As a result of the Sanctions Enforcement Act II, the obligation to register in the German Transparency Register has been significantly tightened for associations based abroad which directly or indirectly hold real estate property in Germany. The obligation to be entered in the German Transparency Register should be checked for all foreign associations that directly or indirectly hold real estate property in Germany.
Previous legal situation
Previously, there were already extended registration obligations 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 (e. g. 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 companies with direct or indirect real estate ownership
With the amendment to the law as of December 28, 2022, the registration obligation now no longer exists only for new acquisitions, as was previously the case, but has also been extended to existing real estate. Even if the real estate or share acquisition pursuant to Section 1 (3) or (3a) GrEStG already occurred several years ago, they 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 (e. g. 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 in particular 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 whose beneficial owners are already registered in a corresponding register of another member state of the European Union, 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
For the entry of the affected foreign companies in the German Transparency Register, the legislator provides for a transition period until June 30, 2023. The required entries in the German Transparency Register should therefore be made by this date at the latest.
In the event of a breach of the obligation to register, there is the threat of severe fines of up to EUR 150,000 in the case of a first-time breach and even up to EUR 1 million or up to twice the economic benefit derived from the breach, insofar as it is a serious, repeated or systematic breach. As a measure of "naming and shaming," a legally binding decision imposing a fine is published on the website of the Federal Administrative Office for everyone to see.
Foreign companies that hold real estate property in Germany themselves or as part of their corporate structure should therefore check immediately whether the extended registration obligations apply to them. If this is the case, they should make the required notifications to the German Transparency Register as soon as possible, but at the latest by the deadline of June 30, 2023.