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Specialist Articles
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1. German Conflict of Law Rules in Inheritance and Probate Cases
by lawyer Andre JahnBefore giving an overview of the German law of inheritance, wills, trusts, estates and the taxes relating thereto one cannot avoid describing the German conflicts of law rules applicable in this field. As soon as a German court is involved it will do the same in order to determine which country’s laws govern the case and to decide about its own international jurisdiction. Besides, this whole body of private international law will change soon, at least in continental Europe, when European Council Regulation (ECR No. 650/2012) comes into full force and credit in August 2015. For estate planning purposes this regulation should already be borne in mind as of now whenever there is a likelihood that the estate or the persons interested in it might have a link to continental Europe.
Before August 2015: Under Art. 25 and Art. 26 of the Introductory Code to the German Civil Code
Until August 17th 2015 the body of law governing these issues in respect to estates can be found in Articles 25 and 26 of the introductory Code to the German Civil Code (EGBGB). Under these Articles the law governing the case is the law of the country of which the deceased was a citizen at the time of death (Art. 25 Para.1 EGBGB). For real estate situated in Germany, however, any testator may validly include a choice of law clause in his testament providing for legal succession to this real estate to be governed by German law (Art. 25 Para.2 EGBGB). In respect to the law governing the formal validity of a will German conflict rules are also a little bit more liberal in order to uphold the testator´s true intent. Insofar it is sufficient if the will formally complies with the laws of the country where the will was executed or some other alternatives (Art. 26 EGBGB). German conflict rules do accept the phenomenon referred to among jurists as Renvoi (Art. 4 Para 1 EGBGB).1)
After August 2015: Under European Council Regulation No. 650/2012
If however, one passes away or is expected to pass away after August 17th 2015 German conflict rules insofar are almost totally replaced by European Council Regulation No. 650/2012. This Council Regulation applies not only in respect to those countries that are E.U. member states but have opted out of this regulation, such as the United Kingdom (U.K.), Ireland and, Denmark, but also in respect to countries that are not members of the E.U., such as the U.S., India, and almost all of the rest of the world (Art. 20 of ECR 650/2012).2
Under Art. 4 of this regulation the estate shall be governed by the laws of the country in which the deceased was habitually resident at the time of death. It might be assumed that the avoidance of the term domicile in the official English wording of this regulation is intentional in order to avoid any future confusion with the common law term and the case law defining it. However, given the description provided in Para. 23 to 25 to the preface of ECR 650/2012 a habitual residence in the very long run might very well turn out to be if not identical to the term domicile at least its virtual twin. To determine the habitual residence of the deceased at the time of death and in the years before that one ultimately has to make: “…an overall assessment of the circumstances of the life of the deceased taking into account all the factual elements and the presence in the particular state, the duration and the reasons for this presence… his closest connections…” etc. (Para. 23 of the preface to ECR 650/2012).
Regardless of this, the practical importance of ECR 650/2012 will for the most part hopefully flow from its establishing of an E.U.-wide system for the issuance of certificates of succession (Art. 62 to 69 of ECR 650/2012); the question is whether the industries affected by it, namely the banks, will really honor these certificates if issued by another continental European country in the years after 2015. On the other hand one should also not forget that quite a lot of fields are explicitly not regulated by ECR 650/2012. These are taxes (Art. 1 Para. 1 ECR 650/2012), transfers during the lifetime such as gifts, insurances, pension plans and some others (Art.1 Para 2 Letter g) of ECR 650/2012). The formal validity of a testament will still be governed by the same principles in force today and mentioned above (Art. 27 ECR 650/2012). Likewise, the principle known as a Renvoi1) will also still be recognized (Art. 34 ECR 250/2012). A testator will still have the possibility of including a choice of law clause in his testament under which the laws of the country of his citizenship shell govern his estate (Art. 22 ECR 650/2012).
1) Renvoi from French meaning return to sender, a principle derived from old European case law which gave the principle its name. This very abstract principle means that if for example a U.S. citizen dies, somehow a German court becomes involved and the conflicts of law rules of the pertinent U.S. state law jurisdiction refer back to Germany, the German court will apply substantive German law in respect to these assets. Typically, this becomes relevant when real estate or interests therein are a part of the estate as common law conflict of law rules in respect to real estate mostly refer to the law of the country where the real estate is situated (lex res sitae).
2.) In respect to Germany however this regulation is still overwritten by very old bilateral treaties still in force with the following countries, that are not members of the E.U.: Turkey, Iran and the legal successor states of the former Soviet Union (Art. 75 of ECR 650/2012 and DNotI-Report 2015 on page 123).
2. Intestate Succession
by lawyer Andre JahnTheoretically, the biggest difference between German inheritance law and all common law jurisdictions is that at the time of death the entire estate is transferred to the legal or testamentary heirs by operation of law (Sect. 1922 BGB). If there are several heirs a legal community emerges among all of them (Sect. 2032 BGB). The estate as such however is not a legal entity distinct from its possessors and owners. If one however takes a look at a record from the real world one can easily have the impression that these differences vanish simply because it in no way follows from these provisions that all heirs receive their share immediately and those communities of heirs a lawyer gets in touch with are notoriously disrupted.
The rules of intestate succession (Sect. 1924 to Sect. 1936 BGB) in themselves are pretty straight forward. They apply if no valid will or other testamentary transfer operative upon death exists or at least connot be found. Legal heirs of the first degree are the descendants of the deceased who all receive equal shares (Sect. 1924 Para 4 BGB). Distinctions between adopted and natural children have been abolished since 1978. If one of them dies he is replaced by his own descendants; before that he blocks his own descendants (Sect. 1924 Para 2, 3 BGB). If no descendants of the deceased have at least been conceived at the time death (Sect. 1923 Para 2) the legal heirs of the second degree jump in, namely the parents of the deceased if they are still alive and have not thereby been replaced by the brothers and sisters of the deceased. These rules are applied over and over again until somebody somehow related to the deceased can be found and ultimately the estate is escheated (Sect. 1936 BGB).
In the first place, a surviving spouse or member of a registered same sex marriage but not a member of a common-law marriage all receive an intestate share of ¼ if there are any descendants of the deceased. If there aren´t any but the parents or grandparents, his brothers and sisters or nephews and nieces have survived the deceased this intestate share is increased to ½. All other relatives are excluded from a surviving spouse. Besides, in all cases the surviving spouse might also have a higher overall interest in the estate because in addition to this intestate share he/she might also claim for an additional benefit. This depends upon the type of marriage the spouses entered into in respect to their monetary affairs. In the absence of a valid nuptial agreement the intestate share of a surviving spouse is increased by another ¼ (Sect. 1371 BGB) and even by another ½ up to a total of ¾ if certain other requisites are met.
Likewise, a descendant might sometimes claim a higher intestate share if through his own work in the household of the deceased or sometimes even elsewhere his efforts helped to preserve or increase the deceased´s property (§ 2057 a BGB). Without expressly stating it, this comparatively new statute aims to reimburse children who nursed their parent before the latter´s death themselves, so saving that part of the costs for a nursing home for the elderly that would otherwise not have been covered by the German federal nursing care insurance.
3. Trusts and POD Accounts
by lawyer Andre JahnThough substantive German civil law neither recognises nor accepts Trusts as a figure of legal thought they deserve to be mentioned, as the German tax legislator does so in a way by treating them like a foundation for the purpose of donation and inheritance taxes (§ 3 Abs. 2 Nr. 1, § 7 Abs. 1 Nrn. 8, 9 ErbStG) The figure of civil law jurisprudence that might have come close to the traditional dynastic trust, through which the settlor attempts to keep the estate together over several generations if not centuries, was most likely the Fideikommiss, an instrumentfrequently employed by members of the nobility here for the very same purpose. Though some states, like for example Mexico D.F., still have institutions like the Fiedeicomiso, it was abolished in Germany in 1932, though some of them still exist and there are still courts once in while struggling with them (e.g. OLG Köln, judgment 19th April 2004, docket number 2 WX 2/07). On a case by case basis it is also possible to persuade a court to construe the deed through which an Inter-Vivo Trust is executed as a type of will (e.g. OLG-Munich, decree of 26 July 2006, docket-number 32 WX 38/06 for an Intervivos-Trust from Kansas) so that the beneficiaries of the trust receive their shares even though the trust itself is not operative as a separate legal entity here.
Many goals for which trusts are employed in common law jurisdictions can be achieved by other legal means here. For example: One of the purposes of executing a trust or creating a payment on death account (POD account) or creating a Totten Trust is to lawfully avoid the probate process. In Germany the same can be achieved if one appoints a post mortem beneficiary of a bank account in a deed executed in the presence of the bank (Sect. 331 BGB). In this case the bank will pay the balance of the account to the beneficiary after the death and the balance of the account does not become a part of the estate and likewise not subject to German compulsory share claims. Though the practical outcome is virtually the same, the legal theories underlying it differ: on one hand a trust and on the other a contract to the benefit of a third party (Sect. 331 BGB).
4. Wills and Testaments, Execution and Revocation
by lawyer Andre JahnStatistically, most persons in Germany die without a will. The only thing that can be said about the reasons for this from a legal perspective is that it is certainly not the case that high formal requirements are the cause of this. In fact, the requirements are very low. Holographic wills are valid if signed and preferably also dated by the testator (Sect. 2247 BGB).
On the other hand a computer print-out which is signed by the testator is not valid under German law, unless it is deposited in the office of a German notary public, thereby becoming a German public will (Sect. 2232 BGB). The number of wills that have failed because the testator did not deposit the typewritten will at a German notary might very well have increased over the last decades in which personal computers have become so widespread. If however foreigners are concerned or the will was at least executed in a jurisdiction that allows typewritten wills, the will can still be upheld as formally valid under foreign law (Art. 26 EGBG). This usually helps in respect to common law jurisdictions. There is no need for the mutual presence of two competent witnesses at the time of execution. The testator himself of course has to be competent at the time of execution of the will (Sect. 2229 Para 4). The mere existence of a guardian as such does not presume that the testator is incompetent to make a valid will (Bavarian Supreme Court of Appeals 1982, BayOLGZ 1982, 309 on page 312) but the probate court will have to inquire into the testator’s state of mind even if there is a guardian and the testator is in a home for the elderly.
A valid will may be revoked later in whole or in part (§ 2253 BGB). One exception to this general rule is a mutual will made by two spouses if it includes certain provisions that can make this type of will binding even after the death of one of them (Sect. 2269 BGB). A will is revoked by a later will by operation of law (Sect. 2254 BGB). It may also be revoked by physical destruction or at least modifications of the physical deed (Sect. 2255 BGB), if the testator’s intention is to revoke the will. There are occasionally troublesome cases in which the testator instructs a third person, for a example the bank where the will is deposited, to destroy the will, and the bank does not do this. In this case the revocation is not valid but the will still is (Bavarian Supreme Ct. of Appeals, judgment from April 11th, 2011 docket number 31 WX 33/11).
German law also accepts the revocation of the revocation doctrine (Sect. 2257 BGB). Finally, challenges such as duress and error are accepted as grounds for contesting the will (Sect. 2087 BGB).
5. Disinheritance / Compulsory Share
by lawyer Andre JahnThe major constraint imposed upon the testator´s freedom to give his estate to whomever he wants is Germany´s compulsory share system. There are very few exceptions to this in which a testator may effectively exclude somebody from claiming a compulsory share if he makes a corresponding provision in his will and at least briefly describes the factual circumstances for this; such unworthiness to inherit includes for instance if somebody has attempted to kill the deceased (Sect. 2233 and Sect. 2339 BGB).
The existence of this compulsory share system in Germany has elements in common with many other civil law jurisdictions like France and Spain, with details varying broadly among jurisdictions. Technically, the English terms, compulsory or forced share, are slightly misleading here, as a disinherited descendant, parent or spouse does not become a member of the community of heirs. What is acquired is a monetary claim operative in law but not in rem against the community of heirs. This means one may not claim the jewels belonging to the estate themselves but only that part of their monetary value that equals the compulsory share.
So who can have a claim for a compulsory share and what´s it worth in Germany? Regardless of their age the deceased’s own or adopted children , his spouse or a member of a same sex marriage nearly always have such a claim even if the deceased has validly disinherited them. So do parents and grandchildren of the deceased if they are not excluded by somebody else who is alive and a closer relative of the deceased (Sect. 2309 BGB). This compulsory share amounts to ½ of the share that the claimant would have received as a legal heir of the deceased but for the disinheritance.
Occasionally this amount can be increased if the testator has a made a donative transfer to a third person and less than 10 years have passed since the gift (Sect 2325 and 2329 BGB). In this case the amount of the compulsory share is calculated as if the donation had not been made and the item gifted away were still a part of the estate (Sect. 2325 Para 1 BGB). This applies 100% if death occurs within the first year after execution of the donation. The longer this period is, the lower the percentage rate of this increase becomes in steps of 10% per year, until the claim for this increase is totally excluded once 10 years have passed since the donation (Sect. 2325 Para 4 BGB). This does not apply, however, if the donation is made to a spouse (Sect. 2325 Para 4 last sentence).
The limitation period for a compulsory claim in Germany is three years (Sect. 195 BGB). It starts to run at the end of the year in which the claimant has become aware of the disinheritance and a claim may not be brought if more than 30 years have passed since the time of death (Sect. 199 Para. 3 BGB).
6. Refusal of the Estate
by lawyer Andre JahnNot all estates are worth a single cent. In fact, heavily depending upon the region concerned it might very well be that the debts of the estate (costs for the funeral, unpaid medical bills etc.) are much higher than its assets. In the latter case the legal or testamentary heir may refuse to become the legal successor of the deceased (Sect. 1942 to 1966 BGB) or at least limit his liability to the assets of the estate if any (Sect. 1975 to Sect. 1992).
The crucial thing in respect to refusal is the relatively short timeframe of only six weeks to make a valid refusal before a German notary or the probate court here. After this period has expired one is deemed to have accepted (Sect. 1943 BGB). Being unaware of this period does also not always give grounds to revoke this type of acceptance by operation of law (Sect. 1956, 119 BGB). However, in international cases this period is extended to six months if either the deceased had his last and exclusive residence in a foreign country or if the heir did so (Sect. 1944 Para. 3 BGB). A timely and valid refusal however, does not necessarily protect one against claims made by German social security authorities if they have to pay the costs of funeral, medical bills etc. as these have their own reimbursement claims for these costs which are not based in the law of inheritance but in the jungle of social security regulations.
7. Certificates of inheritance
by lawyer Andre JahnOnce one is sufficiently sure that the estate is not indebted the next question is what formal requirements one has to fulfil in order to get some real money or other assets out of the German part of the estate. At first sight, one might think that an uncontested probate matter with no disputed issues at all should not take too long to be handled. Judging from many years of experience, unfortunately this is not the case. The main reason for this is that neither German land registries, which are the only institutions here in charge of making entries in the land registry through which an interest in land can validly be created or transferred, nor German banks in any way honour foreign deeds, wills or court decrees which appoint an executor or a legal representative (see for example A Memorandum of Points and Authorities by the official Institute for German Public Notaries, Docket Number 14178, original version Dec. 31.st 2004 as modified Oct. 23. 2008 with further citations showing a complex split of authorities on all many issues).
However, there is some chance that in the years after August 2015, when ECR 650/2012 along with its establishing of an EU-wide-certificate of inheritance becomes fully effective, this process might become a little bit easier to handle at least in respect to certificates issued in accordance with the Council Regulation in other continental European countries. Though it is true that this regulation is also to be applied in respect to third countries (Art. 20 of ECR 650/2012) and for the German part also in respect to the U.K., Denmark and Ireland; it can be assumed that this only refers to the substantive parts of the Council Regulation but not to the procedural parts of it dealing with the E.U. certificate of inheritance (Art. 62 to 73 of ECT 650/2012).
In respect to the rest of the world, things could become easier if the legal option for applying for these certificates by making a declaration in lieu of an oath in a German consulate were ever really to be used. Unfortunately, one of the lessons learned from general practice is that the common answer of the consulates to an inquiry in this regard is nearly always that they simply cannot provide qualified staff for this task. Thus, one should be prepared to have to physically travel to Germany to swear this oath in front of a notary public here who enjoys powers occasionally similar to that of a magistrate judge and who will send the application for this certificate to the probate court of local jurisdiction. Apart from travel and notary costs this will also incur translation costs as the originals of all the paperwork to be filed with the court will have to be in German.
It is also simply impossible to give a reasonable estimation for the timeframe within which a probate court will issue these certificates in international cases. This depends upon the complexity of the matter and, if the rules of intestate succession apply, the completeness and accurateness of family records provided will also play a major role. Just to mention one example, which is, admittedly, extreme, but has in fact happened: even now, almost seven decades after the end of WWII, not all soldiers have been officially declared dead and Germany does not have a statute in force under which somebody would be presumed to be dead after the lapse of a certain amount of time. Thus, the formal process to have somebody declared legally dead, including investigations by the Red Cross and searches of its files, had to be complied with, thus delaying the process for more than one year.
8. 5 Tips Before contacting an attorney in a Probate Matter
by lawyer Andre Jahn1.) If at all possible, attend the funeral. Many inheritance disputes have the absence of a person at a funeral at their root. Besides, it´s a good opportunity to gather information about the size of the estate in an informal way. Of course, one should not take all the gossip that is commonly widespread at these occasions at face value. Many people overestimate the value of the average estate, as the estates of most average citizens diminish sharply in their last years because of nursing home and other medical costs, that are not covered by federal social security insurances.
2.) Gather as many potentially relevant documents as you can get hold of. This includes without being limited to: family records, copies of wills, bank account statements, tax returns, pension plan decrees and other insurance policies, certificates of prior inheritance (if you claim through another deceased, who has also passed away in the meantime), land registry records and tenancy agreements if real estate is involved. Also land tax records can be interesting if an appraisal is unavailable. Name, address and records of the guardian if the deceased had one. All proofs of costs incurred by virtue of the death starting with unpaid medical bills through to the cost of the grave, the funeral and future gardening for the grave.
3.) An attorney will be able to get many, but not all, of these documents on your behalf, but the better the facts are investigated and provable the better an attorney can advise you. The number of billable hours necessary for your matter also depends on this of course. So does the overall progress of the matter. If one has to collect the evidence showing the value of the estate himself or if there is really no other course available than to sue the other heirs over these documents, it is no surprise if nothing seems to happen for months or even years.
4.) If more than three or four people are involved prepare a chart showing the family relationships and write a statement of facts in chronological order, starting not with the most recent, mostly the recent death, but with a description of the family relationships.
5.) Be self-critical enough to ask yourself if all the family struggles that dominate most probate cases and that often reach back more than one generation, are really worth the money, time and effort one might have to spend to win a disputed court case.
9. Real Estate Transactions under a Civil Law Regime
by lawyer Andre JahnIn the following text, the intention is to give guidance to individuals contemplating buying an apartment or a piece of land developed with a residential structure in Germany. For institutional investors, other considerations come into play, such as those described below, especially in respect to taxation. These might also make it necessary to consider an entirely different deal structure, namely a share deal or the formation of a new legal entity, as opposed to the simple asset deal described here. It is also assumed that the apartment or the house already exists. The situation is rather more complex if the intention is to buy a vacant lot in order to erect a new building structure on it. In that case, there are building and planning regulations to comply with, a ground and surface survey needs to be done, and the developer needs to be sure that the lot is connected to the next adjoining street and to water, gas, electricity and phone lines.
Quite often, it is not easy for foreign buyers of land or a house in Germany to understand the way real estate transactions are handled here. This is especially true for those from a country with a common law system. This is because there are several very basic legal distinctions between a common law and a civil law regime.
-Civil law does not distinguish between legal and equitable title. Title is transferred at the time of registration of the change of ownership in the land register and not at the time of closing of escrow.
-The land registry system does not follow an index system but a lot system very similar to the Torrens system of land registry currently only being used in Australia and a very few U.S. states. As a consequence, neither title insurance nor title companies exist, as the land registry is always deemed to be correct until a court decree states otherwise.
-Notaries in Germany are holders of a public office enjoying much broader powers than just notarizing signatures, such as preparing contracts and deeds for recording with the land registry. However, they are not an attorney for either side. They are impartial.
Other differences are based on more cultural or even climatic factors. It would never occur to a German lawyer to consider that a seller might be under a disclosure obligation if a house had previously been home to a drug-addict, HIV patient, murderer or child molester, as currently provided for under a few U.S. statutes. Likewise, since there are in the whole of Central Europe only a very few spots in the harbor of Hamburg that are known to be home to large colonies of termites, there is no obligation for the seller to inspect for them even if the house or weekend home is made entirely of wood.
10. The contract for the sale of land, execution and registration
by lawyer Andre JahnThere are no legal restrictions on foreigners or non-residents buying land or holding an interest in it. Nonetheless, there is a de facto financial restriction, since most German banks can prove to be very reluctant to lend substantial amounts of money to non-residents if they have no other security than a mortgage on the piece of property being financed by them. If you have found a piece of property you are interested in, the next step would be to figure out who owns it.
This can be surprisingly difficult, unless you just ring the doorbell or the property is being offered by a broker, advertised in a newspaper or on the internet, as the records of the title registry are neither accessible to the public nor available online. You even have to show a legitimate legal interest to have a look at these records, and just being interested in buying a property is not deemed to be a legitimate interest. Examples of a legitimate interest sufficient to be able to get hold of at least a title abstract include being a tenant of the owner, or having a judgment or other enforceable instrument against the owner that you want to enforce by registering a mortgage. It is sometimes necessary to hire a notary to get access to these files as notaries are presumed to have a legitimate interest in knowing the contents of the land registry.
Once you know who the owner is and have negotiated an agreement with him and obtained financing from a reputable German bank,
there is no way to avoid engaging a notary to execute the contract of sale with both parties being present before him. As the notary is impartial, he will read the contract aloud but he will not explain its terms, at least not at the level of detail an attorney acting for just one party would do. His main job is to ensure that all the paperwork with the title registry is done in a proper way. There is no legal or other way to avoid this procedure, as the entry of any interest in land requires that a deed has been executed by and in front of a notary (§ 873 BGB). However, either party may send somebody acting on its behalf; but this generally requires a power of attorney executed by a German consulate.
In respect to payment, it is often the case that the notary acts as intermediary for both sides and the monies are kept in his trust account. The most important legal issue you have to understand about this process is that you do not become the legal owner of the property being sold upon execution of the contract of sale, respectively the deed; title to land or an apartment is not transferred until the name of the new owner has been entered in the land register upon application by the notary. Depending upon its workload and upon the contract details this might take a very long time. Unless the purchaser pays the price in one large installment it is very common for the only interest entered in the registry for several years to be a priority notice of conveyance (§ 883 BGB) which prevents the insertion of subsequent buyers. Only once the purchase price has been paid in full and any other covenants have been fulfilled will the notary file an application to have the buyer entered in the register as the new legal owner.
11. Transaction Costs and Tax Consideration
by lawyer Andre JahnApart from the costs of obtaining financing, the following additional transactional costs should be taken into account even as early as when the price is being negotiated with the vendor:
Brokerage or real estate agent fees: These are purely subject to negotiation and vary heavily between regional or even local markets. Something between 4% and 7.5% of the purchase price is not uncommon but more would be unusual. In most areas these fees are split evenly between the parties while in other areas these are entirely borne by one of the parties alone. Caution: If a broker advertises his services as being free of brokerage fees (“provisionsfrei”) this just means that his fees are already included in the purchase price.
Real Estate Transfer Tax: Though this is a federal tax, the individual tax rates are determined by the individual states. Tax rates vary between 4.5% and 6% of the purchase price. Though both parties owe the tax in respect to the fiscal authorities (§13 GrEStG), most contracts provide that this tax is to be paid by the buyer. Only very few types of transactions are exempted from this real estate transfer tax, e.g. ones between close relatives. Closely related to this one-off tax is the annual real estate tax every owner of a property has to pay to the local municipality. Regardless of the unnecessary complexity of calculating this annual ground tax, which may also be payable quarterly, it does not generally involve very high amounts. Currently, for a single-room apartment of 55 square meters in Berlin this annual ground tax is about €180 per year.
Notary and Land Registration Costs: Without going into the details of the statutes regulating this, as a rule of thumb 1.5% should be added to the purchase price.
If it is intended to rent out the property, there are several tax implications foreigners should also be aware of. The income generated from letting creates at least a limited German income tax liability, since such income is sourced in Germany (§ 1 Para.4, § 2 Number 6, § 21 and § 49 EstG), unless there is a bilateral double taxation treaty that happens to make income from letting taxable in a country where the let property is not located, which is not very likely. This means that a German income tax return will have to be filed even if you do not have any taxable income here, namely if the profit from letting is below € 8,000,-. Once this amount is exceeded, German income tax rates vary between 14% and 45% plus the surcharge of a solidarity contribution of 5.5%.
If you do not reside on the property yourself but intend to resell it within 10 years, any profit generated thereby will also be subject to German income tax and the mandatory solidarity surcharge (§ 23 EStG). Contrary to what several English-speaking consulate and embassy sources suggest, this is not an example of the general capital gains tax rate of 25% (Abgeltungssteuer). The tax rate must be calculated based upon all German source income in the year of the sale which means that income tax of between 14% and 45% (2013 rates) of the overall taxable German source income will be due plus 5.5% solidarity surcharge.
Theoretically, there is also a minor risk of becoming subject to the general German commercial tax if more than three pieces of property are sold within a five-year period, as you will then be deemed to be a commercial real estate dealer as opposed to a private person managing his own assets. However, a recent court decision has substantially reduced this risk by deciding that five multi-unit residential dwellings on one large undivided lot are only one piece of property for the purpose of this rule as opposed to five (BFH Judgment of May 5th 2011, record number: IV R 34/08).
12. Landlord Tenant Law and Condominiums
by lawyer Andre JahnLandlord-Tenant, Condominiums (WEGs)
For foreign buyers of land, the most important things to know about German landlord-tenant law is that the sale does not interrupt the lease agreement but instead the buyer becomes a party to the former lease agreement by operation of law (§ 566 BGB). In respect to the tenants, the buyer accedes to the tenancy agreement in place of the former owner from whom he purchased the property. This can be a high risk and requires some knowledge of landlord-tenant laws as well. Anyone contemplating buying a piece of land or an apartment that is currently leased to somebody else and who wants this house or the flat for himself should also note that it might take up to three years before he get the current tenants out with a termination for good cause (§ 577 a BGB).
The German law of landlord-tenant relationships is governed by Sections 535 to 555 of the German Civil Code but to a great extent many of these provisions are modified by the standard contract terms offered by real estate owners’ associations. As more than 50% of German residents do not own the place where they live, this body of law is heavily driven by public policies, frequently subject to political reform and very litigious. Over the years, one can observe a constant back and forth between legislative actions – (the next one is most likely to involve yet another attempt to reinforce some type of rent control in major urban areas) - responses from the market and ultimately court decisions. Thus, for foreign investors it is highly recommendable to hire a professional property manager in order not to get lost in the mists of potentially conflicting issues ranging from default of a tenant with the monthly rental payments, to eviction proceedings, that are always time-consuming and hard to enforce, and the many traps one can fall into when doing the annual reckoning-up of utility costs.
Regardless of the 20 to 30 pages that make up most German tenancy agreements for residential property; all these standard forms generally include the following provisions. In most cases there is no fixed term for the tenancy, meaning that it potentially runs for an indefinite period of time. In most cases, the monthly rent is due on the third of each month for the current month. The total gross rent is comprised of two parts, one of which is also referred to as net cold rent and is for the basic rent for the let property and the other of which is an advance for utilities. Generally, utilities include everything from heating to costs for repairs to statutory fees for the chimney sweep. They do not include the costs for electricity and phone lines as these are subject to separate contracts between the individual tenant and the supplier.
Upon signing, the tenant has to provide a security deposit equaling the rent for three months. If the tenant provides this security in cash or by bank transfer the landlord is obliged to keep this deposit in a separate, interest-bearing trust account and to send annual statements of account to the tenant. For students or people who receive public welfare benefits it is often the case that either their parents or the local public welfare provider will provide this deposit in the form of an irrevocable guarantee securing three months of rent. If the tenant defaults on the rent when the debt equals the total rent for two months, the landlord has grounds for an extraordinary termination of the tenancy agreement.
Without debts of unpaid rent by the tenant it is amazingly difficult for a landlord to terminate and evict the tenant. Of course there is a provision for extraordinary termination of the tenancy agreement if the tenant constantly behaves in such a way that the contractual relationship is totally disrupted in spite of making timely payments (§ 543 BGB). However, in the real world this type of termination is often very hard to plead and to prove with sufficient certainty and substantiality because it requires a knowledge of the facts that not many commercial landlords such as huge housing associations can muster. An example of this type of termination would be tenants who constantly hold loud commercial techno parties so that the other tenants frequently complain. Another one would be entering into an unlawful sub-tenancy, i.e. is one that the landlord has not approved in advance, even though the presumption is that the landlord has to approve a sub-tenancy (§ 540 BGB). Besides, this extraordinary termination right frequently requires a written warning in which the facts giving the grounds for termination of this kind have to be described in a very detailed manner (§ 543 Para. 3 BGB). The tenant may terminate the lease ordinarily at any time with three months’ notice without giving reasons. If the landlord wants to use this termination right he also has to comply with a three month notice period; but this notice period can be extended depending upon how long the tenancy has been in existence. If the tenant has lived in the property for more than five years, then the notice period for the landlord is six months, after eight years of tenancy the notice period is nine months (§573c). The landlord also has to show good cause for terminating the lease and in the case of a dispute this also needs to be proven. Most reasons that from a business perspective would be very good reasons for the owner to terminate are not good reasons within the meaning of the law. Landlords may not terminate the lease simply because they have found a wealthier tenant or intend to sell the property (§ 573 BGB), or just because they want to increase the rent in line with current market trends. One accepted but frequently litigated good cause for this type of termination is that the owner needs the property for himself or a close relative; but if this good cause is fictitious, which happens quite often, then the landlord is liable for all damages of the tenant caused by this wrongful termination.
Finally, please note that if you buy an interest in a condominium project (“WEG= Wohnungseigentümergemeinschaft”) laws very distinct from those described here apply. The major difference is that you automatically become a member of some type of partnership formed by operation of law among all owners. This partnership has regular meetings at which issues relating to the entire real estate are discussed and decided in a formal way. There are discussions, elections, protocols and decrees. Probably this would be one reason why non-residents might not be too interested in buying such interests if they cannot attend these meetings and exercise their rights on a regular basis.
13. German Inheritance and Gift Taxes
by lawyer Andre JahnGerman Inheritance and Gift Taxes, Double Taxation treaties (U.S., Denmark, Greece, France and Switzerland)
This summary is based upon the version of the Inheritance, Estate and Donation Tax Act (ErbStG) in force in 2014. It does not take into account the case pending in the German Federal Constitutional Court that is expected to be decided by the end of 2014 (Record Number: 1 BvL 21 /2012) and future legislative responses thereto.
The core of this matter is that the legislator gives heirs of entrepreneurial legal entities certain advantages over heirs of private wealth by way of various allowances; the issue for the Federal Constitutional Court is whether this violates the constitutional guarantee of equality before the law enshrined in Art. 3 GG. The effect of this is that all German estate and gift tax bills will have to be provisional by operation of law until this final judicial decision has been handed down. This means that the doctrine of res judicata does not apply (§ 165 Para 1 S.2 No. 2. AO, General Tax Act). If a local fiscal authority omits to insert the language necessary to render an individual tax bill provisional, the taxpayer only needs to object in writing within a four week deadline in order to protect possible future rights (§ 355 and § 357 AO).
As of 2014 the only English-speaking country Germany has a double taxation treaty in force with in respect to estate and gift taxes is the United States of America (USA). The very few non-English speaking countries are Denmark, Greece, Sweden, France and Switzerland. Treaties with Finland and Italy are subject to ongoing negotiations. Where these treaties are in force, they regulate which country has the right to tax the whole or part of the estate. The outcome mostly depends upon the domicile and the citizenship of the deceased, and sometimes of the beneficiary. It also depends upon the place where the asset is located and the type of asset involved (e.g. chattel or real estate). However, if no such treaty is in force, it is sometimes, but
certainly not always, possible to set off similar estate and inheritance taxes paid in the foreign countries against German inheritance taxes (Art.21 ErbStG).
14. When does German inheritance tax law apply?
by lawyer Andre JahnWhen does German estate tax law apply? The German Inheritance and Donation Tax Act is a federal law. This is true even though the final recipients of these taxes are the 16 German states, none of which has its own estate tax regime. However, depending upon the type of assets comprising the estate, other types of taxes might become relevant, for example, the last income tax declaration of the deceased if he had to file one here during his lifetime. Similarly, if a piece of real estate is inherited, municipal ordinances governing access to public services such as the street adjoining the piece of land might become relevant.
The Federal Gift and Estate Tax Act deals with inheritance tax and not estate tax. This means that it is the individual share each heir receives that is taxed and not the overall gross value of the estate. Likewise, the individual heir/donee and not the estate as such is the debtor of the tax (§ 20 ErbStG). The value of the share each heir receives is calculated from the value of the assets comprising this share at the time of death respectively at the time when the gift was made. The calculation of the tax in an individual case also depends upon the value of the share the heir respectively the donee receives, and the closeness of the family relationship between the deceased and the heir respectively between donor and donee.
In the absence of a governing treaty two terms are essential to determine this in international cases. These are the terms of restricted personal tax liability and unrestricted personal tax liability for the purposes of inheritance and gift taxes.
§ 2 Para 1 No. 1. ErbStG provides that if either the deceased/donor or the heir/donee are German residents they become subject to unrestricted estate and gift tax liability here. However, the definition of residency here makes this concept rather broad. A person is deemed to be a resident if he or she has a domicile here or a habitual place of physical presence – (generally this means for at least six months)-. German citizens that have totally left the country for a period of less than five years are also still deemed to be residents. In all these cases substantive German estate tax law applies regardless of the type of assets involved and regardless of the place where the asset is located. In all other cases the concept of restricted personal tax liability limits the part of the estate the receipt of which in whole or in part could trigger tax liability here to assets located in Germany (§ 2 Para 2 ErbStG and § 121 of the Valuation Act - Bewertungsgesetz).
The five-year period mentioned above (§ 2 Para 1 Letter b ErbStG) during which German citizens are still deemed to be German residents even after emigrating to a foreign country can even be extended to ten years if certain additional requirements are met. Broadly speaking, these can be summarized as moving away to tax haven jurisdiction with the intent to save German taxes (§ 2 and § 4 of the Foreign Tax Act - Aussensteuergesetz).
15. Tax Classes, exemptions amounts and tax rates
by lawyer Andre JahnTax classes, exemption amounts and tax rates in 2014 (subject to pending litigation)
Because the German tax is a true inheritance tax, exemption amounts as well as the tax itself depend upon the family relationship between the beneficiary and the deceased or donor. The code formulates so-called tax classes (§ 15 ErbStG). Class 1 includes spouses and members of a registered life-time partnership of persons of the same sex, children, stepchildren and their children, parents and grandparents (for transfers upon death). Class 2 includes parents and grandparents (for life-time transfers), siblings, nieces and nephews, parents and children in law, divorced spouses and former members of dissolved lifetime partnerships. Class 3 includes anybody else.
In the case of restricted tax liability, to summarize and simplify this again, this means that neither the deceased/donor nor the beneficiary has any link with Germany other than a few assets which happen to be located here; the only amount exempted from this tax is € 2,000.-. In the case of unrestricted tax liability the exempted amount according to § 16 ErbStG for spouses and life-time partners of the same sex is EUR 500,000; for children and the children of predeceased children it is EUR 400,000, and EUR 200,000 for other grandchildren. For any other member of tax class 1 the allowance is EUR 100,000, while for members of tax classes two and three the exemption amount is only EUR 20,000. Children below the age of 27 can also claim for slightly higher exempted amounts depending upon their age in order to provide for their own support and education (§ 17 ErbStG). There are also provisions for certain types of assets belonging to the household of the deceased or certain types of artwork (§ 14 ErbStG).
If these exemption amounts are exceeded the following tax rates apply (§ 19 ErbStG):
%-Tax Rate per Class
| Inheritance | I | II | III |
|---|---|---|---|
| 75 000 | 7 | 15 | 30 |
| 300 000 | 11 | 20 | 30 |
| 600 000 | 15 | 25 | 30 |
| 6 000 000 | 19 | 30 | 30 |
| 13 000 000 | 23 | 35 | 50 |
| 26 000 000 | 27 | 40 | 50 |
| over 26 000 000 | 30 | 43 | 50 |
If in the case of unrestricted tax liability a treaty, such as that with the U.S., exempts a part of the inheritance from being taxed in Germany then the tax is calculated as though no part of the inheritance were exempted (§ 19 Para. 2 ErbStG).
16. The Double Taxation Treaty with the U.S.
by lawyer Andre JahnThe most noteworthy aspect of this treaty might very well be that it only governs conflicts between U.S. federal estate and gift tax including the generation skipping tax and German inheritance tax (Art. 2 of the Treaty). It does not apply in respect to local estate and inheritance taxes, which many U.S. states still collect, while none of the German states do. As the amount exempted under the U.S. federal tax is still very high, (a little bit more than USD 5 million in 2014), and because state law exemptions are much lower (for example about USD 2 million for NY in 2014), this means that this treaty does not affect as many real world cases as one might think. Statistically, the set-off-procedure established by Art. 21. ErbStG which regulates the conflict between German federal inheritance tax and the tax systems of the individual U.S. states might be much more important than the Treaty. The argument against this is that those U.S. states in which estates are most likely to have a link with Germany, namely Florida and California, do not collect an individual estate tax at all. Thus, in respect to estates situated there, potential taxation conflicts can only arise under the Treaty and be resolved by it. However, in respect to states that still have an estate and/or inheritance tax, § 21 ErbSt certainly deserves a look.
17. Can foreign taxes be set off against German inheritance tax?
by lawyer Andre JahnWhen can estate and gift taxes paid abroad be set off against German inheritance tax (§ 21 ErbStG)? Doubts about a recent court decision (Federal Fiscal Court (BFH) Judgment of June 19th. 2013, II R 10/12).
To summarize the relevant parts of the Act, § 21 ErbStG provides that in the case of unrestricted German inheritance tax liability, which is to say if either the transferor or the transferee were German residents within a five-year time frame prior to the transfer, the foreign tax can be set off against German inheritance and gift tax to the extent that foreign assets are also subject to it. In the case of restricted German inheritance tax, however, which is to say neither the transferor nor the transferee had any other link to Germany than a few assets being situated here, the outcome is the same, since the statute provides that even German assets can be deemed to be foreign assets for the purpose of this set-off procedure (§ 21 Para 2 No.2 ErbStG).
Amazingly, the real issue in respect to this procedure that sometimes German fiscal courts are called upon to decide upon is which foreign taxes for which either a death or a gift is the initial triggering requirement are in fact inheritance or estate/gift taxes, and which are more similar to an income tax, that cannot be set off against German inheritance tax. The general tendency of the courts is to become more and more restrictive on this issue. In the first decision it was decided that Canadian capital gains taxes due on death are not deemed to be estate or inheritance taxes that could be set off, but it was still permitted for them to be taken into account as a liability of the estate, so that at least the tax burden was diminished by them (BFG Judgment of April 26th. 1995, Record Number, II R 13/92). Following this, comparability was affirmed for an Italian capital gains tax due on death (Fiscal Court of Munich, Judgment of November 14th, 2001, Record Number 4 K 2407/98) but rejected by the German fiscal authority for a Portuguese inheritance-surrogate-tax (H 82 ErstR 2003).
The most recent decision on ultimately the same issue, albeit discussed in a different legal context, is from summer 2013 (BFH, Judgment of June 19th 2013, Record number: II R 10/12). In this, the highest German fiscal court decided that French estate taxes could not be set off against German inheritance taxes because in the case of unrestricted tax liability, the deceased was a German citizen and resident, and a bank account in France as a claim against the bank is no longer deemed to be a “foreign asset” from the German perspective unless it were secured by some real property interest - against the bank (!). To put it very politely, this result is at least questionable,in particular because on the face of it, neither the financial crisis nor the amazing acceleration in European unification can be said to underlie it. This decision means that in the absence of a treaty, foreign estate taxes can no longer be set off against German inheritance taxes if bank accounts in foreign countries and shares in foreign corporations are concerned, because they are not foreign assets from a German perspective, at least if the transferor or the transferee are German residents at the time of the transfer. To polemicize a little, this clearly violates any plain-meaning rule and maybe even the sovereignty of the French state; though the court does in fact write a great deal about E.U. laws allegedly supporting this position.
For the U.S. however, there is still the Treaty and a very old decision (BFH Decree of March 6th 1990, Record Number: II R 32/86) affirming the comparability of federal estate tax and German inheritance tax even for cases that are not regulated by the governing treaty. Though a decision addressing these issues in respect to inheritance and estate taxes under state law, it might be assumed that these are still deemed to be comparable so that the taxes can be set off against each other as long no U.S. state legislator starts to frame its inheritance/estate tax in such a way that it rather comes to resemble the last income tax return of the deceased or the giftor.
18. What to do if you are the victim of a boiler room operation
by lawyer Andre JahnInvestment-Fraud: What please is the difference between an online broker for binary options and a boiler room-scammer-gang?
(Zur deutschen Fassung: Fallstricke beim Onlinehandel mit Scam-Aktien)
Sometimes one encounters new forms of fraudulent cybercrime which are as lucrative as they are damaging. Some of them are so new that in some languages it is a true struggle to find a proper word describing them. Of course, everybody knows what a “boiler-room scammer gang” is in the English speaking world whereas Spanish and German currently do not even have a word it. The ´boiler room´ refers to the working conditions of lower level fraudsters. Often, at the beginning of their careers it takes them some months spent in well disguised, narrow subterranean cube farms before they notice that they have not turned into that type of questionable call-center agents who sell newspaper subscriptions to the elderly but are rather flogging non-existent securities or other faked investment products
(see: „Lifting the Lid von Boilerroom-Scams“ by Tony Levene, The Guardian, Feb. 3rd, 2007)
If you are the vistim of fraud by a bank or a ´real´ broker how to proceed is clear.
Over the last few years one has come to learn that even so-called ´global´ banks can go bankrupt, that they manipulate international interest and currency exchange rates or commit tax fraud with carbon-oxygen derivates. However, at least one can be certain that the skyscrapers housing their headquarters exist. Once the scandal becomes public most people involved in it will have already left the institution but at least they had real names, business cards and only slightly sugarcoated photos. Press releases and public speeches originate from real world CEOS and not from actors.
There are real office and headquarter addresses upon which a legal complaint can be served, which can seized by public prosecutors and where computers and files can be seized. Taking the perspective of a prosecutor one does not have to file more than one or two official requests for judicial assistance with law enforcement agencies in other jurisdictions. The private victim does not have to make a huge upfront payment for legal fees, forensic IT-experts, security services and lastly translators.
Victims of boiler room scammer gangs are at a disadvantage.
All of this is different if, after months or even years of trading in securities of IT-companies, which only produce spam-, virus- or at best surveillance software; after trading in binary options, which are not related to any type of real securities or commodity market; or in foreign currencies, for which the so-called ´broker´ just invents its own current exchange rate or even after investing in ice-derivates in the Antarctic; you finally realize that you have become the victim of a boiler room scammer gang.
Most frequently this happens as soon as the investor wants to withdraw the money he can see in his account online. All of a sudden all these “brokers”, “senior executive account managers” or even “compliance officers” with all these English, Slavic or Asian names sounding so cosmopolitan, just disappear. Over all this time they did not write many emails in order to protect themselves from geo-location, but they had always been keen on nice and pleasant conversations over the phone or via Skype which makes it hard to prove these conversations ever took place.
In the best case scenario they might refer to their standard terms of contracts, which one never had a chance to read let alone to accept, and point out that according to them any withdrawal requires that the balance in the account is e.g. sixty times higher than the initial deposit. This violates the laws even of the Republic of Cyprus, that EU jurisdiction where many but not all of these brokers are regulated (see CySEC-Circular, number 65, from April 8th, 2015).
To save the honor of the CySEC and its ombudsman it must be said that they are more professional than Central European or Anglo American prejudice might dictate: If enough formal complaints are received accompanied by media campaigns they do initiate an official investigation - (most recently against Iron-Fx according to CySEC Announcement August 6th, 2015, a case that has since been settled with a fine of € 335,000).
How can I check if my broker is running a scam?
Nobody will transfer several thousand Euro or dollars to an unknown financial service provider without giving it a quick look on Google. However, in the case of a scam especially the first few hits or even adwords - advertisements are likely to be misleading as these “companies” have established entire fake marketing departments whose job is to produce faked ratings. There are some consumer- or industry-based online forums in which one can check for bad experiences had by others in the past like the “Forex-Peace-Army”, “complaintsboard”, “binaryoptionswatchdog”, or “Ripoffreport”. Amazingly even their administrators sometimes find it hard to distinguish between authentic complaints, ratings and reports and forged ones.
What you should really do is check all office addresses that are revealed to the public by the broker: Is it likely that these are real offices or can anybody hire virtual office space there? The better the reputation of the official address is, the more likely it is that the latter will be the case.
Only make the minimum deposit, make some profit/loss neutral test trades and try to withdraw the initial deposit.
Most victims are cautious enough not to invest more than the minimum deposit at the very beginning. However, this is not sufficient, as these sales agents are well trained to talk you into investing more and more and to make you forget your initial doubts very easily. Far more important than limiting yourself to the minimum initial deposit is that you should print out your credit card or bank account statement and stare at it for at least three minutes: Can the cash-flow be traced to the alleged recipient? Is what one sees really an account number, maybe from a foreign banking system which in itself is okay, but is this really an IBAN-, SEPA- or ABA-Code or is it more like a local or foreign phone number? Is there a slight variation in the company name of the recipient and the broker like XYZ Ltd. instead of XYZ Inc.? If this is the case: Stop.
If all of this is not the case you should make some profit-neutral test trades and try to withdraw the minimum deposit. If this works, then everything is probably fine; if not, then stop, and forget about your deposit. You should stop as soon as a broker offers a bonus, too.
Not all brokers call this a bonus; some use terms like “marketing program”, “VIP-customer service” or “Signaling Fee”. This is just a trick to make withdrawal harder because the funds from the bonus program and the real money invested are routinely commingled in the same account.
Check the registration and the place of incorporation of the Broker
A registration of the broker at the CySEC should of course secure compliance with certain minimum industry standards. For investors from the E.U. this is indeed at least a more trustworthy jurisdiction than places of incorporation in the Caribbean Sea (BVI, Sychelles, Anguilla, Belize, the Cayman Islands), where it is almost impossible to get access even to the articles of incorporation.
You should also be on the safe side if the broker is also registered in England and in Australia because law enforcement agencies there are more familiar with the criminal scheme of running a boiler room scammer gang than their Central European counterparts.
Even if it has been possible to withdraw the initial deposit you should still continue to save all emails, even if only very few will have been exchanged and as a precaution against any future emergency it would not harm to record all those pleasant phone or skype conversations, if the local laws at your place of residence allow this without prior consent of the other party.
What to do if you do not get your money back?
The best chance for accomplishing this exist if the period in which a credit card company or a bank can cancel a transfer in cases of consumer fraud has not yet expired. Unfortunately in most cases this relatively short period of usually just 30 days will have expired before the damage is discovered. If it has not, then the first thing you should do is to file a complaint with the credit card company or the bank.
If it is too late for that, the most important task is as always to save the evidence. What this means here is this:
1.) Stop trading with the other party but do not stop the phone and email communication. If it is technically possible and legally allowed record them from now on.
An alternative which does not seem to be prohibited anywhere is to turn the phone´s loudspeakers on and have a witness present who writes down the conversation. Do not delete your phone´s memory but at least write down each and every number used by the other side. Mostly this will just lead to be anonymous and probably local call centers which pretend that the person calling is calling from the same country as you, but in some instances it is possible to trace these calls. 2.) Save all emails and sort them. Check their headers which you see in the native view option of your email account for the
originating IP-addresses of the sender. Geolocation tools, that are available to the public, will rarely produce a street address but at least it is possible to locate a country, region or even city of the sender.
3.) Get a ”Down-Them-All-Tool” as a Browser Plugin and save the current version of the broker´s homepage. These tend to change constantly. Though it is possible to purchase the old versions of a homepage later, at least these costs can be saved.
4.) Run a ”Google-Reverse-Picture-Search” for all people you have been in touch with if you can find any pictures of them on social media. It might be possible to get a little bit closer to the true identity of your “account manager” with this.
5.) Try to obtain abstracts from the commercial registry for all companies under which your broker claims to operate. In many countries like the U.K. the commercial registry can be checked online and free of charge. For this reason most brokers prefer to incorporate in places where it is harder to obtain these files or sometimes even impossible unless one is a public prosecutor.
What are the legal options?
According to uncertified but trustworthy sources the average victim of a boiler room scammer gang loses GBP 10,000. In spite of this the legal options for recovering this money are very limited. The main reason for this is that the people running such a gang are well aware of the procedural and legal obstacles still in the way of international cooperation in criminal matters. For example, most brokers will accept customers from all over the world with the exception of the one and only country where their call centers are physically located. This has quite frequently been Spain in the last decade. Nowadays other countries seem to be en vogue.
EU Small Claims Guideline and Financial Ombudsman of the Republic of Cyprus
On the other hand the damaged investor will not care that much about whether anybody ever goes to jail for this; he just wants his savings back and when it comes to real fraud cases this becomes rather more difficult the deeper the government is involved. If the victim resides in a country with strong consumer protection laws which allow every consumer to sue at his local place of residence or which has a small claims statute in force this would be an option to consider. For brokers
regulated in Cyprus the Ombudsman of the Republic of Cyprus is worth contacting.
However, many of these formal proceedings require that the victim holds some real writing signed by an official director of the broker in his hands or that the broker has not responded to an official demand letter within a defined period of time –(generally three months) - and this very first hurdle is where many lay people will fall down, as in many jurisdictions they will have to show that the broker has actually received the demand letter. Even finding their official address often requires some research in commercial registries.
For all these reasons hiring a lawyer on this certainly can at the very least do no harm. On the other hand nobody should expect too much from it as private law firms do not have the investigative resources that would be necessary to accomplish something more than just recover at least a substantial portion of the lost money.
Successful investigations in the U.S., the U.K. and most recently Cyprus
Naturally, there is more dramatic excitement on the criminal side of all this. To date, only the US SEC and the Serious Fraud Office of the UK have something like a proven track record for investigating this type of crime (for the U.S.: SEC v. Banc de Binary, Fed. Dis. Ct. of Nevada, Case-Number 2:13-CV-00992-MMD-VCF and for the UK the BBC report: „Nottingham boiler room scam gang made GBP 3 Mill“ from May 29th 2015 dealing with a relatively unsophisticated gang operating from Mallorca which targeted the UK only.). The CySEC has also at least imposed a fine quite recently against a broker regulated there (against Iron-Fx, see CySEC Board Decision from Nov. 27th. 2015). We will have to wait and see whether the counterparts of these institutions in other countries will investigate similar cases in the future. To some extent this will of course also simply depend upon the number of criminal complaints received.
Also be aware of cold-calling Recollection Room Scammers
Lastly, please also notice that if you believe you are the victim of boiler-room scam and you receive unsollicited phone calls from debt recovery services, tax advisors or even law-firms shortly after discovering the fraud you are about to become the victim of a different scheme refered to as "recollection room scam". It is rather easy to spot this scam just ask them for their bar admission number, their supervisory authority and a copy of their legal malpractice insurance. No real law firm should even be in possession of your phone number unless you have given it to them. In some jurisdictions contacting crime or accident vicitms in order to form an attorney client relationship is even a severe ethical violation. For this reason these recollection room scammers prefer to pretend to be operating from tax haven jurisdictions in the Carribean or in central America as well. This should be another red flag for you.