Under German law a company is tax resident in Germany if its place of management (Ort der Geschäftsleitung) is in Germany, wherever it was incorporated. A Delaware company whose directors all live and decide in Germany can therefore become German tax resident and, through US incorporation, US resident too. Founders manage this with structure and evidence of where decisions are actually made.
- §10 of the German Fiscal Code (AO) defines the place of management as the centre of top-level management.
- German tax residence applies on the basis of either seat or place of management.
- A company can end up resident in two countries; tax treaties decide which one wins for treaty purposes.
- Typical fixes: decisions genuinely taken outside Germany, a German subsidiary that does the German work, or accepting German residence knowingly.
- Address it at formation or at the flip, not after the first tax audit.
Why does this happen?
Germany taxes companies that have either their registered seat or their place of management in Germany. The place of management is where the people running the company make the important day-to-day decisions. For a startup with three founders who live and work in Berlin or Munich, that is Germany, regardless of the Delaware certificate.
What are the consequences?
- German corporate and trade tax on the Delaware company's profits.
- Dual residence: the US taxes the company because it is incorporated there; Germany taxes it because it is managed there. The US–Germany tax treaty has rules for dual-resident companies, and outcomes can be unfavourable.
- Hidden reserves and exit taxation if management later moves, plus extra compliance in both countries.
For a pre-revenue startup the immediate tax may be small. The problem is that structures set up casually at formation become expensive to unwind after a large round.
What do founders usually do?
| Approach | How it works | Watch out for |
|---|---|---|
| German operating subsidiary | The Delaware parent holds shares; the German GmbH employs the team and invoices the parent for services | Transfer pricing; the parent's own management still needs care |
| Management outside Germany | Board meetings and key decisions genuinely take place outside Germany, with documented evidence | Must be real, not a formality; hard if all founders live in Germany |
| Accept German residence | Treat the Delaware company as German-taxed and plan around it | Double compliance; treaty analysis |
When should you deal with it?
At formation, or at the flip. That is when you choose where the IP sits, where people are employed and how decisions are documented. It belongs in your fundraising budget too: a tax adviser who knows both countries is a real line item, not an afterthought. Compare structures in Delaware C-Corp vs German GmbH.
What evidence matters in practice?
- Where board meetings take place and where minutes are signed.
- Where the directors live and normally work.
- Where day-to-day management decisions are taken: hiring, contracts, budgets.
- Where the company's books and records are kept.
Tax authorities look at reality, not labels. Holding one board meeting a year abroad does not change where daily decisions are made.
What does a common structure look like?
| Entity | Role | Taxed where |
|---|---|---|
| Delaware parent | Holds shares and investors; limited activity | US, and possibly Germany depending on management |
| German GmbH | Employs team, builds product, provides services to parent | Germany |
| Intercompany agreement | Parent pays GmbH a cost-plus fee | Profit allocated by transfer pricing rules |
What questions should you ask your adviser?
- Where will the parent be tax resident given who manages it?
- Does the US–Germany treaty resolve dual residence for us, and how?
- How should we price intercompany services?
- What changes if a founder moves to the US later?
Frequently asked questions
Can a Delaware company be taxed in Germany?
Yes. If its place of management is in Germany, it is subject to unlimited German corporate tax liability, regardless of where it was incorporated.
What is the place of effective management?
The place where the key management decisions of a company are actually made. German law calls it the Ort der Geschäftsleitung (§10 AO).
How do startups avoid German tax residence for their Delaware parent?
Commonly by keeping the German activities in a German subsidiary and ensuring that the parent's key decisions are genuinely taken elsewhere, or by knowingly accepting German residence. The right answer depends on the facts.
Who should advise on this?
A tax adviser with US and German experience, ideally before incorporation or a flip.
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Join the waitlist →Sources and further reading. §10 AO (Geschäftsleitung); §1 KStG (unlimited tax liability); IRS, Germany tax treaty documents.
Educational material, not legal, tax or investment advice. Rules and figures change; confirm with qualified counsel or a tax adviser in your jurisdiction before acting. Last updated October 6, 2026.