of European Cooperatives – in short: SCEs. In the course of this, Directive 2003/72/EC was introduced, which regulates employee participation in European cooperatives.

  • CouncilRegulation (EC) No 1435/2003 of 22 July 2003 on the Statute for a European Cooperative Society (SCE)
  • CouncilDirective 2003/72/EC of 22 July 2003 supplementing the Statute for a European Cooperative Society with regard to the involvement of employees

As a result of the COVID 19 outbreak, a new regulation was introduced in 2020, under which the general meeting of a European Company or general meeting of a European Cooperative Society required for 2020 can be postponed until the end of the year, taking into account exit restrictions and social distancing measures.

  • CouncilRegulation (EU) 2020/699 of 25 May 2020 on temporary measures in respect of general meetings of European companies (SEs) and general meetings of European cooperative societies (SCEs) (Text with EEA relevance).

In addition to the ordinances and directives already mentioned, there are also some at national level in Germany:

  • Law on the Introduction of the European Company (SEEG) of 22 December 2004
  • Law on the Implementation of CouncilRegulation (EC) No. 2157/2001 of 8 October 2001 on the Statute for a European company (SE) (SE Implementation Act – SEAG) of 22 December 2004
  • Law on the Involvement of Employees in a European Company (SE Employee Involvement Act – SEBG) of December 22, 2004
  • German Stock Corporation Act (AktG) of 6 September 1965
  • Commercial Code (HGB) of 10 May 1897

Measures for SMEs – Societas Privata Europaea & Societas Unius Persona

Capital companies for small and medium-sized enterprises – in short: SMEs – were also provided with a largely uniform European legal form, namely the Societas Privata Europaea – in short: SPE; with German name: European Private Company. A first draft for the introduction of such a company was initiated in 2009, but ultimately failed just a few years due to ongoing criticism from other EU member states regarding its design.

As an alternative measure, the project to create a so-called Societas Unius Persona – in short: SUP; with German name: Europäische Einpersonengesellschaft – was launched. This European variant of a conventional limited liability company (GmbH) pursues the goal of enabling single-member companies with legal capacity to act for cross-border business activities, which can be organised and managed by a single managing partner. As with the national Unternehmergesellschaft (haftungsbeschränkt), a single symbolic euro is to be set as the minimum capital. The concept of the SUP has also met with widespread criticism so far, which is why it is currently not foreseeable whether and when the Societas Unius Persona will be available as a company form.

Legal form variant SE & Co KGaA – KGaA with general partner SE

Sometimes the Societas Europaea also appears in combination with a partnership limited by shares (KGaA). Family businesses, for example, occasionally organise themselves as Societas Europaea & Compagnie Kommanditgesellschaft auf Aktien – in short: SE & Co KGaA. In this case, they form a stock corporation in the legal sense – however, the general partner as personally liable shareholder is not just any natural person, but specifically a Societas Europaea (SE). If the general partner is embodied by an AG, one speaks instead of an AG & Co KGaA, in the case of a general partner GmbH of a GmbH & Co KGaA.

  • AG & Co KGaA – see stock corporation (AG)
  • GmbH & Co KGaA – see limited liability company (GmbH)

Companies operating under the legal form variant of the SE & Co KGaA have only existed since the end of the 1990s, after open legal questions were clearly explained by a court ruling of the Federal Supreme Court (BGF). The well-known health care group Fresenius SE & Co KGaA, which is one of the largest private hospital operators in Germany, has decided to establish an SE & Co KGaA, as have many other companies from a wide range of industries: Sound carriers and multimedia products, outdoor advertising, plant breeding and biotechnology, pump technology as well as thermal insulation composite systems, to name but a few.

Examples of SE & Co KGaA companies:

  • AURELIUS Equity Opportunities SE & Co. KGaA
  • Edel SE & Co. KGaA
  • Fresenius SE & Co. KGaA
  • KWS SAAT SE & Co. KGaA
  • KSB SE & Co. KGaA
  • Mutares SE & Co. KGaA
  • Sto SE & Co. KGaA
  • Ströer SE & Co. KGaA

CEWE Stiftung & Co. KGaA is a special case: In this company, the general partner is embodied by a foundation. In principle, the partnership limited by shares is possible in all conceivable combinations, as GUB Investment Trust KGaA points out as an example.

Continue reading here on the topic of setting up a family foundation:

SE formation in detail – registered office, company name, management & Co.

You would like to set up a European Company and become active in the Single Market in an uncomplicated way? To do this, your company must first meet a few requirements: Here you can find out everything you need to know about multi-nationality, minimum capital, co-determination and more, so that you can set up your European Company in a correct and informed manner. First things first: Your company must be a legal entity and have its own legal personality. In addition to the status as a legal entity, the so-called multi-nationality principle must also be complied with and a cross-border European element must be demonstrated.

Further regulations concern the company’s registered office and head office, the minimum capital required, the proper company name and registration, the management and company bodies and, last but not least, the accounting requirements and the right of co-determination of the workforce.

  • Principle of multiple nationality
  • Registered office & head office
  • Minimum capital
  • Company name & registration
  • Management & corporate bodies
  • Accounting
  • Co-determination rights of the workforce

Multi-nationality principle as a cross-border element

The multi-nationality principle requires that at least two of all participating founding companies of a Societas Europaea have a cross-border, European element. In plain language, this means that at least two companies must be governed by the laws of different EU member states or, alternatively, must be able to prove a cross-border element through a subsidiary or branch that has been maintained in another EU country for two or more years.

Registered office & head office of a European company

The registered office and the head office of your company must be located in the same EU member state for the formation of a European Company. The choice of the country of incorporation is of decisive importance, since in addition to EU law, the respective applicable national law forms the legal basis of the European Company. In principle, it is possible to subsequently relocate the company’s registered office and head office to another EU member state, should the situation require it or should the company gain advantages as a result. The Association of German Chambers of Industry and Commerce (DIHK) describes this advantage as follows:

“Figuratively speaking: Europa AG is a legal form that comes in 25 colors. The choice of the domicile of the Europa AG therefore opens up interesting design possibilities.”

Some countries have stricter requirements for the formation of a European Company: for example, the member states Bulgaria, Denmark, France, Greece, Latvia, Austria and the Czech Republic require that the registered office and the head office of the company have the same address.

Financing of an SE: 120,000 euros minimum capital

Another requirement concerns the minimum capital required: For a European Company with its registered office and head office in Germany, for example, you need at least 120,000 euros, i.e. more than twice as much as the share capital of 50,000 euros required for a conventional German public limited company. The capital requirement – as well as the other requirements – may vary in the different EU member states. A higher subscribed capital can in principle be agreed in the articles of association.

As a rule, the minimum capital of a Europa AG should be denominated in euros. If the official national currency for a country of domicile is not the euro, the company may request that its annual financial statements and consolidated financial statements be prepared and published in its own national currency.

  • Minimum capital: 120,000 euros (Germany)

Europa AG as a trademark: Company name & registration

The company name includes the legal form suffix “SE”, which either precedes the company name as a prefix or follows it as a suffix. Registration is mandatory in the register of the country of incorporation – in Germany, therefore, in the commercial register – and is also published in the Official Journal of the European Communities. If the registered office is moved to another EU member state at a later date, the registration of the Europa AG can be adjusted easily and without complications.

The existing Societas Europaea does not have to be dissolved for this reason and does not need to be re-established at its new location. Only an entry is made in the register there and a notification is sent to the original EU country, whereupon the latter makes a deletion of the entry in its own register. All entries and deletions in the registers of the various EU member states are listed in parallel in the Official Journal of the European Communities.

Structure of an SE: Management & Corporate Bodies

With regard to management, a distinction is made between a dualistic and a monistic system – the new German two-tier/one-tier model. They differ primarily in the different type and number of SE bodies that are appointed in the company. However, the term of office for the members of the appointed bodies is a maximum of six years in both cases, although reappointment is not ruled out.

  • Dualistic system
  • Monistic system

Dualistic system (two-tier model)

The structure of the German supervisory board constitution serves as the basis for the dualistic system, which is sometimes also referred to as the two-tier model. It represents the traditional division of management into three bodies, according to which, in addition to the general meeting, the supervisory board is appointed as a control body and the management board as a management body.

If the Europa AG has a share capital of more than three million euros, at least two persons must be appointed to the management board. Smaller European stock corporations may limit the executive board to only one person in accordance with the articles of association, provided that the company is not a co-determined company. Supervision of the management body is the responsibility of the supervisory board, the size of which is directly conditioned by the amount of share capital. In the case of a co-determined Societas Europaea, the supervisory board members must also be representatives of the shareholders and representatives of the employee workforce.

Monistic system (one-tier model)

The so-called one-tier model, on the other hand, is based on the Anglo-American board system. It stands for a monistic system, according to which only a single-member board of directors is appointed in addition to the general meeting, which is composed of the shareholders of the stock corporation.

In principle, three members of the Board of Directors are provided for, one of whom must be an executive director. However, it is possible to appoint a different number of persons to the board of directors, with the maximum number of members permitted being related to the company’s share capital, and European public limited companies with a share capital of more than three million euros being allowed by law to appoint no fewer than three members.

Within Germany, monistic Societas Europaea also demand that the participation of employee representatives on the board be as high as would be required for the traditionally dualistic supervisory board.

Accounting rules

With regard to accounting, the European Company is subject to the laws of the country in which the registered office and head office of the company are located – in a form that is largely standardised under European law. Apart from taxation and accounting, it is obliged to adopt the annual financial statements together with the notes and the balance sheet, profit and loss account (P&L) as well as to prepare the report on the course of business and the situation of the company.

  • Annual accounts
    • Balance
    • Profit and loss account
    • Notes to the financial statements
    • Report on the course of business and the situation of the company

Co-determination rights for SE employees

Since the European Union has not formulated any legal formulation of co-determination in a European Company, there is either a binding agreement between the employer and employee sides or the valid co-determination right for the company is determined depending on the form of formation of the Europa AG. You can find out more about the individual forms of formation below.

Special negotiating body: employers & employees

In principle, it is possible for employers and employees to set up a so-called “special negotiating body”, where they can jointly reach a suitable agreement on corporate co-determination and set this down in writing. The members of the body are elected secretly and directly on the basis of a certain country key and are limited to a maximum of 40 members.

The “special negotiating body” must be established within ten weeks of the announcement by the company’s management of the planned formation of a European Company. A decision must be taken within six months – or within twelve months in the case of a request for an extension of the deadline.

Negotiations on employee participation

The “special negotiating body” can decide on employee participation in Europa AG, whereby a qualified majority decision must be reached for this. Agreements leading to a reduction in co-determination require a two-thirds majority representing at least two-thirds of the employees in two or more EU countries. However, this only applies under special conditions:

The special majority in favor of a reduction of the right of co-determination only applies if, in the case of a merger, at least 25 percent of the total workforce or, in the case of the formation of a holding SE or subsidiary SE, at least half of the total workforce is subject to co-determination. In the case of the formation of an SE by way of conversion, in principle, no reduction of the right of co-determination can be resolved.

  • Merger: at least 25 % AN representation
  • Holding/subsidiary: at least 50 % employee representation
  • Conversion: no reduction possible

Termination of ongoing negotiations & waiver decision

In the case of a two-thirds majority, however, it can also be decided to break off ongoing negotiations or not to enter into negotiations at all. In this case, the Europa AG is registered without a co-determination model. In the case of the transformation of corporate form, however, which is based on a stock corporation with co-determination, such waiver resolution is generally excluded.

Failure of negotiations & standard rules

If agreement cannot be reached between the employer and employee sides, the negotiations fail and the standard rules automatically apply. The aim is to safeguard the existing co-determination rights of the workforce from the time the Europa AG is entered in the national register. Depending on the form of incorporation, corporate co-determination is absorbed differently:

In the case of formation by transformation, the existing co-determination rights of the national AG are continued. In the case of the other forms of formation, the highest standard of participation of a founding company can be transferred to the European Company – but only if in the relevant company, prior to the registration of the Societas Europaea in the national register, regulations on participation were already effective which cover a certain percentage of all employees. In the case of a merger formation, a coverage of 25 percent is required, in the case of SE holding companies and SE subsidiaries even twice as much.

  • Conversion: Transfer of the previous right of co-determination
  • Merger: 25 % of total workforce covered
  • Holding/subsidiary: 50 % of total workforce covered

Advantages of Europa AG – Uniform, international & flexible

The European Company is a relatively new legal form of enterprise and can only be established in accordance with European regulations since 8 October 2004. It is therefore not very widespread and, in the view of many entrepreneurs, has yet to prove itself. However, especially with regard to the transnational business transactions of large companies, the Societas Europaea already offers a number of advantages that have a significant impact on cross-border cooperation between different EU member states and countries of the European Economic Area (EEA).

  • Uniform set of rules
  • International reputation
  • Strengthening co-determination rights for employees
  • Cross-border merger
  • Flexible relocation
  • Streamlined administrative structure
  • Cost reduction through branch offices
  • Establishment of SE subsidiaries

Uniform set of rules in EU & EEA

A uniform set of rules in favour of cross-border cooperation between several European countries is characteristic of the European Company. By establishing a Societas Europaea, you can do business under a trading name that is effective in all EU Member States and EEA countries, and you do not need to set up a large number of subsidiaries to your company in order to develop an effective international business network.

International reputation & strengthening of employee co-determination

Another plus point is that the name Societas Europaea expresses the internationality of your company and generates public prestige. Last but not least, the establishment of a European Company also has a positive effect on the company’s employees: The EU-wide uniform regulations create a personnel policy framework that strengthens the co-determination of your employees if they work for your company in several countries.

Europe-wide merger formation for AGs

The merger form of incorporation allows entrepreneurs for the first time to merge their public limited company with a public limited company from another EU Member State. The granting of cross-border mergers for all corporations is currently under discussion and could offer an attractive alternative for national public limited companies, limited liability companies and other corporations that conduct business across borders but do not want to give up their legal form in favour of a European Company.

Flexible relocation of the registered office

The flexible and uncomplicated relocation of the registered office is another decisive advantage of the Societas Europaea: although the SE registered office and the head office must initially be located in the same EU member state… the registered office of your company can later be easily relocated to another EU country. In this way, you can react flexibly to changes in the market and make clever use of the European competition between legal systems.

Streamlined administrative structure

In the case of the Europa AG, it is possible to choose between two tried and tested management models: the dualistic system, as is customary in this country, and the monistic system based on the Anglo-American model. In this way, European public limited companies with their registered office in Germany can nevertheless take advantage of a streamlined administrative structure, which makes a uniform form of management possible, especially for multinational corporations.

Branch & SE Subsidiaries

Instead of subsidiaries, a Societas Europaea can also maintain branches throughout Europe, which can mean a significant reduction in costs with regard to the administrative and management apparatus. Should the establishment of subsidiaries prove to be useful at a later date, you as the owner can also establish them in the legal form of a Societas Europaea.

Taxes for Europa AG shareholders: corporate income tax, trade tax, VAT, capital tax & income tax

In all countries of the European Economic Area (EEA), Europa AG is subject to the regulations applicable there with regard to the taxes and fees incurred. Accordingly, no special regulations are provided for current taxation. For permanent establishments and branches in other EU member states, it is subject to limited tax liability and must comply with the regulations applicable there. This concerns, among other things, the determination of profits for tax purposes.

In Germany, stock corporations are usually subject to corporate income tax and trade tax. In addition, sales tax is payable on the performance of non-exempt transactions. Profit distributions to the shareholders of an AG are generally subject to capital gains tax, whereas natural persons in the company must pay income tax. Wage payments to the workforce – for example, the remuneration of members of the management board – are subject to wage tax.

You can find out what taxes you can expect with a real estate corporation here:

Double Taxation Agreements (DTAs) – Germany, EU & EEA

Between Germany and the other member states of the European Union (EU) and the European Economic Area (EEA), the so-called double taxation agreement – in short: DTA – applies. This agreement ensures that double taxation of income earned abroad can be avoided by granting one participating state the right to tax and, in parallel, denying or at least limiting the right of the other state to tax. The concept of this is sometimes also referred to as the barrier effect or barrier function.

Model agreement OECD-MA & OECD transfer pricing guidelines

An example of this is the model convention of the internationally active Organisation for Economic Co-operation and Development (OECD), whose Model Tax Convention on Income and on Capital (OECD-MA) is recognised worldwide and serves as the basis for over 3,000 intergovernmental double taxation agreements.

The OECD also addresses the well-known problem of transfer pricing when maintaining foreign permanent establishments. The prestigious organisation publishes regular transfer pricing guidelines for multinational companies and tax administrations in order to ensure a proper deferral of profits to the parent SE. They can serve as a guideline for cross-border companies to set the agreed prices at an arm’s length level in accordance with the arm’s length principle.

Parent-subsidiary directive: taxation of dividend payments

By revising the outdated Directive 90/435/EEC – the so-called Parent-Subsidiary Directive – and introducing Directive 2003/123/EC, it was possible to eliminate the previously existing double tax burden on dividend payments. According to the new regulations, the full tax revenue of the subsidiary is due to the member state in which the subsidiary is domiciled. However, capital gains tax (KapSt) may not be levied there in context.

The parent company may use either the exemption method or the imputation method to avoid double taxation.

  • CouncilDirective of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States (90/435/EEC)
  • CouncilDirective 2003/123/EC of 22 December 2003 amending Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States

Merger Directive: taxation of cross-border changes of ownership

Under certain circumstances, a European Company with cross-border incorporation can be managed without affecting profit or loss and be exempted from the taxation of hidden reserves. It then falls within the scope of Directive 90/434/EEC – the so-called Merger Directive – which was later modified by Directive 2005/19/EC. Over the years, the Merger Directive has repeatedly undergone minor amendments, so that the substantive aspects are nowadays also applicable to a cross-border transfer of the registered office, the conversion of permanent establishments into subsidiaries and spin-offs from the parent company.

In Germany, the EC Directive was initially implemented in the Reorganisation Tax Act (UmwStG) and later also in the Act on Tax Measures Accompanying the Introduction of the European Company and on the Amendment of Other Tax Regulations (SEStEG).

  • CouncilDirective of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States (90/434/EEC)
  • CouncilDirective 2005/19/EC of 17 February 2005 amending Directive 90/434/EEC on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States

Societas Europaea (SE) – For whom is it worthwhile?

The Societas Europaea is particularly suitable for large public limited companies with cross-border business within the European Union and the European Economic Area. For those who are not deterred by the considerable minimum capital of 120,000 euros, there are many opportunities to become active transnationally and to realize their entrepreneurial goals with reduced effort and cost savings. Cross-border mobility enables you to set up your company in accordance with the legal system that suits you best and, if necessary, to flexibly relocate your registered office and head office to another EU country.

For whom exactly is the European Company worthwhile? Large international companies and fast-growing companies with an IPO can particularly benefit from the advantages of a European Company and strengthen their external image, because the Europa AG enjoys a high reputation and respect throughout Europe. Even if you are dissatisfied with the typical German management model and the rigid structure of your public limited company, the conversion formation of a Societas Europaea can be particularly attractive for you, because here you can switch to a monistic system and streamline the corporate bodies.

Alternatives to the Societas Europaea (SE): Legal forms in Germany

Legal forms – What types of company are there? If you want to start your first company, then choosing the ideal legal form is one of the first steps in the process of setting up a company. Whether it’s a special real estate company or a start-up, I’ve summarized all the types of companies in Germany for you here.

Company types in detail: