German draft law proposes tightening of beneficial ownership disclosure rules

The Act will require non-German investment companies to disclose their ultimate beneficial owners if they acquire real estate in Germany, either directly or indirectly by buying shares in property companies.

Companies will also have to supply actual beneficial ownership information directly to the transparency register, ending the legal fiction by which they have previously been deemed to have satisfied their disclosure obligations merely by giving references to other German registers. Companies listed on a stock exchange will also have to disclose their beneficial owners.

More information on beneficial owners will also be required, in addition to their first name and surname, birth date, and place of residence. Where a beneficial owner has several nationalities, all will have to be disclosed, rather than just one as is the case now.

'The amendments will result in considerable additional work for German businesses', say lawyers at Frankfurt law firm Paul Hastings. 'Not only will many companies have to report their beneficial owners to the transparency register for the first time, they will also be required to check their entries on an ongoing basis and update them in the event of any changes'.

In addition, says the firm, the obligations on foreign investors in German property must be considered, in particular as a registration could take a considerable amount of time.

Non-compliance with the reporting obligations will result in fines of up to EUR1 million or twice the economic benefit derived from the offence.

The draft provides for the law to enter into force on 1 August 2021. However, grace periods will be allowed, with different deadlines for stock corporations, limited liability companies, cooperatives and partnerships, ranging from 31 December 2021 to 31 December 2022.

The new Act will increase fivefold the number of companies that must be entered in the transparency register, says law firm Freshfields Bruckhaus Deringer. However, the upside is that customer due-diligence procedures will be significantly streamlined, it says.

Sources

• Paul Hastings
• Freshfields Bruckhaus Deringer
• Bundesverwaltungsam Transparenzregister