First-time obligation of transparency for foreign companies when acquiring real estate in Germany
On 12 December 2019, the German Bundestag (Federal Parliament) passed the amendment to the German Money Laundering Act which serves to implement Directive (EU) 2018/843 of the European Parliament and Council of 20 May 2018 designed to prevent the use of the financial system for the purpose of money laundering and terrorist financing.
The main amendments relate to the extended public access to the German Transparency Register and the extension of the circle of those obliged to notify the German Transparency Register. As a result of the new regulation, foreign companies will for the first time be required to provide information on their ownership structure when they undertake to acquire real estate in Germany. The registration of the beneficial owner of the foreign company in the German Transparency Register is a mandatory requirement for a notarial recording of the asset purchase Agreement.
1. Reporting Requirements
The German Money Laundering Act requires German corporations and registered partnerships to pass on to the German Transparency Register the first name and surname, date of birth, place of residence, type and scope of economic interest and the nationality of the beneficial owner (www.transparenzregister.de). Beneficial owners are always defined as natural persons who hold more than 25% of the capital or voting rights or exercise control in a comparable way. The companies must obtain the information, store it, keep it up to date and forward it without delay to the German Transparency Register. Legal representatives of the companies are obliged to promptly, i.e. without undue delay, forward the details of their beneficial owners to the German Transparency Register. This does not require an explicit request from the Transparency Register. The beneficial owner is, in turn, obliged to forward the necessary information to the company. The result is a so-called information chain, starting with the beneficial owner via the company to the Transparency Register.
2. New Rules for Foreign Companies
This reporting obligation has now been newly regulated for corporations and partnerships with a registered office abroad. The obligation to report to the German Transparency Register also applies to foreign companies if they undertake to acquire ownership of real estate located in Germany. However, the new regulation only covers acquisitions of real estate as of 1 January 2020, so it does not cover acquisitions of real estate in the past.
Foreign corporations or partnerships are exempt from the reporting obligation if the data on the beneficial owner is already recorded in a register of beneficial ownership in a country of the European Union or the corporation is listed in the European Union or in the European Economic Union and the information therefore ensues from the voting right notifications.
Before recording of an asset purchase agreement, the German notary has the duty to examine/verify the ownership and control structure of the buyer. If the foreign corporation or partnership does not comply with its (new) obligation, the notary may not carry out the recording of the asset purchase agreement. Since the obligation to report is only related to the acquisition of real estate, the acquisition of shares does not trigger a transparency obligation even if this company owns German real estate.
3. Legal Consequences
If a foreign company acquires a real estate in Germany and was not yet entered in a register of beneficial ownership in a country of the EU at that time, it must forward the details of the beneficial owner to the German Transparency Register even before recording of the asset purchase Agreement.
If in future the foreign company fails to notify the German Transparency Register in good time of changes in the beneficial owner, the foreign company, its legal representatives and directors as well as its shareholders and beneficial owners may be subject to an administrative fine of up to EUR 150,000 or even up to EUR 1 million, or up to twice the economic benefit derived from the violation in case of a serious and repeated violation. The same shall apply if the company fails to report its changed legal form or name to the German Transparency Register, or if the beneficial owner fails to notify the company of the necessary information in good time.
The notification of the beneficial owner to the German Transparency Register is made electronically via the Internet (www.transparenzregister.de) in German or English. A registration in two steps is required which can also be done by a third party. Following this, the information can be uploaded on the German Transparency Register`s Website.
4. Need for Action
Due to the current change in the law, foreign companies must comply with their reporting obligations to the German Transparency Register when acquiring real estate in Germany as of 1 January 2020. If the notification of the beneficial owner to the German Transparency Register or to the register of beneficial ownership in a country of the EU is not given, the German notary may not carry out any official recording of the asset purchase agreement. It is therefore advisable to enquire in advance about its reporting obligations to the German Transparency Register when acquiring real estate in Germany.
If you have any questions on this issue, please contact Volker Szpak.