Transparency register and real estate investments in Germany – obligations applicable to foreign companies

What are transparency obligations?

Transparency obligations are regulated in Sec. 20 (1) s. 1 of the AML Act and comprise four individual obligations:

a) Obligation to obtain information on the ultimate beneficial owner (UBO):

Information specified in Sec. 19 (1) of the AML Act regarding the UBO must be obtained.  In the case of (foreign) companies, this is usually the (natural) person who owns or controls the company. The required information includes the first and the last name, date of birth, place of residence, the nature and scope of beneficial interest, and all nationalities.

b) Obligation to store information:

The information must be stored, either in paper form or digitally.

c) Obligation to keep information up-to-date:

In addition, the information must be kept up-to-date. The obligation applies both in respect of information kept by the companies themselves and in respect of information transferred to the transparency register (see the following obligation).

d) Notification obligation:

The information must immediately be notified to Bundesregister Verlag GmbH, being the entity keeping the register, for entry into the transparency register. Notification is submitted via the website of the transparency register (www.transparenzregister.de).

In what situations do these (transparency) obligations apply to foreign companies?

Foreign companies are subject to the transparency obligations in the following two cases:

a) Direct acquisition of real estate (by way of an asset deal):

Foreign companies are obliged to comply with the transparency requirements when they undertake to acquire real estate situated in Germany. This obligation has applied to foreign companies already since 1 January 2020. Since the coming into force of the Sanctions Enforcement Act II on 28 December 2022, also foreign companies that had directly acquired German real estate prior to that date (existing owners) have now become obliged to comply with the transparency requirements as long as they continued to be owners of the real estate at that time. 

b) Indirect acquisition of real estate (by way of a share deal):

Foreign companies are also obliged to comply with the transparency obligations if (i) shares in a real estate owning company are unified with, or transferred to, the foreign company within the meaning of Sec. 1 (3) GrEStG or (ii) the foreign company obtains a beneficial interest within the meaning of Sec. 1 (3a) GrEStG as a result of a legal transaction. These regulations have been in force since 1 August 2021. Also in this respect, the Sanctions Enforcement Act II has extended the scope of application in that foreign companies are now obliged to comply with the transparency requirements if they have obtained (i) shares within the meaning of Sec. 1 (3) GrEStG or (ii) a beneficial interest within the meaning of Sec. 1 (3a) GrEStG – in each case at any time before 1 August 2021 (existing owners). In the FAQ of 5 May 2023 regarding the trans-parency register, the Federal Office of Administration clarified that the analysis of whether a company is subject to transparency obligations as a so-called “existing owner” should be based on the Real Estate Transfer Tax Act in the version applicable as of 1 August 2021.

Are there any exemptions from the transparency obligations for foreign companies?

According to Sec. 20 (1) s. 3 of the AML Act, transparency obligations do not apply only in a situation where the company has already submitted the required information to another transparency register in an EU member state. Notification of beneficial owners to the transparency register of a non-EU country is, however, not sufficient.

What happens if a company fails to comply with the transparency obligations?

If the transparency obligations are violated, the notary may in certain cases (e.g., direct acquisition of real estate) refuse notarization. Moreover, failure to comply with the transparency obligations constitutes an administrative offence, which is subject to a fine. If the offence is committed intentionally, fines of up to EUR 150,000 may be imposed, but also higher fines are possible. Besides, final and incontestable penalty notices are published together with the name of the company and the administrative offence committed by it on the website of the Federal Office of Administration (so-called naming and shaming).

What to observe now and in the future?

We recommend analysing past transactions with companies owning real estate in Germany involving foreign companies in respect of whether they are subject to transparency obligations. Likewise, the transparency obligations should be observed for comparable transactions to be carried out in the future.