On August 01, 2021, the Transparency Register and Financial Information Act (TraFinG) came into force. The law was passed by the Bundestag on June 10, 2021 and states that as of the aforementioned date, all legal entities must immediately report their respective beneficial owners to the Transparency Register. In addition, it was stipulated that previous notification fictions will no longer apply. But what does this actually mean exactly? Who exactly is affected by the regulation, what does the process of such a notification look like and what are the deadlines? All important information about the TraFinG can be found in this article.
- What is the Transparency Register and Financial Information Act?
- Who has to report what to the Transparency Register?
- Tip: How the identification of the beneficial owner works
- When and how must the report be made?
- Consequences of not reporting
What is the Transparency Register and Financial Information Act?
In Germany, the system of the catch-all register was used until 01 August 2021. On August 01, this system was changed to a full transparency register by means of the Transparency Register and Financial Information Act (TraFinG). In accordance with this law, all companies will be obliged to identify their beneficial owners and to notify the Transparency Register for registration .
A transparency register excerpt is therefore an excerpt that contains information about the respective reportable association and its “beneficial owners”. According to Section 3 GwG, a beneficial owner is a natural person who holds more than 25 percent of voting rights or capital shares. Either directly or indirectly.
Who must report what to the transparency register?
Who exactly is required to report can be determined on the basis of the principle of individual responsibility . Judging by this principle, the obligation to report to the transparency register, according to the regulations of the Money Laundering Act, is fundamentally for the company itself. Accordingly, there is no group reporting, as each company must determine its beneficial owner on its own responsibility and be liable itself for the corresponding proper reporting.
According to the Money Laundering Act, legal entities subject to reporting requirements include legal entities under private law. These include, for example, AGs, GmbHs, KGaAs, SEs, cooperatives, European cooperatives, partnerships, foundations and associations. Registered partnerships such as oHG, KG (incl. GmbH & Co. KG) are also subject to registration. Last but not least, foundations and trusts without legal capacity must also report the beneficial owner if the purpose of the foundation, from the perspective of the founder, is self-serving.
According to the new law, all these companies, including conceivable combinations, must be reported. And this without exception. Companies that were able to use the reporting function up to this point can now no longer do so. This concerns especially companies of the GmbH and the KG. The only exception, according to § 20a GWG, are associations. This is because these organizations are automatically registered by the transparency register if all beneficial owners are fully and properly entered in the respective register of associations.
Tip: This is how the identification of the beneficial owner works
As already mentioned, according to the TraFinG, the direct beneficial owner(s) of the company must always be reported without exception. The following data must be reported to the Transparency Register:
- First and last name
- Date of birth
- Place of residence
- Nature & extent of the economic interest
- All nationalities
When and how must the notification take place?
As a general rule, the notification of the beneficial owner must be made without delay. This includes any changes to the beneficial owner. Even if only one beneficial owner changes and the rest remains unchanged, all beneficial owners must be reported repeatedly. Accordingly, under the new law, any change must be reported to the Transparency Register without delay and without hesitation by the company.
The following regulations and deadlines apply to companies that are subject to the reporting obligation as a result of the new regulation, but were previously subject to the notification fiction, after the law has been passed:
- AG, SE, KGaA: March 30, 2022.
- GmbH, cooperatives, European cooperatives or partner cooperatives: June 30, 2022
- oHG, KG: December 31, 2022
The actual process of reporting itself is done electronically after registration via the Transparency Register website.
Consequences of failure to report
The consequences of failing to report can be extremely serious. Even missing the reporting deadline can result in high fine costs. The amount of the fine can be up to 150,000 euros. If the violations are serious or repeated, the fine can be increased to up to 1 million euros. Accordingly, it makes sense to grit one’s teeth and make the notification accordingly in a timely and proper manner. The consequences of not doing so are too high. In addition, any company that commits a violation of the transparency register and is fined will be named on the website of the Federal Office of Administration, thus putting it in the unpleasant pillory of the public.