As part of German Finance Minister Christian Lindner's crackdown on money laundering, particularly through exploiting Germany's lax laws on the transparency of property ownership, changes in the law are now imminent. Foreign entities will now have to show greater compliance in their reporting of ownership of Germany property.
The recent enactment of the country's Sanctions Enforcement Act II now means that foreign companies that own property in Germany are required to report their beneficial ownership to the transparency register. To date they have only been obliged to register when they acquired property, either through an asset or a share deal. The new Act extends this to existing property.
The problem has been that the German government recognised that very few real estate holding companies were registered in its transparency register. In Berlin, for example, the figure is less than 30%. Anybody searching for the beneficial owner of a property in Germany's nearly 400 land registries (Grundbücher) may well find themselves going up a blind alley, as company-related changes such as change of name, ownership, or mergers and acquisitions, are simply not recorded in the relevant land registries.
The transparency register holds details of companies' ultimate beneficial owners (UBOs), meaning all natural persons who directly or indirectly hold more than 25% of the shares, control more than 25% of the voting rights or control companies in a comparable manner. If no such person can be identified, the UBO is deemed to be the company's legal representative or the managing partner.
Since the beginning of January 2023, 3, newly established companies nominating a legal representative or partner have to indicate whether NO individual fulfils the requirements to be UBO, or if the company does not have enough information to identify a real UBO. From 2024, this will also apply to all civil-law associations on registration. The new reporting law is intended to put financial institutions in a better position to take a risk-adequate approach to an unknown UBO situation.
The deadline for registration of pre-existing property interests on the transparency register is 31st June 2023. Foreign associations already registered in a transparency register of another EU member state are exempt.
As we've already reported in REFIRE, from 21st April German real estate can no longer be bought with cash, or by payment in cryptocurrencies or commodities. The same applies to the acquisition of shares in companies whose assets directly or indirectly include domestic real estate. Corresponding evidence of compliance with the cash payment prohibition must be submitted to the notaries notarizing the transaction.
The Act has been working its way through the German legislative system for some time, but gained further impetus by the drive to enforce sanctions against Russian oligarchs in the wake of the Russian invasion of Ukraine a year ago.
