In the context of its campaign against financial crime, the Federal Government of Germany has introduced the German Sanctions Enforcement Act I (Sanktionsdurchsetzungsgesetz I) dated May 23, 2022 and the German Sanctions Enforcement Act II (Sanktionsdurchsetzungsgesetz II) dated December 19, 2022 in order to improve the enforcement of sanctions in Germany.

In addition to the future integration of real estate information into the transparency register, the following changes will apply to corporations and registered partnerships with regard to the transparency register:

Extension of reporting obligations for foreign corporations and partnerships with regard to real estate located in Germany

Former reporting obligations 

Up to now there has been a reporting obligation to disclose the ultimate beneficial owners (UBO) for foreign legal entities governed by private law, in particular corporations and registered partnerships, in the following cases:

• Acquisition of real estate located in Germany
• Merger or transfer of at least 90 percent of shares in a corporation or partnership with real estate located in Germany (Section 1 para. 3 of the German Real Estate Transfer Tax Act, (RETT ACT))
• Acquisition of a beneficial ownership of at least 90 percent in a corporation or partnership with real estate located in Germany (Section 1 para. 3a RETT Act)

Extension of reporting obligations

For foreign corporations and partnerships, the reporting obligations also extend to the holding of existing real estate and to share deals already executed in companies holding properties located in Germany.

With the change in law, the reporting obligation of UBOs for foreign corporations and partnerships now applies in the following cases:

• Holding of real estate located in Germany acquired before January 1, 2020
• Merger of at least 90 percent of shares in a corporation or partnership with real estate located in Germany prior to August 1, 2021
• Acquisition of beneficial ownership of at least 90 percent in a corporation or partnership with real estate located in Germany prior to 1 August 2021

Reporting deadline and potential sanctions

UBOs have to be reported to the Bundesanzeiger Verlag GmbH, the register-keeping agency, by June 30, 2023 in order to comply with the reporting obligations (cf. Section 59 para. 13 of the German Money Laundering Act). Non-compliance with the reporting obligations, i.e. if the information on the UBOs is not provided at all, is incorrect or incomplete or is not provided within the statutory deadline, constitutes an administrative offense (Ordnungswidrigkeit) which can result in a fine. In case of negligent misconduct the fine can reach €100,000. In case of an intentional misconduct the fine can amount up to €150,000. Severe, repeated or systematic non-compliance with the reporting obligations can increase the fine up to €1,000,000 or up to twice the financial benefit derived from the non-compliance. In certain cases the fine can even amount up to €5,000,000 or 10 percent of the total revenue generated in the previous fiscal year. 

In addition to the impending fines the non-compliance of reporting obligations can also be sanctioned by the possibility of ’Naming and Shaming’. In case of the ‘Naming and Shaming’ sanction the competent supervisory and administrative authority will publish the imposed and legally binding fines after informing the addressee on its website. 

Extension of reporting obligations in case of fictitious UBOs 

Corporations and partnerships have to report their UBOs to the register-keeping authority for registration in the transparency register. If the UBO cannot be identified, the legal representative, managing partner or the partner of the contracting party is deemed to be the fictitious UBO who then has to be reported and registered in the transparency register as a fictitious UBO. 

As of January 1, 2023, and in case of a fictitious UBO, additional information has to be reported that there is no individual person who fulfills the requirements of a UBO or that it was not possible to identify the UBO even after conducting comprehensive audits (cf. Section 19 para. 3 Sentence 2 of the German Money Laundering Act). If a notification regarding the UBO has already been made prior to January 1, 2023, a new notification regarding the type and scope of beneficial interest indicating the status as a fictitious UBO is not required.

Practical advice

We recommend foreign corporations and partnerships with real estate located in Germany, or holding at least 90 percent of shares or of a beneficial ownership in a company with real estate located in Germany, review the former and extended reporting obligations regarding information on UBOs. Compliance with the reporting obligations of UBOs and fictitious UBOs can prevent a fine of up to €150,000, in severe cases up to €1,000,000, and also the “naming and shaming” on the website of the competent authority of the transparency register. In certain cases a fine of up to €5,000,000 or 10 percent of the total revenue generated in the previous fiscal year might also be prevented.

Action is required in the short term as the reporting deadline is fast approaching: June 30, 2023.