On 5 May 2023, the Federal Office of Administration (FOA), the competent authority for the German Transparency Register, has once again published new interpretation notes to the German Anti-Money Laundering Law.
In these, the FOA now also comments for the first time on the extended transparency register obligations of foreign companies and legal entities such as foundations and trusts (“foreign associations“) with direct or indirect real estate ownership in Germany introduced by the Sanctions Enforcement Act II.
The Sanctions Enforcement Act II, which came into force on 1 January 2023, had, among other things, significantly expanded the transparency obligations for foreign associations. Accordingly, foreign associations that are not yet registered in a transparency register of another EU state must make entries in the German Transparency Register not only in the case of (direct or indirect) new acquisitions of real estate in Germany, but also if they already hold (direct or indirect) ownership of real estate located in Germany (so-called real estate cases – see also Baker McKenzie Client Alert dated 13 January 2023).
Since then, the reporting obligation of a foreign association is triggered, among other things, by the mere direct or indirect holding of a participation within the meaning of sec. 1 (3) German Real Estate Transfer Tax Law (at least 90% of the shares) or within the meaning of sec. 1 (3a) German Real Estate Transfer Tax Law (economic participation of at least 90%) in a company with real estate property in Germany.
Until the publication of the updated FAQs by the FOA, there were considerable uncertainties regarding the scope of this new regulation. This applied in particular to multi-level participation chains with a foreign connection. In particular, it was questionable whether all foreign associations within a chain of participations should be subject to the reporting obligation or only those within the chain of participations that hold a relevant participation (at least 90%) or a real property located in Germany.
Even if the necessity of such a broad interpretation can be doubted for reasons of money-laundering prevention, the FOA now explicitly confirms the broad scope of application of the notification obligations of foreign associations in its latest FAQs dated 5 May 2023: According to the FOA’s assessment, in the case of multi-level participation chains, the beneficial owners of each individual foreign association within the participation chain must be notified to the Transparency Register.
The FAQs explicitly state in this regard: “This means that […] all associations in the ownership chain are subject to notification insofar as they each individually meet the requirements of sec. 1 (3) or (3a) German Real Estate Transfer Tax Law and reach the threshold of at least 90% of the shares.” At the same time, the FOA clarifies that for the determination of the directly or indirectly controlled company shares, “the principles regarding the Real Estate Transfer Tax Law that deviate from the Anti-Money Laundering Law (e.g. at least 90% at each ownership level, multiplication/calculation of shares)” should apply.
For the new notification obligation of foreign associations with direct or indirect real estate ownership in Germany, the law provides for a very tight transitional period. Accordingly, foreign associations only have until 30 June 2023 to report their beneficial owners if they have held real estate property in Germany by direct acquisition since a date prior to 1 January 2020, or an interest within the meaning of sec. 1 (3) German Real Estate Transfer Tax Law (at least 90% of the shares) or within the meaning of sec. 1 (3a) German Real Estate Transfer Tax Law (economic interest of at least 90%) in a company with real estate property in Germany since a date prior to 1 August 2021.
For affected foreign associations, this results in an urgent need for action:
- Foreign associations with direct or indirect domestic real estate ownership should immediately verify whether they meet the requirements of sec. 1 (3) or (3a) Real Estate Transfer Tax Law and reach the threshold of at least 90% of the shares.
- If transparency register obligations exist, the foreign associations must notify the German Transparency Register of their beneficial owners by 30 June 2023 at the latest.
Failure to notify the Transparency Register in due time may result in high fines, which may also be enforced abroad. In addition, there is the threat of publication of the violation of the law on the homepage of the FOA by announcing the company in the context of so-called naming and shaming.
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