Foreign legal entities directly or indirectly (via subsidiaries) owning or purchasing real estate in Germany must notify the details of their ultimate beneficial owners (UBO) to the German Transparency Register unless they have already duly registered their UBO(s) with the UBO register of another EU member state. Based on recently published FAQ by the competent German Federal Office of Administration (Bundesverwaltungsamt), this applies to all foreign entities of the group that are connected to the entity owning the property in Germany via shareholdings of 90% or more.

Background

In the effort to fight money laundering and financing of terrorism, the electronic Transparency Register was introduced in Germany in 2018, implementing the 4th EU Anti-Money Laundering Directive (AML Directive). The register contains personal details (e.g. first and last name, date of birth, place of residence and nationality) of the ultimate beneficial owners (UBO) of legal entities, i.e. the individuals who ultimately directly or indirectly own and/or control a German corporation or legal entity. While in the past in many cases the registration with the commercial register was sufficient, from 1 August 2021 onwards, the German Transparency Register was changed to include UBO data of nearly all corporations and legal entities domiciled in Germany, obliging the respective entities to obtain information on their UBO(s) and to notify details to the German Federal Gazette (Bundesanzeiger Verlag).

Notification obligations of foreign legal entities when purchasing real estate in Germany

In order to also enhance transparency with regard to real estate in Germany, a field which was found by the German Federal Ministry of Finance to be particularly susceptible to money laundering activities, the German legislator introduced transparency obligations also for foreign corporations and other legal entities (such as foundations) becoming owners of real estate in Germany:

• Since 1 January 2020, legal entities domiciled outside of Germany must register the details of their UBOS(s) with the German Transparency Register if they undertake to obtain ownership of real estate located in Germany (direct purchase of real estate/asset deal).
• Since 1 August 2021, this also applies if a property in Germany is acquired via a share deal within the meaning of section 1 (3), (3a) of the German Land Transfer Tax Act (Grunderwerbsteuergesetz). If at least 90% of the shares in a company owning real estate in Germany are transferred to a foreign entity, are pooled (either directly or indirectly) or are already held by the foreign legal entity, the foreign legal entity is obliged to register its UBO(s) with the German Transparency Register (real estate share deal).

Extension of notification obligations for foreign entities already holding real estate in Germany

The notification obligations of foreign entities (including trusts having legal capacity) with the Transparency Register were extended to cover existing property in Germany by Germany’s Second Sanctions Enforcement Act (Sanktionsdurchsetzungsgesetz II) taking effect from 28 December 2022. Pursuant to the new provisions, the notification obligation regarding UBOs now also apply if

• the ownership in the real estate was obtained before 1 January 2020, or
• the real estate share deal took place before 1 August 2021,

provided that the property or shares were still owned by the foreign legal entity on 28 December 2022. This does not necessarily apply in the cases of trusts, foundations without legal capacity and similar foreign legal entities.

Consequences for foreign corporate groups

Based on the extensive view now held by the competent Federal Office of Administration, in multi-level shareholding structures this results in notification obligations for all legal entities on all shareholding levels of the group that directly or indirectly hold at least 90% of the shares in an entity owning real estate in Germany. The 90% shareholding prerequisite applies to all levels of the group structure. A notification of the UBO(s) by legal entities at a lower level of the corporate group does not, according to the Federal Office of Administration, exempt higher-level legal entities from their own notification obligations in Germany.

Exemptions in case of registration in another EU UBO/transparency register

An exemption from the obligation to register with the German Transparency Register applies to such foreign legal entities that have already notified details on their UBO(s) to the UBO/transparency register of another EU member state. However, this only applies if all details of the UBOs required under German law have been notified to the register in the other EU member state. Particularly in cases where the requirements in the respective EU member state deviate from those in Germany, this needs to be reviewed on a case by case basis.

Registering with UBO or transparency registers of countries that are not EU member states does not relieve from the registration obligation in Germany.

Administrative fines and ban of notarisation of deals

To ensure effective enforcement of the transparency obligations, violations by German and foreign legal entities are punishable as breaches of administrative law with fines of up to EUR 150,000. This applies to entities that fail to register their UBOs in due time or that file false or incomplete notifications. Serious, repeated or systematic violations may even incur regulatory fines of up to EUR 1 million and in certain circumstances even up to EUR 5 million or 10% of annual turnover. In addition, non-appealable and final decisions on such administrative offences are published on the website of the Federal Office of Administration for a period of five years (name and shame).

To enforce the notification obligations in particular vis-à-vis foreign entities, the German legislator has also introduced a ban of notarisation for real estate transactions if and for as long as the foreign legal entity fails to comply with its notification obligation. Notarisation generally is necessary under German law in order to transfer ownership in real estate in Germany. A notary must therefore refuse to notarise a real estate deal until the parties have complied with the registration requirements.

Transition period ends on 30 June 2023

The extensive legal view now published by the German Federal Office of Administration may require substantial efforts by foreign corporate groups directly or indirectly owning property in Germany. The notification duties and the obligation to continuously update the registration entries in a German register may concern numerous entities in a larger corporate group.

The German legislator has provided for a transitional period for the notification duties for entities that became owners of German property prior to the changes in law mentioned above taking effect. Foreign entities still have until 30 June 2023 to make necessary notifications to the German Transparency Register. For the obligation to register details on UBOs in property acquisitions after 1 January 2020 and respective share deals after 1 August 2021, the obligations already fully apply .

All foreign entities directly or indirectly owning real estate in Germany should review whether they need to notify details of their UBOs to the German Transparency Register and, if so, make the necessary notifications as soon as possible.