Reporting obligations under the Foreign Trade and Payments Act (AWG): A guide for startups and blockchain companies

Introduction

Recently, an interesting issue was brought to my attention by a tax accountant friend. Over a cup of coffee, he told me about a mandate he was working on. The topic was reporting requirements under the Foreign Trade and Payments Act (AWG), a topic that is often overlooked in the business world. He explained to me how complex yet crucial these reporting requirements are for companies that operate internationally.

This conversation inspired me and I realized that this topic had not been covered on our blog before. Given the importance and relevance of the AWG for companies, especially those that operate internationally, I thought it was time to address and explain this important issue.

In today’s globalized economy, many startups and companies are operating with modern ways of working and international partners. In particular, IT providers in the blockchain space that excel in innovative solutions and advanced technologies boast of their modernity. This is fundamentally a positive development, as they push the boundaries of what is possible and open up new avenues for growth and success.

But this modernity and internationality also have their challenges. One of them is that they come into contact with the Foreign Trade and Payments Act more quickly than they might think. The AWG establishes a number of reporting requirements that affect both individuals and legal entities engaged in day-to-day capital and payment transactions. Compliance with these reporting requirements is not only a legal requirement, but also crucial for transparency and accountability in the international business world.

With this in mind, it is important that we address the reporting requirements under the AWG and understand how they can affect our business. After all, knowledge and understanding are the first steps to compliance and avoiding potential legal problems.

Reporting obligations under the Foreign Trade and Payments Act (AWG)

One of the most important reporting obligations provided for by the AWG concerns the participation in foreign companies. This regulation aims to ensure transparency with regard to the ownership of companies and to minimize potential risks that could be associated with foreign shareholdings.

If a domestic person – whether an individual or a company – holds at least 10% of shares or voting rights in a foreign company, it must report this annually to the Bundesbank. This rule applies regardless of whether the participation is direct or indirect. It is also important to note that this reporting requirement applies regardless of the type of foreign company – whether it is a small startup or a large multinational.

This reporting requirement is not just a bureaucratic hurdle, but it plays an important role in maintaining financial stability and the integrity of the economic system. It helps regulators get a clear picture of cross-border investment flows and identify and assess potential risks.

It is therefore crucial that companies and individuals investing in foreign companies are aware of this reporting requirement and ensure that they comply with it properly. Not only to avoid fines, but also to contribute to the transparency and stability of the international economic system.

Reporting obligation for foreign receivables and payables

Another important aspect of the reporting requirements under the Foreign Trade and Payments Act concerns receivables from and payables to foreigners. This regulation is particularly relevant for companies that maintain business relationships with foreign partners.

Pursuant to Section 66 of the Foreign Trade and Payments Ordinance (AWV), domestic companies are obliged to report receivables from and payables to foreigners if these exceed €5,000,000 in total. It is important to note that this reporting requirement includes both receivables and payables. This means that companies must report not only their outstanding receivables from foreign partners, but also their liabilities, such as loans or other financial obligations.

This reporting requirement is monthly and refers to the status at the end of each month. It is therefore important that companies regularly review their receivables from and payables to foreigners and ensure that they properly fulfill their reporting obligations.

It is also important to note that this reporting requirement applies regardless of the type of claim or liability. This means that it includes trade receivables and payables as well as loan relationships and other loans.

Compliance with this reporting requirement is not only a legal requirement, but also an important part of a company’s risk management strategy. By regularly reporting their receivables and payables, companies can obtain a clear picture of their financial position and risk exposure. This can help them make informed decisions and adjust their business strategies accordingly.

Overall, it is important that companies are aware of the reporting obligations under the AWG and ensure that they fulfill them properly. Not only to avoid fines, but also to make their business practices transparent and responsible.

Reporting obligations in payment transactions

The reporting requirement that probably occurs most frequently in practice concerns the reporting of incoming and outgoing payments. Pursuant to Section 67 of the Foreign Trade and Payments Ordinance (AWV), payments in excess of €12,500 made by a German national to a foreign national or received from a foreign national must be reported to the Bundesbank on a monthly basis. This regulation applies to individuals as well as to companies and entrepreneurs.

It is important to note that the Bundesbank focuses solely on the amount of the payment. This means that it is irrelevant whether the payment amount repays several invoices which, considered in isolation, do not exceed the reporting limit of €12,500. Even if larger amounts are split into partial payments, each of which is below the reporting limit, in order to avoid the reporting obligation, the Bundesbank assumes that there is a reporting obligation.

Not only cash payments, transfers or bills of exchange have to be reported, but also offsets and netting, which are subsumed under the term “payment”. This relates in particular to international group relationships and foreign factoring companies.

However, there are some exceptions to the reporting requirement for foreign payment transactions. In principle, payments for deliveries of goods as well as repayments and redemptions of short-term loans are exempt from the reporting requirement. Short-term loans are loans that have an original maturity of less than twelve months. The actual term, on the other hand, is not important.

However, it is important to note that the reporting exemption only applies to the disbursement as well as the redemption payments. If interest payments exceed the amount of €12,500, these must also be reported electronically to the Bundesbank in the case of a short-term loan.

The monthly reports must be submitted in electronic form by the seventh calendar day of the month following the payment. In addition to the payment amount, the report also contains the country concerned, a document type and a key figure that provides information on the legal basis of the payment. For this purpose, the Bundesbank provides a list of key figures and document types on its website.

Penalty exempting voluntary disclosure

If the reporting obligations under the Foreign Trade and Payments Act have not been properly fulfilled, this can result in significant fines. Fortunately, the law offers a way to avoid such penalties: the penalty-exempt voluntary disclosure. This means that if the reporting obligations are subsequently fulfilled, the person concerned is exempt from punishment.

A voluntary declaration is basically a statement addressed to the competent authority in which one admits not having fulfilled a certain legal obligation. In this case, it would be the failure to comply with the reporting obligations under the Foreign Trade and Payments Act. The voluntary disclosure must contain all relevant information and the reporting obligations must subsequently be properly fulfilled.

However, it is important to note that a voluntary disclosure should not be made lightly. It requires careful preparation and should ideally be carried out with the help of a qualified consultant. An error in the voluntary disclosure may result in it being considered invalid, with the consequence that the penalty-exempt effect is lost.

It is also important to note that a voluntary disclosure is only exempt from punishment if it is made before the authorities discover the violations. If the authorities have already started investigations, the path of a self-disclosure exempting from prosecution is excluded.

Overall, the penalty-exempt voluntary disclosure is an important option for individuals and companies that have not fulfilled their reporting obligations under the Foreign Trade and Payments Act. It provides a way to avoid penalties and comply with reporting requirements after the fact. However, it is crucial that it is carried out carefully and correctly to ensure that it has an exempting effect. Therefore, consideration should always be given to consulting a qualified advisor.

Conclusion

Compliance with reporting requirements under the Foreign Trade and Payments Act (AWG) is an indispensable aspect for startups and IT providers in the blockchain sector that operate on an international level. These obligations are not only required by law, but are also a sign of responsible business practices.

However, the complexity of these reporting requirements can be challenging, especially for young companies focused on innovation and growth. It is therefore important that they seek support to ensure that they fully understand and meet their obligations.

If companies discover that they have not fulfilled their reporting obligations, the AWG offers the possibility of a self-disclosure that exempts them from punishment. However, this process should be done with care and ideally with the assistance of a qualified consultant to ensure that it is accurate and effective.

In summary, compliance with AWG reporting requirements is critical for startups and blockchain IT providers operating internationally. It is an essential part of doing business and can help minimize the risk of fines and increase confidence in the company.

Author: Marian Härtel

Marian Härtel ist Rechtsanwalt und Fachanwalt für IT-Recht mit einer über 25-jährigen Erfahrung als Unternehmer und Berater in den Bereichen Games, E-Sport, Blockchain, SaaS und Künstliche Intelligenz. Seine Beratungsschwerpunkte umfassen neben dem IT-Recht insbesondere das Urheberrecht, Medienrecht sowie Wettbewerbsrecht. Er betreut schwerpunktmäßig Start-ups, Agenturen und Influencer, die er in strategischen Fragen, komplexen Vertragsangelegenheiten sowie bei Investitionsprojekten begleitet. Dabei zeichnet sich seine Beratung durch einen interdisziplinären Ansatz aus, der juristische Expertise und langjährige unternehmerische Erfahrung miteinander verbindet. Ziel seiner Tätigkeit ist stets, Mandanten praxisorientierte Lösungen anzubieten und rechtlich fundierte Unterstützung bei der Umsetzung innovativer Geschäftsmodelle zu gewährleisten.