Soon significantly increased effort for reports to the German transparency register: How should management prepare?

When the Transparency Register was introduced in 2017, there were and still are very practical exceptions according to which management does not also have to report to this register if the data already results from other German registers or becomes public according to the rules of the capital market. We already reported here.

On February 10, 2021, the German government has now published a draft of the Transparency Register and Financial Information Act (TraFinG). The TraFinG is intended to expand the transparency register obligations in key respects. According to current planning, the TraFinG is to come into force on August 1, 2021.

What is the objective of the TraFinG?

The TraFinG is intended to enable the interconnection of European transparency registers and thereby intensify the fight against money laundering and terrorist financing.

How is this goal to be achieved?

Since notifications to the German transparency register have so far only been required if the information on the beneficial owner is not already available from certain other German registers or from notifications under rules for the capital market, not all information on beneficial owners is available at the German transparency register. Today, the German transparency register is a so-called catch-all register. This function was also deliberately chosen in 2017 in order to keep the effort for German companies manageable, which was already not successful as announced at the time.

The intended interconnection of the European transparency registers requires that the German transparency register be converted into a full register. This is the only way to ensure that all information on beneficial owners is available in a uniform data format in the transparency registers of the EU member states and can be queried throughout Europe. This represents a 180-degree turn from the 2017 objective.

What are the main changes resulting from the draft law?

In order to achieve this goal, it is envisaged that the current notification fiction, which currently makes it unnecessary to notify the German transparency register of the beneficial owner, in particular for many corporations and partnerships, will be abolished. In the future, almost all companies domiciled in Germany will have to report their beneficial owners to the transparency register.

According to the draft law, listed stock corporations and their subsidiaries, which have been exempt from the reporting requirement up to now, will also have to report to the German transparency register in the future.

What deadlines must be observed under the TraFinG?

According to the draft law, there are staggered transitional periods for individual companies that have not yet been required to report their beneficial owners to the German Transparency Register. Subsequent reports are to be made by

• stock corporations, partnerships limited by shares and Societas Europaea until March 31, 2022;
• Limited Liability Companies,, Cooperatives, European Cooperatives and Partnership Companies until June 30, 2022;
• all other companies subject to transparency requirements (e.g. GmbH & Co. KG) until December 31, 2022.

What obligations arise for foreign companies in connection with German real estate?

As of January 1, 2020, foreign companies will already be subject to reporting obligations to the German Transparency Register in the event of the acquisition of real estate located in Germany. This will now also be extended to the acquisition of shares in a company owning real estate.

According to the draft law, foreign companies must also report their beneficial owners to the German transparency register if they wish to acquire shares in a German company with domestic real estate and the amount of the shareholding to be acquired triggers real estate transfer tax. If the foreign company has not fulfilled its obligation to notify the notary prior to the notarization of the purchase agreement and has provided evidence of this, the German notary may not notarize. The only exception to this reporting obligation for foreign companies is if the data on the beneficial owner is already recorded in another transparency register of EU member states. This must also be proven to the notary's office.

Need for action by the management of German companies

The abolition of the notification fiction means that many German companies and their management will be faced with a hitherto unnecessary and, from a liability point of view, very considerable burden. They must now report their beneficial owners to the transparency register for the first time and then regularly check and, if necessary, update these reports. This means that companies will have to set up an appropriate internal compliance system.

An acquisition of companies with real estate by foreign purchasers makes the notarization at a German notary's office more complex and should therefore be well prepared.