Avoid a fine! Check whether you are required to make entries in the Transparency Register for your GmbH, UG or GmbH & Co. KG.
1. Overview
As part of the Money Laundering Act, a digital ‚transparency register‘ was introduced in 2017.
Accordingly, legal entities governed by private law and partnerships with legal capacity are required to disclose information regarding the ‚beneficial owner‘. This article is expressly limited to the legal forms of GmbH, UG and (GmbH & Co.) KG.
The Commitment, The obligation to provide information to the Transparency Register has been in force since 1 October 2017. The obligation applies to the companies themselves and, ultimately, to their authorised representatives (i.e. the Managing Director).
This article explains in which cases disclosure is required and what information must be provided to the transparency register.
2. Background to the new transparency register
The Transparency Register forms part of the amendment to the Money Laundering Act (Section 20 GWG), which came into force on 26 June 2017 and was further amended with effect from 1 August 2021. The amendment is based on EU requirements and is intended to ensure a more effective fight against money laundering and terrorist financing. It is also intended to enable the authorities to investigate and prosecute financial crimes more effectively across the EU.
The Transparency Register is maintained online at: www.transparenzregister.de
3. Identification of ‚beneficial owners‘
The Transparency Register is intended to provide information about the natural persons who, from an economic perspective, are the key figures behind a company. In this regard, the Transparency Register does not focus on the legal ownership of shares, but rather on the actual (de facto) ability to influence the company. The key term in the Money Laundering Act is therefore the ‚beneficial owner‘.
The beneficial owners are those natural persons, which own or control the company in question. A beneficial owner is defined as any natural person who, directly or indirectly:
- more than 25 holds % of the shares; or
- more than 25 controls % of the voting rights; or
- exercises control in a similar manner.
Indirect control exists, for example, in the case of chains of shareholdings. Example: A (holding 60%), B (holding 10%) and B Holding KG (holding 20%) hold shares in Erfolgreich GmbH. B is the sole limited partner of B Holding KG. Solution: A holds a direct stake of more than 25% in Erfolgreich GmbH and is therefore a beneficial owner. Although B is immediately only for 10%, but indirectly (via B Holding KG) holds a further 20% stake in Erfolgreich GmbH. B therefore also exceeds the 25% threshold and is likewise a beneficial owner of Erfolgreich GmbH.
4. 25% threshold
However, not all of the above scenarios trigger the obligation to report to the transparency register. This is because the reporting obligation applies only to those scenarios in which the relevant beneficial owner exceeds the 25% threshold (see above).
Example: A holds an 80% stake in Erfolgreich GmbH and her granddaughter E holds a 20% stake. A holds 20% of his shares in trust for his mother-in-law, S, who, due to her prickly nature, is not to be seen as a shareholder in public. Solution: E and S are not beneficial owners, as they in each case do not exceed the 25% threshold. A, on the other hand, is the beneficial owner, as he holds a stake of more than 25% in the company and (despite the trust arrangement) controls more than 25% of the voting rights.
5. Control in investment chains
Beneficial owners may only be natural persons. In the case of non-natural person shareholders whose holdings exceed the 25% threshold, the determining factor is which natural person exercises control over them. Control is deemed to exist, in particular, where a majority stake is held.
Example: The shareholders of Erfolgreich GmbH are A, B and C, each holding 20 %, and M-GmbH, holding 40%. The shareholders of M-GmbH are A, holding 30 %, and X, holding 70%. Solution: A, B and C do not exceed the 25% threshold and are therefore not beneficial owners. A’s shareholding in M-GmbH does not increase the total either, as A does not hold a controlling interest in M-GmbH. M-GmbH exceeds the 25% threshold, but is not a natural person, so it must be determined who controls M-GmbH. This is X, who holds more than 50 % of its shares. X is therefore the beneficial owner of Erfolgreich GmbH.
6. No beneficial owner can be identified?
If no natural person can be identified as the beneficial owner, or if there is any doubt as to who the beneficial owner is, the beneficial owner shall be deemed to be the legal representative of the GmbH, i.e. the managing director(s) (Section 3(2) of the Money Laundering Act).
Example: The shareholders of Erfolgreich GmbH are A, B, C, D and E, each holding 20%. None of the shareholders exceeds the 25% threshold. Consequently, the managing directors of Erfolgreich GmbH are regarded as beneficial owners.
Note: Particularly when there is a change of managing director, it is important to remember to notify not only the Commercial Register but also the Transparency Register of the change, as this results in a change of beneficial owner!
7. Examination structure
The following assessment framework can be used to provide an initial overview:
Please note that this test procedure is a simplified version and, as such, different results may be obtained in specific circumstances.
8. What information must be entered in the transparency register?
The following must be entered in the register:
Names of the beneficial owners,
Date of birth of the beneficial owners,
Place of residence of the beneficial owners,
all Nationalities of the beneficial owner, and
to specify the nature and extent of the financial interest.
The latter This refers, in particular, to the information regarding the extent of the (economic) shareholding or voting rights. In the case of indirect control, it must be explained how the controlling influence over the company arises.
However, there is no need to submit documents confirming the accuracy of the information provided.
9. Obligation of beneficial owners to provide information
In many cases, the management is completely unaware of the existence of any agreements between the shareholders and third parties (e.g. trust or sub-participation agreements), as the company is not a party to such agreements. Consequently, section 20(3) of the Money Laundering Act (GWG) requires shareholders to provide the company with the necessary information without delay. If the shareholders fail to provide such information, this constitutes an administrative offence which may be punished by fines imposed on the shareholders concerned (see below).
10. Duties (of the managing director)
Managing directors must therefore carefully check exactly what information needs to be provided to the transparency register. Managing directors must request information from the shareholders regarding the beneficial owners.
Furthermore, the directors must regularly check whether there have been any changes regarding the beneficial owners (e.g. any new ones). The directors must without delay have it amended in the transparency register.
Practical tip 1: Managing directors must document requests for information and the information obtained.
However, the directors are under no obligation to carry out their own investigations. They are entitled to rely on the information provided by their shareholders.
Practical tip 2: The directors should, at least once a year, ask the shareholders to state whether they are aware of any circumstances that might suggest a different assessment of the beneficial owners. Such information should then be carefully reviewed to determine whether it is subject to a reporting obligation and should be archived. Failure to do so may result in the management being held liable.
Since 1 January 2020, the reporting obligations to the Transparency Register have also applied to legal entities (and other associations) with their registered office abroad, provided they undertake to acquire ownership of a property situated in Germany; the reporting obligation (on the part of the managing director) then arises as soon as the property purchase agreement is concluded (Section 20(1), second sentence, of the Money Laundering Act (GWG)).
Since 1 August 2021, these reporting obligations have also applied, under certain conditions, to indirect acquisitions, namely where a foreign company acquires shares in a domestic company which, in turn, holds real estate.
12. Breach of the duty to provide information
If the required information is not submitted to the Transparency Register (or is submitted incorrectly, incompletely or late), this may result in a fine of up to EUR 150,000; in the case of repeated offences, the fine may be up to EUR 1.000.000 or be punished with a fine of up to twice the financial gain derived from the offence.
Although the fine would primarily affect the company, the breach would also constitute a breach of the managing director’s duties. As a result, the managing director would be liable to pay damages to the company. (On the liability of the managing director https://www.gwgl-hamburg.de/blog/post/wofuer-hafte-ich-als-geschaeftsfuehrer-ein-ueberblick/).
If the shareholders have not provided the managing directors with the necessary information (see above), the fine may also be imposed on them.
13. Who has access to the transparency register?
The Act implementing the amending Directive to the Fourth EU Anti-Money Laundering Directive (which came into force on 1 January 2020) has, amongst other things, amended the provisions governing access to the transparency register. The following are now entitled to access the register:
the following authorities, insofar as access to the information is necessary for them to carry out their statutory duties:
- the supervisory authorities and other authorities referred to in Section 25(6) and Section 56(5), second sentence, of the Money Laundering Act (GWG) (in particular the Federal Office of Administration),
- the Central Office for the Investigation of Financial Transactions,
- the competent authorities pursuant to Section 13 of the Foreign Trade Act,
- the law enforcement authorities,
- the Federal Central Tax Office,
- the local tax authorities,
- the authorities responsible for identifying, preventing and eliminating hazards,
- the bodies referred to in Section 2(4) of the GWG (public authorities, bodies and institutions governed by public law which conduct public auctions),
- the persons subject to the obligation (i.e. the directors of the company in question), provided they demonstrate to the registry authority that the inspection is being carried out to fulfil their due diligence obligations in one of the cases specified in Section 10(3) and (3a) of the Money Laundering Act, and
- all members of the public
With effect from 1 January 2020, the legislator removed the requirement for members of the public to have a legitimate interest in accessing the transparency register. The Transparency Register is accessible to all members of the public – much like the Companies Register – without the need for specific grounds. However, those wishing to consult the register must still provide proof of identity and pay a fee. It is, however, possible to restrict access where there is a legitimate interest.
In addition, beneficial owners may request information from the register-keeping authority regarding instances where the public has accessed the register. Information provided by the register-keeping authority is supplied in anonymised form; anyone who has accessed the transparency register is not permitted to disclose the identity of the register-keeping authority (Section 23(4), second sentence, of the Money Laundering Act).
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