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:

• Stock corporation (AG)
• Partnership limited by shares (KGaA)
• Entrepreneurial company / UG (limited liability)
• Limited liability company (GmbH)

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:

• Stock corporation (AG)

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:

• Stock corporation (AG)
• Limited liability company (GmbH)

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:

• Establish 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.

• Corporate income tax (KSt)
• Trade tax (GewSt)
• Value added tax (VAT)
• Capital gains tax (KapESt)
• Income tax (ESt)
• Wage tax (LSt)

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

• Save taxes on real estate

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 adresses 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.

• Legal forms: List

Company types in detail:

• Sole proprietorship
• Registered businessman / registered businesswoman (e. K.)
• Civil law partnership (GbR)
• General partnership (OHG)
• Limited partnership (KG)
• Entrepreneurial company (UG)
• GmbH: Limited liability company
• Real estate GmbH / Asset management GmbH
• Stock corporation (AG)
• Real estate stock corporation (REIT-AG)
• Societas Europaea (SE)
• Foundation / Family Foundation

Step by step to divorce – separation year, procedure and joint children

A divorce takes place through the application of one or both spouses and through a court order. For this, among other things, a divorce petition must be filed with the family court, the separation year must be gone through and important issues must be clarified. The exact course of the divorce is determined by how the spouses deal with each other.

The most important at a glance

• The separation year is intended as a period of reflection for the couple. The shortening of the separation year is only permitted in special cases
• Amicable divorces take less time and cost less. Contentious divorces often drag on for a long time and can be very nerve-wracking
• The petition for divorce is filed by the petitioner, i.e. the spouse wishing to divorce. With the help of a notary, the equalisation of pensions can be excluded or made more specific.
• The possible aspects of a divorce settlement agreement include, for example, maintenance, custody of the joint children, the procedure with joint assets or also the continuation of the joint family name.
• A divorce should be openly communicated with children in order to give them clarity. A conflict of loaylity for the child should be avoided at all costs.
• The law no longer requires grounds for divorce since 1977. The most common grounds for divorce include infidelity, violence in the relationship or quarrels

The separation year – the legal requirements

Marriage and the family are regarded as one of the most important social institutions in the legal system. The separation year is therefore intended to act as a preventive measure against possibly wrong, purely emotional and only temporary decisions that could be regretted afterwards. Even if the separation year is seen by many married couples as harassment or pure burden, the intention behind the regulation is clear. The decision should be able to be reviewed and possibly revised in the given time. In addition, the time is useful to take care of some things that are important for the further course of the divorce, such as the divorce settlement agreement.

Although there is an obligation to prove that the separation year has been completed, it is not possible to apply to the court for the beginning of the year or to have it notarised. It therefore makes sense to record the beginning in writing. A shortening or even a complete omission of the separation year can only be brought about by a hardship decision of the court according to § 1565 paragraph 2. An example for such a decision can be extreme domestic violence, which the court classifies as undue hardship.

• The separation year should be considered as a reflection period for the couple
• Shortening the separation year is only permissible in special cases

Contentious or amicable divorce – the initial question before divorce

The family court generally decides whether a divorce is amicable or contested. If a divorce is amicable between the two spouses, the divorce proceedings are very simple. If the separation year is completed, only the divorce and the pension equalization, which is usually carried out ex officio, must be decided. In such a case, one lawyer is sufficient for both spouses, which saves enormous divorce costs. Often even an online divorce for the spouses offers itself, whereby the time expenditure is enormously minimized and the costs are kept low. An amicable divorce can be greatly favoured by a divorce settlement agreement, which is already drawn up by the spouses during the separation year.

If there is a contested divorce, both spouses are required to be represented by their own attorneys. This increases the divorce costs for both parties enormously. The proceedings in contested divorces usually take longer than in amicable divorces and involve higher costs.

• Amicable divorces last shorter and cost less
• Contentious divorces often drag on for long periods of time and can be very nerve-wracking

The procedure – divorce petition and pension rights adjustment

Regardless of whether a divorce is amicable or contested, the petitioner, i.e. the spouse seeking a divorce or his or her law firm, files the petition for divorce with the competent family court after the end of the separation year. This petition shows whether the divorce is contentious or amicable. If it is disputed due to consequential matters (with the exception of pension equalisation), further applications concerning, for example, maintenance, are also submitted with the divorce petition.

In the next step, the court formally serves the other spouse, i.e. the respondent, with the divorce petition and, if applicable, the petitions on the subsequent matters. In the case of amicable divorces, it is now up to the respondent to inform the court that the information in the petition is correct and to declare that he or she will consent to the separation. In contested divorces, it is usually the respondent’s solicitor who takes a position on the divorce petition and the consequential matters.

In most divorces, the equalisation of pensions must be carried out by the family courts. This regulates the entitlements and prospects of a pension due to old age or reduced earning capacity that the spouses have acquired during the marriage. Marriages of up to three years must apply for pension equalisation, all others can exclude it before the notary or structure it more closely. If such equalisation is carried out, the spouses must fill in the forms required by the court, sign them and send them to the family court within a time limit. The court then sends these forms to the pension providers in order to clarify the claims to a pension that arose during the marriage.

In the case of amicable divorces, the divorce date is agreed after the forms have been received. Disputed divorces must clarify the subsequent matters in advance, otherwise the divorce date may be postponed further and further.

• The petition for divorce is filed by the petitioner, i.e. the spouse who wishes to divorce.
• With the help of a notary, the pension equalization can be excluded or more closely structured.

The divorce settlement agreement – the content and the regulations

In a divorce settlement agreement, all things concerning the marriage and the divorce can be regulated. In general, this agreement regulates how joint assets, joint children or similar things will be dealt with after the divorce. It is attempted to clarify all points that are normally settled during the divorce in advance, in order to make the divorce as simple as possible. To a divorce succession agreement belong in detail things like the maintenance. Here, both the separation maintenance for the period from the separation to the divorce and the post-marital spousal maintenance for the period after the divorce can be regulated.

The divorce settlement agreement also regulates the custody of joint children, their maintenance and, if necessary, the right of access for the non-caring parent. In addition, the divorce settlement agreement will specify how joint assets, such as the joint home or household effects, are to be dealt with. Other possible points of a divorce settlement agreement are the agreements on the equalisation of gains, exclusion of the legal matrimonial property regime of the community of gains and agreement on the separation of property, the waiver of the right to inheritance and the right to a compulsory portion and the continuation of the joint family name.

• The divorce settlement agreement attempts to settle all possible points of dispute in advance of the divorce in order to make the divorce as simple as possible.
• The possible aspects of a divorce settlement agreement include, for example, maintenance, custody of the joint children, the procedure with joint assets or also the continuation of the joint family name.

Divorce with children – communication and the conflict of loyalties

The divorce should be openly communicated by the parents with the children. This is best done in an open conversation before the divorce, where the children have the opportunity to ask questions and have enough time to adjust to the situation. Presenting children with a fait accompli only leads to lasting confusion and lots of unanswered questions. Such a conversation is also necessary for children who are already old enough to suspect a separation through previous behaviour, as otherwise unanswered questions remain and loyalty conflicts may arise. Openness is very important in this situation to avoid disputes and ambiguities.

No matter how much the parents quarrel or how great the resentment towards the ex-partner is, the children must not get these disputes. If the children are dragged into the argument, it often leads to a conflict of loyalty for the child. However, there are many things that parents do unknowingly during a divorce that can lead to such conflict for children. Secrecy about what to do, pushing for decisions, or defaming the other in their absence can have disastrous effects on the child’s emotional well-being. Both parents should therefore remain neutral towards the child and avoid statements against the other partner in any case.

• Divorce should be communicated openly with children to give them clarity
• A conflict of loaylity for the child should be avoided at all costs.

The grounds for divorce – not required by law

The law specifies many things when it comes to divorce. However, since 1977 married couples no longer have to state a reason for divorce in order to be able to divorce. The principle of guilt was replaced here by the principle of disruption. However, the legislator specifies a separation year. Before married couples can get divorced, they must go through a separation year, during which the couple is separated but still remains married. This year is to protect against hasty decisions and purely emotional whims and to preserve the principle of marriage. Only in cases of special hardship, the separation year can be omitted.

There are many different reasons to end a marriage. In each case, the reasons are different and the individual situation of the couple plays a huge role. For some, certain reasons are cause for separation while for others they are not really a reason. However, in most cases it boils down to similar problems. The most common reasons for separation include infidelity, violence in the relationship, arguments or lack of commitment.

• The law no longer requires a reason for divorce since 1977
• The most common reasons for divorce include infidelity, violence in the relationship or quarrels.

Divorce: guide, help and tips

Divorce is complex, it’s true. But you are not alone! Many let themselves separate and in fact, a large part always finds a good solution. Only a small part ends in a quarrel. So that you can prepare well, you will find here our small guides and tips on divorce, family, money and real estate.

• Divorce: Guide

Restriction on sale at a glance: Preventing the sale of separate property

• Owner of an apartment, or part of an apartment is entitled to sell property
• If owner is a member of a community of owners, members have the desire that new owner integrates properly into the group
• Regulation in WEG §12: In the declaration of partition it can be arranged that flat owners need the agreement of other flat owners or a third party for the sale of their property.
• Purpose: Owners’ associations have fewer problems with the integration of new owners
• Contract between owner and buyer is in most cases invalid without the consent of the community of owners

Back to the wiki: Real Estate

Underfloor heating – models, functionality & installation options

With hot water underfloor heating systems, heating coils are laid in or under the screed and this is usually done when the house is built. However, a subsequent installation of underfloor heating is also possible. One variant is electric underfloor heating, as it is installed as a network directly under the floor covering, but other alternatives are also available.

The models – wet and dry system & the electric underfloor heating system

Underfloor heating can be installed using the so-called wet system. For this, the heating pipes are laid above the insulation layer directly in the screed. The screed is poured around the pipes in liquid form, which also gives the system its name. The heating pipes are attached directly to the insulation layer or clamped onto laying plates. A wide variety of systems can now be purchased in the trade for this purpose, such as:

• Support element system
• Tacker system
• Clamping rail system
• Or the dimpled panel system

During construction, metal-containing additional particles are added to the screed so that the heat conduction in the floor is higher and the heat can be distributed evenly.

The dry system works, as the name suggests, without the need to pour a layer of screed. Here, the pipes are installed directly under the floor covering in foam boards and then covered with dry boards. This method is particularly suitable for retrofitting, as the system only requires a low installation height and no new screed needs to be poured.

With electric underfloor heating, the heating cables are laid directly under the floor covering. As this is fairly simple, installation can often be easily done by yourself and does not require a skilled expert. The system has a quick response time and provides heat faster than the other systems. Electric underfloor heating enjoys the additional advantage of not requiring any maintenance and consequently the cost is kept quite low. However, the disadvantage is that electric underfloor heating has higher operating costs.

Advantages and disadvantages of the hot water system

Even though the hot water system is mostly used only in new buildings, it is the most common. Even if it still differs in two different installation methods, the entire system offers many advantages and disadvantages that can be decisive in the decision. Especially for builders, a comparison of the most important points is useful to consolidate the decision-making process.

Advantages of a hot water system

• Operation with low temperature
  The hot water system is operated at low temperatures, for which a flow temperature of approx. 35 degrees is specified. The water therefore does not have to be heated strongly, whereby energy can be saved. The low temperature also makes a combination with renewable energies, such as a heat pump, possible.
• Warm feet throughout the house
  Especially in winter this advantage is a real luxury, because cosy warm feet in the whole house contribute enormously to the well-being and increase the cosiness.
• Individual room design
  When designing the room, there are more possibilities with underfloor heating, because no radiator, which must not be blocked by a piece of furniture, stands in a disturbing place.
• Pleasant radiant heat
  Underfloor heating works via radiant heat, because a full 2/3 of the heat given off by underfloor heating is radiant heat. This is generally perceived as very pleasant compared to the normal heat from radiators.
• Suitable for allergy sufferers
  The underfloor heating is particularly suitable for allergy sufferers and asthmatics, because no air is stirred up and therefore the dust concentration in the air is much lower. In addition, the air is less dry and more pleasant to breathe.
• Warm feeling at low room temperatures
  Due to the radiant heat and the regular distribution of heat in the room, lower room temperatures (about 2-3 degrees less) are perceived as warmer. The heating does not have to be set so high and heating costs are saved.
• Regular heat
  Since the heat is emitted from the entire floor surface and not just through a radiator in the room, the heat is distributed very regularly in the room and unpleasant draughts are avoided.

Disadvantages of a hot water system

• Adjustment of the room temperature
  In large rooms it takes time until the whole room has reached a certain temperature. Rapid heating up is therefore not possible with underfloor heating. Systems that are laid directly in the screed are more sluggish in terms of their ability to regulate. Temperature changes are therefore a longer process, as the room temperature adapts.
• Modification to the heating system
  After the fact, change the heating system is almost impossible. There are differences depending on the model, but especially the systems laid in the screed can no longer be removed.
• Installation and maintenance costs
  On average, underfloor heating costs a little more than the installation of an ordinary heating system. Here, however, it strongly depends on the model and the individual characteristics of the property.

Renovation & refurbishment – Retrofitting underfloor heating systems

Retrofitting underfloor heating is easier than you think, because modern techniques allow the heating pipes to be inserted into the hard screed. For this purpose, milling processes are used that mill the channels for the heating pipes into the existing screed. For renovations and redevelopments the underfloor heating offers, thus likewise an alternative to further heating systems. Stay informed: real estate news. But what needs to be taken into account, where can the process be used and how powerful are the retrofitted underfloor heating systems really?

Old & new buildings – underfloor heating possible everywhere

Until now, the installation of underfloor heating during a renovation was almost impossible and was only conceivable with a new installation of the screed. Since the screed is rarely replaced during a renovation and a complete removal and re-laying is too complex and expensive, a new technique was developed to integrate the underfloor heating into existing screed. This technique can be used in all buildings, whether old or new. The advantages of underfloor heating can also be used in older buildings.

Installation – fast and low-dust despite milling technology

If the screed is fresh, the heating elements are laid first and then the screed is poured. But also the subsequent installation is simple. First the channels are milled and then the heating elements are laid and then the screed is filled in the remaining gaps. This technique maintains the height of the floor covering and doors do not have to be elaborately adjusted. Almost any screed, from dry screed to concrete, is suitable for the milling process. However, if milling does not work, dry screed boards can be used to help out. After drying out, the floor covering can be laid directly and the underfloor heating can be put into operation.

The risks – further costs and problems

If everything goes without problems, the subsequent installation of underfloor heating takes only one or two days and is quite inexpensive. However, the prerequisite for this must be, for example, that the screed is smooth and clean. Particularly in the case of renovation and refurbishment work, it can happen that the old floor covering cannot be completely removed or that other complications arise. Should this occur, you will have to reckon with additional costs for the smoothing and levelling of the floor.

Tenants’ rights – noise, termination and property

Tenants have many rights in a tenancy of which they usually know nothing. In disputes you are then lost and do not know whether you are in the right or whether you have claims. To prevent this, there is some tenancy law that should be part of the basic knowledge for many tenants and is important for many situations.

Termination due to own need – What is the landlord allowed to do and what not?

The most important first step in terminating a tenancy for personal use is that it must be in writing. There are numerous court rulings on this subject, as it can become a problem even for long-time tenants. This is because if the landlord files a claim for own use, the tenant can quickly lose the apartment. However, this does not go without saying and requires some rules. This type of termination requires a formal and substantive correct Eigenbedarfskündigung. Such notice can even be given to tenants who have not been guilty of anything during the entire rental period and who have always behaved in accordance with the contract. Such a notice must be likewise justified by the landlord opposite the tenant. However, it is a misconception that after such a termination the tenant will lose the apartment in any case, because even if this is the most common reason for termination in Germany, this case does not always have to occur.

The pure desire to live in one’s own apartment is not sufficient as a reason for terminating the lease for personal use. The landlord must give a reasonable and comprehensible reason for the termination. Many court decisions prove that the tenant does not always have to leave the rental property after such a termination. More details: net rental yield. For example, companies are not allowed to give notice of termination for personal use, but landlords who could have foreseen that the apartment would be needed for personal use in the near future cannot give notice of termination for personal use, because in this case they would have had to conclude a fixed-term lease. But what is a reason that can lead to a notice of termination for own use? This includes, for example, the reasons that the landlord needs the rooms for himself, his relatives or members of his household, but also if he wants to use the rooms for his professional work or that of a family member.

An important point to consider if your landlord sends you such a notice is whether they own any other properties. Often landlords own more than one property. If this is the case, the landlord must check whether another comparable property is or will be available for his use before giving notice of termination for personal use. Should the landlord still not be able to use this comparable property for his purposes due to, for example, a walking disability, he must offer the comparable property to you as a substitute and also inform you of the financial conditions of this alternative. Otherwise, the notice of termination for personal use is invalid.

If you receive a notice of termination for personal use, check it thoroughly, because there are some formal and substantive points that must be included. If these are not to be found in the termination letter, the termination is invalid. So pay attention to the following points:

• A notice of termination for own use must be made in writing and must be adressed to all tenants of the apartment who are parties to the tenancy agreement.
• A notice of termination must also be signed by all landlords
• The persons who will move in for personal use must be listed with name, age and address
• The longer the tenancy, the longer the period of notice: at least three months, six months for tenancies of five years or more, and nine months for tenancies of more than eight years.
• The reason of the landlord for the own need must be described in detail
• The statutory periods of notice apply in the case of a notice of termination for own use.

Noise pollution – the right to live without noise

Noise pollution is a frequent subject of dispute between landlord and tenant, as the landlord is obliged to eliminate the noise but often has no influence on it. If there is noise nuisance in the property, it must be reported to the landlord immediately. The landlord must keep the property in a defect-free condition and this includes noise as it can cause a nuisance to the tenant. After notification of this defect, the landlord must remedy it within a reasonable period of time. If this is not done, the tenant is entitled to reduce the rent, even if the noise is caused by third parties that the landlord can not influence.

Rent reduction – what are your rights and when are you allowed to reduce the rent?

There is often a dispute about which noise source can lead to a rent reduction and how appropriate the reduction is. Probably the most common case is noise from the neighbouring apartment. Here no rent reduction can be asserted, if this refers to noises, which are connected with the usual use of the dwelling. However, if music is playing so loudly every night that you cannot sleep, a rent reduction is definitely possible. Another reason for a rent reduction are footsteps that can be heard from the upper flat. Landlords are responsible for sufficient footstep sound insulation. If this is not present, there is automatically a reason for rent reduction. The impact sound insulation must meet the standards at the time of installation, even if there are now stricter regulations. So if there is impact sound insulation, but you can still hear every step your neighbour takes, you have to live with it. In fact, construction noise is also one of the most common reasons for a reduction in rent. Depending on the extent of the noise, tenants can reduce their rent by up to 35 percent. Even though landlords cannot influence the noise and usually cannot do anything about it, they have to accept this regulation. In such a case, landlords can assert a neighbour-law compensation claim against the owner of the building plot.

However, noise caused by children is given special treatment. This must be tolerated by neighbours, no matter what time of day it occurs. However, it must remain socially adequate and thus within the bounds of what is usual. This includes, for example, children’s screaming and squealing. However, if the children drive through the apartment on roller skates or continuously throw balls against the walls or the floor, the limit has been exceeded and a rent reduction can be claimed. The type of noise is very different and depends on the situation. It does not always have to be loud music, because even small noises can be annoying in the long run. What also cannot be listed as a reason for rent reduction is traffic noise. Because although airplane or car noise can also be very annoying, it is not enough for a reduction in rent as long as it is within reason for the location of the apartment. So before you move in, make sure you know where the property is located and what kind of noise disturbance you can expect.