New notification obligation for all companies

The new German Transparency Register and Financial Information Act (Transparenzregister- und Finanzinformationionsgesetz, TraFinG) is designed to make some significant changes to the Transparency Register obligations, which are part of the German Money Laundering Act (Geldwäschegesetz, GwG). The Act will enter into force on 1 August 2021 and includes obligations which apply on foreign companies.

What is the aim of the new Act?

The main aim of the Act is to network the German Registry with the European Transparency Register in order to allow money laundering and terrorism financing to be fought more intensively.

How is this goal to be reached?

Until now, the Transparency Register only had to be notified when the information about the beneficial owners was not available from certain other registers (e.g. from the German Commercial Registers) so that the Transparency Register did not contain all information about beneficial owners (so-called overflow register).

In order to network with the European Transparency Register, it was necessary to transform the German Transparency Register into a full register. This was the only way to guarantee that all information on the beneficial owners would be available to the Transparency Registers of the EU Member States in a uniform data format and could be accessed from anywhere in Europe.

Which significant changes does the new Act introduce?

To achieve this goal, the Act abolishes the so-called notification myth. Until now, this myth had meant that many limited liability companies (GmbHs), in particular, were not required to notify their economic beneficiaries to the Transparency Register. Instead, the information about the beneficial owners of a limited liability company could be gleaned from the list of shareholders available electronically from the Commercial Register or from the overview of various lists of shareholders in a chain of investors.

The planned abolition of the notification myth will mean that, generally, all companies with a registered office in Germany will have to provide information on their economic beneficiaries to the Transparency Register in the future.

Even stock corporations listed on a stock exchange (and their subsidiaries), which were exempt from the notification requirement until now, will have to notify the Transparency Register in the future in accordance with the new Act. A privileged status does only apply on registered associations.

Which time limits must be observed?

Under the new Act, a staggered transition period will apply. Companies, which were exempt from notifying their economic beneficiaries to the Transparency Register in accordance with the notification myth, will have to make their first notification by the following dates:

• Stock corporations (Aktiengesellschaften, AG), partnerships limited by shares (Kommanditgesellschaften auf Aktien, KGaA) and Societas Europaea (SE) must notify by 31 March 2022;
• Limited liability companies (Gesellschaften mit beschränkter Haftung, GmbH), cooperatives, European Cooperatives and partnership companies (Partnerschaftsgesellschaften) have until 30 June 2022;
• all other companies required to notify must do so by 31 December 2022.

Which obligations apply to foreign companies?

Since 1 January 2020, foreign companies have had an obligation to notify the German Transparency Register in the case of the planned acquisition of real estate in Germany (asset deal). This obligation will now be extended to cover share deals.

Under the new TraFinG, foreign companies must also notify their economic beneficiaries to the German Transparency Register where they wish to acquire shares in a German company that holds property in Germany. This notification obligation applies where the planned share deal triggers the requirement to pay property transfer tax under § 1 para. 3 of the German Real Estate Transfer Tax Act (Grunderwerbsteuergesetz, GrEStG).

An exception to the notification requirement applies only where the information about the economic beneficiaries has already been notified to the Transparency Register of another EU Member State.

If a foreign company fails to fulfil its notification requirements prior to the notarisation of the sale and purchase agreement (asset or share deal), the German notary will not be able to notify the agreement.

What are the consequences of a breach of the Transparency Register obligations?

Failure to comply with the notification obligation, providing incorrect or incomplete information or failing to notify the Transparency Register within the applicable time periods constitute an offence. In the case of simple infringements, companies and their directors may be fined up to EUR 150,000; in the case of serious, repeated or systematic infringements, fines of up to EUR 1 million or up to twice the economic benefit resulting from the infringement.

In addition to the threat of fines, since 1 January 2020, any final decisions imposing fines for a breach of a Transparency Register obligation has been published on a website of the German Federal Administration and will be able to be viewed by anyone for a period of five years (naming and shaming). The website shows both the name of the company and the type of infringement committed.

Need for further action and conclusion

The elimination of the notification myth means that numerous companies (especially limited liability companies) will have significantly more work.

These companies must not only notify their economic beneficiaries to the Transparency Register for the first time, but they must also regularly review the information that has been provided and update it as necessary. This means that companies will need to implement a compliance system (effective internal monitoring and reporting system).

We are happy to provide support if you have any questions in relation to the Transparency Register and the planned updates introduced by the TraFinG. We are also happy to help with the notification of the economic beneficiaries to the Transparency Register.

In addition to your normal BEITEN BURKHARDT expert, our Team is ready and willing to assist you in all matters relating to the Transparency Register.

Petra Bolle
Tassilo Klesen
Dr Julia Offermanns (geb. Thöle)
Dr Winfried Richardt