New notification obligations – The transparency register has become a comprehensive register

The Transparency Register and Financial Information Act (Transparenz- und Informationsgesetz, TraFinG), which was passed at the end June, came into force on 1.8.2021. As a result of this the transparency register has been transformed into a comprehensive register. A report on the legislative procedure was included already in this article. In view of the highly significant practical implications and the need to promptly set up a process for fulfilling the notification obligations we have addressed this issue once again by providing a general overview and, in particular, describing the current need for action.

Please take note - The presumption of notification (Mitteilungsfiktion) has been abolished without any substitution

Previously, the so-called ‘presumption of notification’ meant that companies did not have to notify the transparency registry if all the requisite disclosures were already contained in electronically accessible public registers (e.g., the Commercial Register). From now on, the presumption of notification will cease to apply without any substitution. It is now no longer relevant whether or not there is information about the beneficial owners in other public registers. In future, this will lead to the transparency register standing alongside the existing public registers. So, to put it clearly, this means that in the future all German companies will be obliged to continually notify the transparency registry of their beneficial owners. 

Please note: On account of these changes, around 1.9m legal entities throughout Germany will consider themselves obliged to notify the transparency registry for the first time. This will also apply to companies that do not actually have a beneficial owner and where a legal fiction is created according to which the legal representatives are simply considered to be the notional beneficial owners. A notional beneficial owner would be, for example, the managing director of a GmbH (private limited company) where no natural person, directly or indirectly, held an equity interest of more than 25%. 

Additional information about the beneficial owners

In the future, with respect to beneficial owners, it will be necessary to ensure that all their nationalities are disclosed. The previous right to choose to disclose merely one of several nationalities has ceased to exist. There is no requirement to notify the registry additionally merely of the nationalities that have not yet been recorded. Additionally notifying the registry of any other nationalities will only be necessary if information about the beneficial owners is being updated for some other reason. 

Please note: Trust representatives, trustors and comparable legal constructions for foundations (particularly foundations without legal capacity) will moreover, in specific cases, see themselves exposed to an expansion of the group of beneficial owners.

Transitional periods

The Act provides for transitional periods, specific to legal 
forms, for those  legal entities that had been exempted 
from the notification obligation up to now because of the 
‘presumption of notification’. Specifically:

• AG [public limited company] and KGaA [a partnership limited by shares] until 31.3.2022,
• GmbH [private limited company], cooperative, European cooperative and partnerships until 30.6.2022,
• all other entities until 31.12.2022.

Please note: Those who were however in any case obliged to file a disclosure because, for example, in their specific cases they did not meet the criteria to be able to benefit from the presumption of notification, have to notify the registry without undue delay.

Expansion of the notification obligations for foreign companies

The notification obligations for foreign organisations when they purchase property located in Germany have likewise been extended. Up to now, foreign organisations only had to notify the German transparency registry of their beneficial owners in the case of direct acquisitions of domestic property. From now on, foreign organisations will be obliged to notify the registry if they intend to acquire shares in a corporation that owns property in Germany as part of a share deal.

Please note: Failure to comply with the notification obligation would result in a prohibition on the share deal being officially recorded by a German notary.

Special rules for registered associations

It is encouraging that the new version of the Anti-Money Laundering Act (Geldwäschegesetz, GWG) provides for registered associations to be automatically entered into the transparency register. Consequently, a notification obligation will generally cease to apply for registered associations. However, automatic registration will not happen until 1.1.2023. Moreover, in the event of automatic registration, registered associations will be exempt by law from paying any fees.

Please note: However, the names of the beneficial owners will not be automatically taken from the register of associations and recorded in the transparency register, in particular, in those cases where a registered association has already arranged for the transparency registry to be actively notified of the beneficial owners. In such cases, the obligation to notify the registry without undue delay will continue to apply for registered associations. 

Sanctions and penalties

Fines of up to € 100,000 have been provided for administrative offences that result from a frivolous breach of the notification obligation; if the breach is intentional then this amount goes up to € 150,000. For serious, repeated or systematic breaches the ceiling for fines goes up to one million € or up to twice the financial benefit derived from the breach. The financial benefit in this case will include profits generated and losses avoided and may be estimated by the Federal Office of Administration (Bundesverwaltungsamt, BVA). In addition, the BVA will publish breaches on its website as part of its naming and shaming scheme.

Recommendation

Against the backdrop of far-reaching new regulations, it is not only the current need for action that should be determined. Over and above that, we would recommend setting up an ongoing process to ensure that, in future, all the data that are subject to disclosure are provided within the stipulated period and that they are complete. Furthermore, compliance to-date with notification obligations should be critically analysed and the need to make any corrected notifications should be determined.