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Account statements or online banking transactions sometimes include the note “AWV-Meldepflicht beachten” (“Observe AWV reporting obligation”). This newsletter will provide information on: What is behind the AWV note; which capital and payment transactions are really subject to the reporting obligation; and how companies, organizations and private individuals can declare foreign bank transfers or investments abroad in a legally secure manner.
What does the note “Observe AWV reporting obligation” mean?
The note is based upon the German Foreign Trade Ordinance (Außenwirtschaftsverordnung; “AWV”): It provides for various reporting obligations for individuals and legal entities in Germany in capital and payment transactions. The foreign trade law-related reporting obligations are important for the preparation of the Federal Republic’s balance of payments and thus as basis for economic-political decisions.
Which payments and assets are subject to the AWV reporting obligation?
The assets and payments reportable pursuant to foreign trade law include:
- Residents’ assets abroad (“K3 reports” pursuant to Art. 64 AWV)
- Foreigners’ assets in Germany (“K4 reports” pursuant to Art. 65 AWV)
- Incoming and outgoing payments (“Z4 reports” pursuant to Art. 67 AWV)
- Residents’ receivables from and payables to foreigners
- Payments in transit trade
- Payments by maritime shipping companies
The first three obligations are outlined below.
Attention: Observe the “domestic” term in foreign trade declarations
In general, there are particularities with regard to the term “domestic” used. Such term is limited solely to the German economic territory, so that citizens from other EU countries are considered foreigners for the purposes of these reporting requirements.
K3 and K4 reports under the AWV: How to report domestic and foreign assets?
- Report residents’ investments abroad: Domestic companies, public authorities and private individuals (hereinafter collectively also referred to as Residents) holding an interest in foreign companies as investment are subject to K3 reporting requirements. As a prerequisite for the K3 reporting obligation, at least ten percent of the shares or voting rights in the foreign company must be attributable to the Resident (direct shareholding).
Furthermore, an “indirect” foreign shareholding is subject to the K3 reporting obligation as well. Such indirect shareholding exists if the interests in the investment object are not directly (exclusively) held by the Resident but also by further foreign entities dependent on the Resident. Such shareholding is subject to the reporting obligation if more than 50 percent of the shares or voting rights in the investment object are attributable to the Resident, either alone or jointly (indirect shareholding).
The assets of foreign branches and permanent establishments are also reportable under certain conditions.
- Report foreigners’ shareholdings in Germany: The reporting obligations also apply accordingly to domestic companies, branches or permanent establishments. This requires that foreigners, alone or in an economic group, directly or indirectly hold an interest in a domestic investment object to the extent mentioned above (K4 reports). An economic group in this sense also includes family ties.
WAV reporting procedure: What are the particularities of K3 and K4 reports?
The K3 and K4 reporting obligations do not apply if the investment object’s total assets do not exceed three million euros. The reports must be filed once a year electronically with the German Central Bank subject to certain reporting deadlines and by using the corresponding forms.
Z4 reports pursuant to AWV: How to correctly report foreign bank transfers?
In payment transactions, domestic individuals and legal entities must generally report incoming and outgoing payments of more than EUR 12,500 from and to foreigners.
“Payments” include not only cash payments, but also bank transfers, direct debit payments, checks and bills of exchange, debits as well as setoffs and settlements. Payments for the import, export and transport of goods as well as for the provision, disbursement and repayment of credits with an originally agreed term or notice period of up to twelve months are excluded from the reporting obligation. The above-mentioned “AWV reporting obligation” relates to these Z4 reports.
AWV reporting procedure: What are the particularities for Z4 reports?
The report must generally be filed electronically with the German Central Bank until the seventh calendar day of the month following the payment. In addition to general contact details, the report must include a registration number and payment information:
Z4 reports must include the following information:
- Purpose of payment
- Information whether there was an offset or a contribution
- The name of the country of the recipient or of the service provider abroad, including a country code.
What happens in case of a violation of the AWV reporting obligation?
Intentional and negligent violations of the reporting requirements, for example, by failure to report, or by inaccurate, incomplete or delayed reports, constitute an administrative offense and may be subject to severe fines of up to EUR 30,000 per violation.
Administrative offenses become time-barred within a period of two to three years.
Forgotten or delayed AWV report: How to avoid fines
If the violation of the reporting obligation pursuant to Art. 22 (4) AWG is disclosed, the authorities may refrain from pursuing it, provided the violation was made negligently. It is important that the violation was discovered by internal controls and is reported to the competent authority voluntarily. Furthermore, appropriate measures must be taken in order to avoid any repeated violation.
A prerequisite for voluntary disclosure is that no official investigations have yet been initiated. Generally, companies can make the disclosure themselves. However, it should be submitted in writing, completely and correctly, in order to comprehensively preempt any preliminary investigations.