Tax 

Has your company’s beneficial owner been registered?

Over half a million legal entities recorded in the Commercial Register had the obligation to record their ultimate beneficial owners (“UBO”) in the Register of Ultimate Beneficial Owners Information (“Register”) by 1 January 2019. However, at the end of the year only 65,000 of them registered their UBO.

The obligation to register the UBO is imposed on the obliged persons in relation to the amendment to Act No. 253/2008 Coll., on Certain Measures against Legitimisation of Proceeds of Crime and Financing of Terrorism, as amended (“AML Act”) and Act No. 304/2013 Coll., on Public Registers of Legal and Natural Persons, as amended.

However, many companies have left submitting the application for entry in the Register until the last moment and register courts are unable to process the submissions fast enough; as of 11 January 2019, the courts recorded more than 50,000 of such submissions. According to the estimations of the Ministry of Justice, the obligation to register the UBO has been met by approximately 25% of obliged entities as of 1 January 2019.

Given the current immense workload of register courts, the statutory 5-day period for entry in the Register since the day of delivery of the petition cannot be expected to be met. In practice, there can be delays of more than a month.

Who is the UBO?

According to Section 4 (4) of the AML Act, the UBO is a natural person having de facto or de jure the possibility of exercising direct or indirect decisive control over a legal entity, a trust fund or any other legal arrangement without the legal personality status. The UBO is always a specific natural person. The AML Act additionally states which facts may indicate the UBO. However, the fulfilment of these conditions does not necessarily mean that the person in question is the UBO. It is always necessary to assess whether this person has the possibility of exercising decisive control.

Companies are obliged to identify their UBO and to record current information for ascertaining and verifying the UBO’s identity, including information on the fact that constitutes the basis for the position of UBO or another justification why this person is considered the UBO.

Entry in the Register

Legal entities recorded in the Commercial Register had the obligation to record their UBO in the Register by 1 January 2019. Other entities having the obligation to record their UBO in the Register, must comply with the obligation by 1 January 2021.

The following information on the UBO is recorded in the Register:

  1. Name and address of the place of residence, domicile if applicable,
  2. Date of birth and personal number, if assigned,
  3. Nationality, and
  4. Information on the fact constituting the basis for the position of UBO.

Information on the fact constituting the basis for the position of UBO is supported with relevant documents. These documents may include e.g. extracts from the record in a public register or foundation documents.

For entities recorded in a public register before 1 January 2018, the entry in the Register before the end of 2018 was exempt from the court fee. Since 1 January 2019, the entry of all companies has been subject to a court fee of CZK 1,000.

What are the consequences of a failure to record the UBO in the Register?

Legal regulations do not set a direct sanction for the failure to comply with the obligation to record information on the UBO in the Register; however, this may still have a negative impact on the company’s business activities. Failure to record the UBO in the Register can cause the inability to participate in public tenders and to obtain grants from EU funds, or complicate the obtaining of bank financing.

According to the notification published on the website of the Ministry of Industry and Trade, the managing body of the Operational Programme Enterprise and Innovations for Competitiveness anticipates that calls announced from June 2019 will include a condition stating that an applicant for a grant in the programmes may not be an entity that has not recorded its UBO in the Register as of the date of filing the application.

Access to information in the Register

The Register is currently a non-public register. Information on the UBO is not provided together with copies of the record in a public register and it is not made public by any other means. Extract from the Register may be obtained by the person recorded and additionally, in a limited scope, by a person who demonstrates interest in relation to the prevention of the crimes of legitimisation of proceeds of crime, legitimisation of proceeds of crime due to negligence, their source crimes and the crimes of terrorism financing and support and promotion of terrorism.

The Register can be remotely accessed by courts, law enforcement authorities, tax administration authorities, the Financial Analytical Office, the Czech National Bank, other state authorities and obliged entities pursuant to the AML Act, which will be able to use the information contained in the Register as part of customer due diligence processes.

However, it can be expected that the Register will be made public in the future in accordance with Directive (EU) No. 2018/843 of the European Parliament and of the Council of 30 May 2018 amending Directive (EU) No. 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing, and amending Directives Nos. 2009/138/EC and 2013/36/EU (“5th AML Directive”), at least to the extent of information on the name, date of birth, country of residence and nationality of the UBO and on the nature and scope of the UBO’s participation. These changes should be implemented into the Czech legislation by 10 January 2020.

The article is part of dReport – March 2019, Tax news; Grants and investment Incentives.

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