German Transparency Register - What you need to know about the obligation to register (not only as a property owner)

Update - End of the transitional period for mandatory reports to the German Transparency Register: The German Transparency Register and Financial Information Act (TraFinG) of 1 August 2021 obliges almost all companies to provide information on their Ultimate Beneficial Owners (UBOs (“wirtschaftlich Berechtigter”, UBO) to the Transparency Register for registration.

In particular, foreign companies holding real estate in Germany are now required to report their UBOs. In this Insight you will find the most important information on the obligation to provide information.

Background

The German Transparency Register was already introduced in 2017. The aim is to make ownership structures of companies, foundations and similar arrangements more transparent. With the information listed in the Transparency Register, it should be possible to answer the question to which natural person a certain economic value is to be assigned ("Who actually owns this?"). With the Sanctions Enforcement Act II (SDG II), some further regulations were introduced "through the back door" at the end of 2022. In particular, the SDG II declared war on allegedly "non-transparent structures" in the real estate market. The press release of the Parliamentary State Secretary Cansel Kiziltepe on this can be found here (only in German).

Excursus: New "linkage" between German Land Register and German Transparency Register

The linking of the Land Register with the Transparency Register is a central component of SDG II. By 31 July 2023, all Land Registry Offices are obliged to transmit information on all Land Register Sheets to the Transparency Register. This information includes, among other things, the name/company name of the owner and the date of registration. In the Transparency Register, information on the land as well as on the type, scope, beginning and end of the entitlement is made accessible. In the future, changes in ownership will be automatically transmitted to the office keeping the register.

Obligation to register - Who is affected?

Who must report UBOs?

• Legal entities under private law, including AG, GmbH, UG (limited liability), KG a.A., European Company (SE)
• Registered partnerships, e.g. OHG, KG, partnerships, etc.
• Trusts with close ties to Germany
• Trustees of self-interested foundations without legal capacity
• Companies with their registered office abroad insofar as they acquire ownership of a property located in Germany or even undertake to acquire it (exception: corresponding information has already been submitted to the transparency register of another EU state).
• NOT: sole proprietors, registered traders and "simple" GbRs.
• The eGbR, on the other hand, which was newly created in the course of the modernisation of partnership law (MoPeG), is subject to registration. What an eGbR is and why in future GbRs with real estate property will generally become eGbRs is explained by our experts here (in German). Due to the introduction of the eGbR, GbRs (especially those with real estate ownership) must now also deal with registration in the transparency register for the first time.

What are the obligations and what information must be provided?

Information on the UBO must be filed in the Transparency Register. The obligation to notify the Transparency Register includes:

• First and last name of the UBO
• Date of birth
• Place of residence
• Position of the UBO by indicating the nature and extent of the beneficial interest
• Nationality

Exemptions for persons subject to notification do not (or no longer) apply. The previously applicable notification fiction, on which companies whose UBOs were already identifiable from other public registers could rely, has ceased to apply.

What means “UBOs”?

UBOs are the natural persons who ultimately stand behind a company and who profit economically from the company. No one should be able to "hide" behind a company - this is at least the wish of the legislator.

In the case of legal persons, this is anyone who

• indirectly or directly holds more than 25 % of the capital shares, or
• directly or indirectly controls more than 25% of the voting rights, or
• exercises control in a comparable manner.

In the case of foundations with legal capacity and legal structures by means of which assets are administered or distributed on a fiduciary basis or this is commissioned by third parties, the UBO is

• any natural person acting as settlor, administrator of trusts or protector, who is a member of the board of directors of the foundation or who has been designated as beneficiary,
• any natural person who otherwise exercises, directly or indirectly, a controlling influence over the management of assets or the distribution of income, and
• any natural person who can directly or indirectly exercise a controlling influence over an association that is a member of the board of directors of the foundation or that has been designated as a beneficiary of the foundation.

What changes for foreign companies owning real estate in Germany?

The reporting requirements for foreign companies owning real estate in Germany have been significantly expanded. Already since 1 January 2020, the new acquisition of real estate in Germany by a foreign company must be reported. The notification obligation now also applies to existing real estate and covers acquisitions by way of both asset deals and share deals. Foreign companies that directly or indirectly hold real estate in Germany must report the UBOs to the Transparency Register.

Obligation to register - By when do you have to act?

The following deadlines apply:

• Foreign companies holding real estate in Germany: by 30 June 2023;

All other companies - depending on the legal form chosen - should have reported their beneficial owners by the end of 2022 at the latest. However, under certain conditions, the legislator has temporarily suspended the sanctioning of the default of, among others, the reporting obligations to the transparency register. The suspension of the prosecution of administrative offences ends at the following deadlines:

• AG, SE and KGaA: until 31 March 2023;
• GmbH, cooperative, European cooperative and partnership: until 30 June 2023;
• in all other cases (e.g. KG, OHG, foundations): by 31 December 2023.

Even those who have already completed the registration should check again whether the entries are correct and complete before the deadlines expire in order to avoid possible fines.

There is an urgent need for action for the companies concerned.

What can happen if the report to the transparency register is not made?

Violations will be punished as administrative offences when the transitional periods expire. In the case of reckless violations, a fine of up to EUR 100,000 may be imposed; in the case of intentional violations, the fine may extend up to EUR 150,000. In the case of serious, systematic or repeated violations, the fine may increase to EUR 1,000,000 - 5,000,000 (in special cases). Furthermore, a missing or incomplete registration can be a stumbling block in an M&A transaction that should not be underestimated. Our experts have summarised the risks for you here (in German).

If any of the above scenarios apply to your company, it is important to take the necessary steps to report the UBOs to the German Transparency Register in order to avoid potential fines. If you have any questions on this topic or need assistance in fulfilling your reporting obligations, please feel free to contact our experts.