Disclosure of Ultimate Beneficial Ownership in German Companies

Key Takeaways

  • Germany recently introduced new rules on the disclosure of the ultimate beneficial owner(s) of German companies. The rules are based on the 4th EU-Money-Laundering Directive (EU) 2015/849).
  • The rules are not only relevant for German entities and German shareholders, but also for foreign groups or organizations (including private equity groups) that have or intend to acquire holdings in German entities.
  • Recent experience indicates that not all foreign players eying German M&A targets or holding significant interests in German targets are aware of these rules.
  • If your group or organization
    • has or intends to acquire a direct or indirect holding of more than 25% of the capital or the voting rights of a German entity or otherwise controls such entity, and
    • is beneficially owned or controlled by one or more natural persons,

disclosure obligations with respect to the ultimate beneficial owners may apply and should be assessed.

Background and Framework

  • Obligation of the German entity to disclose beneficial owner: As of October 1, 2017 all legal entities and certain other types of associations having their statutory seat in Germany have to provide information on their beneficial owner(s) to the newly established Transparency Register. The German entity is not obliged to actively investigate to obtain information on its beneficial owner(s), but has to provide information that is available to it.
  • Obligation of the beneficial owner / entities directly controlled by the beneficial owner to disclose: Natural persons qualifying as beneficial owners of a German entity, as well as any entity that is directly controlled by such beneficial owner, have to disclose the beneficial owner(s) to the German entity (which in turn has to file such information with the Transparency Register).  This obligation applies to all natural persons qualifying as beneficial owners and all entities or persons directly controlled by them, irrespective of their place of residence or incorporation.
  • Who qualifies as ultimate beneficial owner? The ultimate beneficial owner of a German entity is any natural person who, directly or indirectly,
    • holds more than 25% of the capital of such entity,
    • controls more than 25% of the voting rights of such entity, or
    • can exercise control in a comparable way over such entity.

Special rules exist for determining the ultimate beneficial owner(s) of trusts and similar structures.

Complex holding structures require a thorough analysis, as for example it is not entirely clear from the rules what constitutes “indirect control”.

  • Scope of information to be provided: The information that has to be provided comprises the first and last name of the natural person who qualifies as the beneficial owner, the date of birth, the place of residency and information regarding the economic interest (e.g. the percentage of capital interest or voting rights).
  • Exemptions: An exemptions from the disclosure obligations applies for German EEA-listed entities. Any non-listed German company controlled by a German EEA-listed entity is likely to indirectly benefit from such exemption. Other exemptions apply if the information on the beneficial owner is already contained in certain German public registers (other than the Transparency Register).
  • Access to the register: Currently only certain authorities (prosecution authorities, tax authorities) have immediate access to the Transparency Register. Other persons or entities may be granted access, if they can demonstrate a legitimate interest within the context of the prevention of money laundering.
  • Sanctions: Violations of the obligations set forth above constitute an administrative offense and can be fined with up to EUR 100,000 or, in the case of a serious or repetitive violation, with up to EUR 1,000,000 or twice the economic benefit derived from the violation. In addition, final rulings on violations will be made public (“naming and shaming”).

Should the issues addressed herein potentially be relevant to you, please reach out to your regular firm contact, or Oliver Schröder (oschroeder@cgsh.com), Manuel Metzner (mmetzner@cgsh.com) or Ulrike Schuster (uschuster@cgsh.com) in our Frankfurt office.