Foreign investors (directly or indirectly) owning German real estate must prepare for extended UBO reporting requirements

17.03.2023 | FGS Blog
Matthias FullFranz-Joseph Reisner      Dr. Susann Sturm

Due to the newly released FAQ on 5 May 2023 certain interpretations on UBO reporting guidelinesfor foreign real estate investors have changed. Read the updated article now by clicking here to find out what foreign real estate investors need to know now.

With the Sanction Enforcement Act II, legal provisions on extended reporting requirements for purposes of the German Transparency Register1 came into force on 28 December 2022. Prior to that, foreign entities had to report their ultimate beneficial owner (“UBO”) to the German Transparency Register in case of direct and qualifying indirect investments in German real estate. The new provisions now also require foreign entities to report their UBO in case of already existing German real estate investments (which have not triggered UBO reporting yet) with deadline 30 June 2023.

1. Background

Relevant cases: A foreign entity may already be obliged to report its UBO, being the individual who ultimately owns or controls the entity, to the German Transparency Register. Such reporting obligation is triggered by the following acquisitions:

  • applicable as of 1 January 2020, any direct acquisition of German real estate by a foreign entity; and
  • applicable as of 1 August 2021, any indirect acquisition of German real estate within the meaning of Sec. 1 para. 3 or 3a RETTA (i.e., transfer or unification of at least 90% of the shares in an entity owning German real estate).

An exception from the reporting obligation applies if the foreign entity has already transmitted the relevant information to the transparency register of another EU member state (Sec. 20 para. 1 sentence 3 MLA). However, in practice, an application of this exception can be difficult as, for example, the required information of an UBO is not harmonized across EU member states.

Relevant content: In relevant cases, the foreign entity must obtain, retain, and update the relevant information of the UBO (name, birth date, place of residence, nature and extent of economic interest, and nationality) and shall immediately notify the register for entry in the Transparency Register. If a UBO cannot be determined, the legal representative or the managing partner is deemed to be the UBO of the entity (so-called fictitious UBO).

Sanctions: If the foreign entity fails to fulfill its reporting obligation, the notarization of the underlying agreement, where relevant (e.g., purchase agreement regarding real estate or shares in a GmbH), may be denied or fines may be imposed.

2. Changes

Relevant cases: The reporting obligation for foreign investors now also applies to existing ownership in German real estate from applicable historical acquisitions:

  • any direct acquisition of German real estate by a foreign entity prior to 1 January 2020 which is still owned by this entity on 28 December 2022 or beyond; and
  • any indirect acquisition of German real estate within the meaning of Sec. 1 para. 3 or 3a RETTA prior to 1 August 2021 which is still owned by this entity on 28 December 2022 or beyond.

Relevant content: The relevant information of the UBO to be reported remains unchanged.

Reporting deadline and potential sanctions: The UBO reporting obligation regarding existing ownership needs to be fulfilled until 30 June 2023. Failure to comply with the obligation can result in penalties of up to € 150,000 for a first-time violation – or higher for repeated violations. Moreover, in case of legally binding notices of material fines (more than € 200), the entity name is published on the Federal Office of Administration’s website.

3. Impact and Recommendation

The extended UBO reporting requirement calls for immediate action for all foreign investors directly and/or indirectly holding real estate located in Germany:

  1. Review the (direct and indirect) ownership in German real estate.
  2. Determine if the relevant UBO data has already been reported to the transparency register of another EU member state.
  3. Where relevant, identify the UBO and report to the German Transparency Register until 30 June 2023.

The amended rules are particularly relevant for multinational groups with German subsidiaries as well as foreign direct investments in German real estate. In the case of complex multi-tier structures, historical internal reorganizations (i.e., any acquisitions, contributions, distributions, mergers, or liquidations affecting the shareholding structure) should be reviewed in connection with the extended reporting requirements.

4. Open questions

From a practical perspective, there appear to be some unsolved questions regarding the new rules.

Existing ownership: The extended requirements refer to “existing” real estate investments. In absence of further guidance by the German authorities, it may be recommendable to include all real estate ownerships as per the date when the amended law became effective (i.e., 28 December 2022).

Shareholding threshold: It may also be questioned whether, for indirect acquisitions of German real estate prior to 1 July 2021, the currently applicable threshold of 90% (under Sec. 1 para. 3 or 3a RETTA) or the previously applicable threshold of 95% is to be applied for purposes of the UBO reporting. In absence of further guidance by the German authorities, it may be recommendable to conduct the internal analysis on the basis of the 90% threshold.

Relation to Sec. 1 para 2b RETTA: For RETT purposes, the same share transfer may constitute a taxable event under both Sec. 1 para 3, 3a RETT and Sec. 1 para. 2a, 2b RETTA in which case the latter provision is primarily applicable. Considering the wording of the UBO provisions, however, the event “within the meaning of” Sec. 1 para. 3, 3a RETTA still appears to be reportable.

Obligations for purposes of the transparency register are stipulated by the Money Laundering Act (MLA).