Act on the Register of Ultimate Beneficial Owners (the “UBO Act“), which is also related to the amendment of Act on Certain Measures Against the Legalization of Proceeds from Criminal Activities and Financing of Terrorism (the “AML Act“), will come into effect from 1 June 2021. This follows from the amendment of the EU directive (the so-called V AML Directive). Below we summarize the most important news for companies arising from the UBO Act and provide our recommendations.

Former legislation

Previously companies were obliged to keep internal records of ultimate beneficial owners and to ensure their registration in the Register of Ultimate Beneficial Owners (https://issm.justice.cz/).

The new legislation introduces several fundamental changes. These are primarily (i) a new definition of the ultimate beneficial owner, (ii) the introducing of sanctions, and (iii) partial publication of the Register of Ultimate Beneficial Owners.

New definition of ultimate beneficial owner

From 1 June 2021, the ultimate beneficial owner of a company is any natural person who is an ultimate beneficiary or a person with ultimate control:

  • the ultimate beneficiary is every person having a direct or indirect right to a share of the profit, other equity or liquidation balance of more than 25% and this benefit is not passed to another person;
  • a person with ultimate control is the person who is the controlling entity according to the Business Corporations Act (usually a person with at least a 40% share in the voting rights), or, subject to other circumstances, may be a person having a direct or indirect share in voting rights that significantly exceed the shares in voting rights of other persons, in particular if it is more than 25%.

If the person with ultimate control is a legal entity whose ultimate beneficial owners cannot be determined (with all reasonable efforts), the ultimate beneficial owner is considered to be the person in senior management of the legal entity with ultimate control. In such situations, according to the current legislation, the person in the senior management of the registered company was determined as the ultimate beneficial owner. For completeness, in situations where the ultimate beneficial owner cannot be established, it is necessary to keep records of the actions taken to attempt to determine who it is.

Sanctions

Another significant change is the newly established offences in the event of non-fulfilment of legal obligations, for which both the company and the ultimate beneficial owner may be fined up to CZK 500,000.

In addition, in case of discrepancies in the records concerning the ultimate beneficial owner, public authorities (e.g. tax administrator or the police) have the obligation to notify the court. Some other private persons (e.g. banks, auditors or tax advisors) have a similar notification duty under the AML Act as well.

Other notable consequences include:

  • prohibition of payment of profit, other equity or liquidation balance; and
  • prohibition of decision-making as the sole shareholder or to exercise voting rights at the general meeting.

The statutory body of the company should be aware of the new obligations and sanctions, because as a part of the duty of due care she/he is personally liable for damage caused by not ensuring the proper entry in the Register of Ultimate Beneficial Owners.

Publication of Register of Ultimate Beneficial Owners

The Register of Ultimate Beneficial Owners will become partially publicly available and anyone will be able to obtain a partial up-to-date extract or confirmation that the ultimate beneficial owner is not registered in the Register of Ultimate Beneficial Owners. The complete up-to-date and historical extract will be available, similarly to today’s status, only to a limited circle of applicants.

By when is it necessary to be compliant with the UBO Act?

The transitional provisions distinguish between companies that have already ensured their proper registration under the current legislation and those that have not.

Companies that registered their ultimate beneficial owner by 1 January 2019 (or companies that were established from 1 January 2018, to register their ultimate beneficial owner within 15 days after establishment) can use a six-month period from the date of effectiveness of the UBO Act when the company cannot commit an offence, i.e. by 1 December 2021. Unfortunately, it is not clear from the UBO Act whether the sanctions on prohibition of exercising the voting rights and payment of profit will be applicable in this transitional period.

Companies that did not ensure their registration in the Register of Ultimate Beneficial Owners are obliged to do so without undue delay after 1 June 2021.

Recommendation

We recommend that all companies:

  • check whether the internal records on ultimate beneficial owner and the entries in the Register of Ultimate Beneficial Owners comply with the new requirements. Where appropriate, ensure a remedy without undue delay after 1 June 2021 and do not rely on the six-month postponement, as it is not clear whether the sanctions on prohibition of exercising the voting rights and payment of profit will be applicable in the transitional period; and
  • set up internal processes to ensure the keeping of internal records on ultimate beneficial owner, registration of the ultimate beneficial owner in the Register of Ultimate Beneficial Owners, and an internal mechanism to regularly monitor who is the ultimate beneficial owner.

For more information, please contact Jiří Absolon or your contact person in our office.

This article is for information purposes only and does not constitute legal advice on any subject matter.