Corporations

German corporate subsidiaries can be fnanced by one or more
of the following methods:

Equity financing: The minimum capital of a corporation depends
on its legal form. The minimum registered share capital of a lim-
ited liability company (GmbH) is in principle € 25,000; for a stock
corporation (AG) it is € 50,000. Additional capital may be paid
into the corporation at any time by means of a formal increase of
registered share capital or by a simple transfer of amounts to the
capital reserve (Kapitalrücklage).

Debt financing: Contractual relationships with the parent com-
pany are recognized for tax purposes, assuming that the agree-
ment is at arm’s length (for further details on the arm’s length
principle under German tax law.
Loans may be granted by the parent company, by affliated
companies, or by third parties (secured where necessary by the
parent company or a related company).

Internal fnancing: Internal fnancing results from reinvestment of
retained earnings in the business and deductions without impact
on cash-fow (such as depreciation). Naturally, internal fnancing
is only possible when a business is profitable.