Update on German UBO reporting for foreign investors: new FAQ remove uncertainties but increase number of reportable cases

11.05.2023 | FGS Blog
Matthias FullFranz-Joseph Reisner      Dr. Susann Sturm

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.

The implications of the Sanction Enforcement Act II on foreign investors owning German real estate have already been discussed and analyzed in a previous FGS Blog Article published on 17 March 2023. In this article, we highlighted that foreign investors (directly or indirectly) owning German real estate must prepare for extended UBO reporting requirements within the German Transparency Register.

This conclusion has become even more relevant since the Federal Office of Administration (administering the German Transparency Register) released its updated FAQ on 5 May 2023.

Release of the updated FAQ on 5 May 2023

The FAQ cover – for the first time – various aspects of the UBO reporting obligations for foreign entities. While on the one hand the guidance is to be welcomed as it removes some uncertainties, on the other hand some views of the Federal Office of Administration go far beyond previous expectations.

In particular, the following two key points for foreign entities owning real estate located in Germany can be taken from the recently published FAQ:

      I. Foreign entities in multi-tier structures:

Sec. 20 (1) sentence 2 MLA refers to Sec. 1 para. 3 and 3a RETTA. For RETT purposes, only one entity can trigger such taxable event due to a particular transaction (including a respective attribution of the real estate to such entity). However, according to the FAQ, any of its shareholders can be subject to the UBO notification obligation. In the case of existing German real estate ownership (due to historic acquisitions), each entity within the shareholding chain is subject to the notification obligation, insofar as it individually fulfils the requirements of Sec. 1 para. 3 or para. 3a RETTA and reaches the shareholding threshold of 90%. Contrary to our previously presented view, the ownership of German real estate (as per 28 December 2022) shall have the effect that not only one but all foreign entities in a multi-tier structure (indirectly and directly holding at least 90% in the entity owning the real estate) are subject to German transparency obligations. This interpretation is also illustrated by an example in the updated FAQ (question 4 on page 10 of the FAQ). 

      II. Exception due to a UBO reporting in another EU state:

According to the FAQ, no UBO reporting obligation exists for foreign entities, provided that the UBO information pursuant to Article 1 No. 15 lit. c of the Directive (EU) 2018/843 and Sec. 19 para. 1 MLA is complete. Hence, an entry in the transparency register of another EU state per se may not be sufficient for an exception from the reporting obligation in the German transparency register. The explicit reference to Sec. 19 para 1 MLA suggests that this shall only be the case if the relevant UBO information within the register of the other EU member state corresponds to the required information in Germany. This may proof to be difficult as the specific requirements slightly vary between the member states (although the underlying framework was based on joint EU directives).

Takeaways

While the updated FAQ provide further insight and clarity on the requirements for foreign entities, the far-reaching view of the Federal Administrative Office is not in line with our interpretation and will probably lead to significantly more notifications to the German transparency register.

Large international groups with multi-layered shareholding structures may face a major challenge (as each entry will have to be recorded and submitted separately for each relevant group entity) and the deadline for registration is approaching in leaps and bounds. In light of potential sanctions, we recommend foreign (groups of) entities with direct and indirect real estate ownership in Germany to put the topic of “UBO reporting” on top of their compliance agenda and address it immediately.

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1Obligations for purposes of the transparency register are stipulated by the Money Laundering Act (MLA).