On August 1, 2021, the Transparency Register and Financial Information Act (Transparenzregister- und Finanzinformationsgesetz (referred to herein as TraFinG), which was passed by the German parliament (Bundestag) on June 10, finally came into force. The reform of the transparency register affects almost all companies in Germany and entails a massive expansion of reporting obligations. In accordance with the new legal regulations, all companies must now report their beneficial owners to the transparency register for registration. A violation of the reporting obligation is subject to fines. However, certain transition periods apply in order to ensure a smooth transition.
The TraFinG removes certain privileges that were in force until now. For example, the fiction of notification standardized in Section 20 para (2) of the Money Laundering Act (Geldwäschegesetz – referred to herein as GwG) has been abolished without replacement, with the consequence that the reporting obligation is no longer deemed to have been fulfilled if the beneficial owner can be taken from publicly accessible state registers (commercial register, partnership register, register of cooperatives, register of associations and company register). As a result, all information on beneficial owners of all companies will from now on be retrievable in the transparency register as a uniform structured data record. This is because the transparency register is intended to be a complete digital register, which contains comprehensive information on the beneficial owners of all companies, and which is also linked with all corresponding transparency registers in the other EU member states.
Legal entities under private law (AG, GmbH, KGaA, SE, cooperatives, European cooperatives, partnerships, and foundations) and partnerships registered in the commercial register (OHG, KG; GmbH & Co. KG; partnership companies) are subject to the active reporting obligation to the transparency register. Partnerships under the German Civil Code (GbR) are not subject to transparency registration unless they hold shares in a GmbH. The obligation to report now also applies to those companies for which a report to the transparency register was not obligatory in the past – including listed companies. However, there is an exception for registered associations (eingetragener Verein), which are automatically registered.
Every beneficial owner of a company must be reported to the Transparency Register, stating their first name and surname, date of birth, place of residence, type and scope of beneficial interest and all nationalities. Beneficial owner is any natural person who ultimately owns or controls the company. This includes any person who directly or indirectly holds more than 25 % of the share capital, controls more than 25% of the voting rights or exercises control in a comparable manner. If there is no such person in the case of a GmbH or AG, the members of the board of directors or management must be reported as so-called fictitious beneficial owners.
The notification must be made electronically on the website of the Transparency Register supervised by the Federal Office of Administration under www.transparenzregister.de. No other formal requirements are necessary.
In principle, the notification must be made without delay. However, the following transitional periods apply, within which the notification of the beneficial owner must be carried out if a notification obligation did not previously exist:
The transition periods do not apply to newly established companies. Furthermore, it is important that any change in the person of the beneficial owner must also be reported immediately to the transparency register. This also applies with regard to fictitious beneficial owners, e.g. in the event of a change in the board of directors or management and in the data subject to registration. It is therefore advisable to strengthen existing compliance systems to this end.
Authorities, obligated parties and all members of the public are entitled to inspect the register. This means that the transparency register can be inspected by anyone without any special reason. Due to data protection regulations, the beneficial owners can apply for a restriction of the inspection right according to Section 23 para (2) Money Laundering Act (GWG), as far as there is an overriding interest of the beneficial owner's. This is the case, for example, if criminal offences are expected to be carried out against the beneficial owner as a result of the inspection.
Incorrect or omitted reporting obligations constitute a misdemeanor. The reporting obligation is subject to examination and monitoring by the Federal Office of Administration. In the event of an established breach of duty, companies can expect painful fines. However, the fines are partially suspended within the transitional periods.
The transparency register has now changed from a catch-all register to a full register. The reporting obligation therefore now applies to most German companies. If this is not complied with, there is a threat of severe fines. This also applies in the event of failure to report a change in beneficial owner. Moreover, increased controls are to be expected, especially after the transitional periods have expired. It is therefore advisable to make the relevant notifications without delay and to strengthen existing compliance processes accordingly.