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Transparency register: notification obligations of companies - Expiry of transition periods under the German Money Laundering Act (GwG)

28 Oct 2022 Europe

As a result of the entry into force of the Transparency Register and Financial Information Act on August 01, 2021, the transparency register, which has already existed since 2017 as a kind of catch-all register, has become a full register due to the discontinuation of the previous so-called "notification fiction". In the transparency register, the ownership structures, i.e. the beneficial owners of certain companies, are recorded and accessible to the public.

The new provisions in the GWG have very practical implications both for German companies and, in certain cases, for companies not domiciled in Germany, as they now have to fulfill various verification and notification obligations vis-à-vis the transparency register. Transitional periods apply to this, at least in part, but in the latest case these will end at the end of December 31, 2022.

 Against this background, it is advisable for all companies with their registered office in Germany to specifically check whether there is a concrete need for action as a result of this, as serious legal consequences can threaten in the event of non-compliance. The same applies to companies with their registered office abroad in case of real estate-related entrepreneurial activity in Germany (purchase of real estate or share deal, see in more detail under 2.). The following is a brief summary of the changes in the law that are relevant to practice in order to provide a general overview of the obligations to act.

1.New obligation to verify and notify the "beneficial owner(s)" for domestic companies

The legislator abolished the so-called "notification fiction" applicable until July 31, 2021 (Section 20 (2) GWG old version), according to which associations for which data on their beneficial owner(s) resulted from another register (such as the commercial register) were not obliged to separately notify the transparency register.

Following the complete deletion of this fiction, all domestic associations within the meaning of Section 20 GWG, i.e. all legal entities under private law, such as the GmbH (limited liability company) or the Aktiengesellschaft (stock corporation), but also registered partnerships, such as the Offene Handelsgesellschaft (general partnership) or the Kommanditgesellschaft (limited partnership), as well as certain other legal forms of associations within the meaning of Section 21 GWG (e.g. trusts), are now obliged in principle to correctly identify their beneficial owners and to notify them electronically to the transparency register for entry without a separate request.

The so-called beneficial owner(s) of the company in question - important: these can in principle only be natural persons - must be notified without gaps for the entire period retroactively since October 01, 2017, stating their complete data (i.e. names, dates of birth, places of residence and all nationalities). In addition, the nature and extent of the economic interest must also be stated.

Exceptions apply to some domestic company forms.


2. Extension of notification obligations for companies not domiciled in Germany

Even before the amendment, companies domiciled outside Germany were obliged in certain cases to have their beneficial owners entered in the transparency register. Previously, however, this only applied to the purchase of real estate located in Germany by a foreign company (asset deal). The current amendment to the law has now extended this obligation to the further, very practically relevant case of indirect acquisition through a share deal, in which 90% or more shares in a real estate holding company are acquired (if the acquisition complies with the scope of Sec. 1 (3) and (3a) GrEStG (Real Estate Transfer Tax Act), i.e. the Company holds at least 90% of the shares in the Company as a result of the acquisition process). 

The following now applies uniformly to both cases: the purchasing company must disclose its beneficial owners to the German transparency register, unless there is already an entry to this effect in a transparency register in another EU country. In this case, there is no longer a separate obligation to register in the German transparency register.


3. Identification of the beneficial owner

According to the provisions of Section 3 (2) GWG, beneficial owners of legal entities under private law and registered partnerships are, in principle, all natural persons who directly or indirectly hold more than 25% of the capital shares, control more than 25% of the voting rights or exercise control in a comparable manner. In the case of legally capable foundations and other legal structures in which assets are administered in a fiduciary capacity, different principles apply. The examination of who is considered to be the beneficial owner can be very complex (especially in the case of multi-level shareholdings).

If no beneficial owner can be determined according to the principles of the GWG, the so-called "fictitious beneficial owner" must be reported to the transparency register. Depending on the constellation, this may be the legal representative, the managing partner or the partner of the contracting party.


4. Various transitional periods for notification

The legislator has specified various transitional periods in the law for the notification, by the end of which a notification must have been made to the transparency register. It is important to note, however, that these transitional periods only apply to companies that have already benefited from the previous statutory notification fiction by July 31, 2021, i.e. not to companies established after July 31, 2021.

If the notification fiction applied, the following transition periods apply, otherwise the requirements already apply since 01.08.2021:

  • for the stock corporation, partnership limited by shares, SE: March 31, 2022;
  • for the limited liability company, entrepreneurial company, cooperative, European cooperative, partnership: June 30, 2022;
  • for all other types of companies: up to and including December 31, 2022.

5. Ongoing update and possible consequences in case of non-compliance

Companies are obliged to check any future changes in the persons of the beneficial owners or even just their data and to notify the Transparency Register for reporting. In the event of violations of the statutory notification requirements, companies must expect sanctions. Violations can constitute administrative offenses and can be punished with sometimes severe fines.

Another important consequence of a foreign company not being entered in the German transparency register or in a transparency register within the EU is that, in the case of the purchase of real estate located in Germany or as part of a share deal, the notary public commissioned with the notarization of the transaction is obliged by law to check this aspect and refuse the notarization, if no entrance in the transparency register has happened or at least the official application for registration in the transparency register has not been proved.