The Sanctions Enforcement Act II obligates all entities based abroad to register in the German Transparency Register.
Since the beginning of 2023, foreign entities with ownership in German real estate have been subject to extended reporting requirements for the German Transparency Register (known as the Transparenzregister). The Federal Administrative Office (BVA) has now outlined the precise criteria that trigger the requirement for registering indirect shareholdings.
As a result of the Sanctions Enforcement Act II, the obligation to register in the German Transparency Register has been extended to all entities based abroad that directly or indirectly hold real estate assets in Germany, unless certain exceptions apply.
Former reporting obligations
Previously, extended registration obligations were in place for companies domiciled abroad insofar as real estate transactions in the broadest sense were concerned, cf. section 20 (1) of the German Money Laundering Act (GwG). The starting point for the registration obligation are regulations in the Real Estate Transfer Tax Act (GrEStG). According to these regulations, an obligation to register in the German Transparency Register was previously triggered if a company with its registered office in a foreign country:
- Undertook to acquire ownership of real estate located in Germany (eg by concluding a real estate purchase agreement),
United shares within the meaning of Section 1 (3) GrEStG or transferred such shares to it, or Had an economic participation within the meaning for Section 1 (3a) GrEStG on the basis of a legal transaction.
Changes for foreign entities with direct or indirect real estate ownership
Under the new provisions, the registration obligation has been extended to cover existing real estate ownership, be it direct ownership or through shares in a real estate-owning company. Even if the real estate or share acquisition pursuant to Section 1 (3) or (3a) GrEStG already occurred several years ago, it may be affected by the new registration obligation. In principle, a foreign company is required to be entered in the German Transparency Register – in addition to the acquisition transactions that are still subject to registration – if the company:
- Has held title to real estate located in Germany since a date prior to January 1, 2020,
Has held shares of at least 90% in a company holding real estate in Germany (cf. Section 1 (3) GrEStG) since a date prior to August 1, 2021, or Has held, as a result of a legal transaction, an economic interest of at least 90% in a company whose assets include real property in Germany (cf. Sec. 1 (3a) GrEStG) since a date prior to August 1, 2021.
Real estate within the meaning of the GwG includes both land and rights equivalent to land (eg heritable building rights) as well as co-ownership shares in land listed in the land register (Grundbuch).
It should be noted that an obligation to register may apply even if no Real Estate Transfer Tax pursuant to Section 1 (3) GrEStG was triggered during the acquisition of the real estate itself. The obligation to register must therefore be carefully determined for each individual case.
Entries in registers of another EU Member State
For companies subject to registration and whose beneficial owners are already registered in a corresponding register of another EU Member State, the exemption pursuant to Section 20 (1) sentence 3 GwG may apply. However, this is only the case if all the required information has been reported in the relevant transparency register, which would have to be checked for each individual case.
Entry in the German Transparency Register: transition period and sanctions
Affected foreign entities are granted a transition period until 30 June 2023, to complete their registration in the German Transparency Register. It is imperative that the necessary entries in the register are submitted no later than this deadline. Failure to comply with the registration obligation carries consequences, including potential fines. For initial breaches, fines can reach up to EUR 150,000, while serious, repeated,or systematic breaches can result in fines of up to EUR 1 million or twice the economic benefit gained from the violation. Furthermore, as a means of public disclosure, legally binding decisions imposing fines are published on the website of the Federal Administrative Office, ensuring transparency for all to see.
Conclusion
Foreign companies that hold German real estate assets, either directly or as part of their corporate structure, should immediately assess their status to determine if they are subject to the extended registration obligations. If they fall within scope, it is crucial for them to submit the necessary notifications to the German Transparency Register, ensuring compliance no later than the deadline of 30 June 2023.
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