The business models, services and legal forms of foreign institutions in Germany can differ considerably from each other. Yet all of them have one essential characteristic in common: The majority of their ownership is foreign and they are part of an internationally positioned group.
Thanks to their affiliation with the group, they can operate in Germany with a lean business structure and tailor their business set-up specifically to the needs of their clients. These specializations enable the foreign providers to deliver their services in a particularly efficient way.
Foreign financial institutions targeting German clients choose either a subsidiary or a branch office as their legal form. This choice of the legal form has not only corporate and tax law reasons, but is also decisive for the type of supervision, as their activities are supervised by competent state authorities.
In case of a branch of an institution that is has its head office domiciled in the EEA [1], the home-state authorities are generally responsible for supervision – with just a few business areas being exempted from this general rule. Branches of foreign institution with their head office located outside the EEA or (legally independent) subsidiaries, however, are supervised just as domestic German institutions. The Federal Authority for the Supervision of Financial Services (BaFin) as well as – in case of credit institutions – the Deutsche Bundesbank (German central bank) are the competent supervisory authorities. In case of very large credit institutions, the competent authority is in particular the European Central Bank (ECB).
If foreign institutions merely wish to generally explore the opportunities and risks of a market entry and if the European passport cannot be used for such access to the German market, they often start with establishing a representative office in Germany. Such a representative office must neither distribute own products and services nor conduct business. It does, however, provide a platform for exchanging market-relevant information and establishing initial contacts.
[1] Member States of the EEA are all 27 Member States of the European Union as well as Liechtenstein, Iceland and Norway.