On 1 June 2021 a new Act No. 37/2021 Coll., on Registration of Ultimate Beneficial Owners (the "Act"), which significantly changes the rules for identifying and registering ultimate beneficial owners, will become effective. These changes are a result of EU harmonisation in the field of anti-money laundering based on the Fifth AML Directive (Directive (EU) 2018/843 of the European Parliament and of the Council).
Who does the obligation to register an ultimate beneficial owner apply to?
With a few exceptions concerning mostly state companies, the obligation to register an ultimate beneficial owner in the Register of Ultimate Beneficial Owners applies to all companies registered in the Czech Commercial Register and trust funds registered in the Czech Register of Trust Funds.
What is the new definition of an ultimate beneficial owner?
The Act introduces some new terminology with respect to the identification of an ultimate beneficial owner. Under the Act, an ultimate beneficial owner is each individual (natural person) that is an ultimate recipient or person with ultimate control.
An ultimate recipient is a person who can directly or indirectly gain more than 25 % of the overall beneficial interest of the company (i.e. in the form of a share in profit, other equity or proceeds of liquidation) and does not pass it on further.
A person with ultimate control is any individual considered as a controlling person under the Business Corporations Act. That an individual is a person with ultimate control is indicated by its direct or indirect share in voting rights that significantly exceeds the share in voting rights of other persons (in particular if the share is bigger than 25 %).
Who will newly be registered if no ultimate beneficial owner can be identified?
If no ultimate beneficial owner exists or can be identified based on the above-mentioned indicators or presumptions, the company is newly obliged to register as ultimate beneficial owners all natural persons in the top management (i.e. usually statutory bodies) of the last parent company in the group's structure.
On the contrary, the current legislation effective until 1 June 2021 in such a case prescribes the obligation to register the members of the statutory body of the registering company.
What documentation is necessary for the registration?
The registration is performed based on the application submitted on a special form provided by the Ministry of Justice.
The following documents are to be submitted with the application:
documents supporting the identity of the ultimate beneficial owner in case of foreign nationals (e.g. a copy of an identification card or passport, or an excerpt from the foreign register of inhabitants or an excerpt from the foreign register of ultimate beneficial owners);
documents supporting the position of the ultimate beneficial owner or structure of the relations (e.g. a shareholders list, decision on the payment of profit, excerpt from the foreign commercial register or foreign register of beneficial owners, etc.); only provide that these information cannot be supported by other means, the documents can be substituted by an affidavit of the registering company or the ultimate beneficial owner.
In addition to the above documents, we also recommend submitting an overview of the structure of the relations (e.g. in the form of an organisational structure).
What are the possible sanctions in case of non-compliance with these obligations?
Contrary to the previous legislation, the Act introduces significant sanctions for non-compliance with new registration obligations. We believe it is important to draw your attention to:
the fine of up to CZK 500,000 (approx. EUR 19,000), which may be imposed on a company for non-compliance with the registration obligation, and possibly also on its ultimate beneficial owner for failure to cooperate with the registration procedure; and
the inability to pay out the company's profit and exercise voting rights at the company's general meeting.
By when must the ultimate beneficial owner be registered under the Act?
The registration must be performed without undue delay after 1 June 2021. It is also possible to do it now, however, and taking into account the lengthiness of the process of receiving all the necessary documentation (especially for companies with a complicated ownership structure), we recommend starting to prepare for the registration as soon as possible.
Companies that registered their ultimate beneficial owners in line with the deadlines in the current legislation and whose registration does not comply with the requirements of the Act, have a prolonged deadline for registration of their ultimate beneficial owner until 1 December 2021. It is recommended that these companies verify as soon as possible if the registered information complies with the new requirements.
For the sake of completeness, we also point out the possibility of so-called automatic registration for some companies, i.e. automatic transfer of information to the Register of Ultimate Beneficial Owners from another public register (especially the Czech Commercial Register). Automatic registration will apply to companies whose ultimate beneficial owner can be clearly determined from the Czech Commercial Register (typically joint stock companies with one shareholder who is a natural person or limited liability companies with shareholders who are natural persons with a share exceeding 25 %).
The Act introduces significant changes not only with respect to the identification of ultimate beneficial owners but also with respect to the sanctions that can be imposed for non-compliance with the registration obligations. Due to the relatively strict financial sanctions and possible legal consequences in the form of restrictions on paying out profit or exercising voting rights, we recommend that all companies familiarise themselves with the new legislation and secure that the registration complies with the requirements of the Act.
By Monika Voldanova, Attorney at Law, and Rudolf Bicek, Attorney at Law, Schoenherr