The Act on Mandatory Registration of Ultimate Beneficial Owners of Legal Entities and Trust Funds came into force in the Czech Republic in 2018. As of this year, those who fail to comply face significant sanctions.
Ultimate beneficial owners are registered using the ISSM information systemThe register is maintained by the registration courts and includes details of the ultimate beneficial owners of legal entities and trust funds. The register should serve as an effective means to combat money laundering and the financing of terrorism and generally to improve the transparency of companies.
What is the definition of an ultimate beneficial owner? Who can examine the register? What are the sanctions for not registering the ultimate beneficial owner? Read today’s article to get the answers.
What is the ISSM?
The Ultimate Beneficial Owner Information System (abbreviated to ISSM in Czech) is a public administration information system maintained by the registration court. The system keeps records of the ultimate beneficial owners of legal entities and trust funds. The register is intended to serve as an effective means to combat money laundering and the financing of terrorism (AML – Anti-Money Laundering) and generally to improve the transparency of companies.
Although the registration of ultimate beneficial owners has been a legal obligation since 2018, many companies have not complied with it to date as they did not face any sanctions. That is no longer the case since offenders face a penalty of up to CZK 500,000 (approx. EUR 19,000) as of the beginning of 2021.
The new act on ultimate beneficial owner (UBO) registration places some restrictions on companies that have failed to register their UBO, for example:
- they must not distribute profits, whether directly or indirectly to shareholders,
- no shareholder is allowed to exercise their voting rights at general meetings,
- the company’s sole shareholder is not allowed to adopt decisions,
- and other restrictions.
The company’s governing bodies must therefore ensure that the company observes these rules.
If the company has already registered its UBO, the registration must be checked for compliance with the new Act and, if necessary, brought in line with the Act by the end of November 2021.
Registrations made after 1 June 2021 must be in full compliance with the new UBO Act.
Who is the ultimate beneficial owner?
Section 4(4) of Act 253/2008 Coll., on certain measures against the legalisation of the proceeds of crime and the financing of terrorism, defines an ultimate beneficial owner as follows:
“The ultimate beneficial owner is a natural person who is factually or legally able to exercise, directly or indirectly, a controlling influence in a legal entity, trust fund, or other legal arrangement with no legal personality”.
This means that a UBO is an individual who is not controlled by anyone else and who benefits directly or indirectly from the company’s operations or liquidation.
The AML Act provides certain indicators that define who exactly should be the ultimate beneficial owner of each legal form. These legal forms are:
- business companies,
- associations, public benefit societies and associations of owners,
- legal entities of a public nature that are registered in a public (commercial) register,
- foundations or endowment funds,
- trust funds or foreign trust funds.
For example, according to these indicators the ultimate beneficial owner of a business company is an individual who receives more than 25% of the company’s profit, or an individual who controls that entity, whether alone or jointly with other persons, or has more than 25% of the voting rights or registered capital.
When and how to register the UBO
It is worth noting that if an individual is already entered in the public registers as the sole partner or shareholder, the details may be transferred automatically to the ISSM system. However, there must be no doubt as to the ultimate beneficial owner and the details must be correct. Therefore, we recommend that these details always be verified so as to avoid potential sanctions for misleading disclosure.
Otherwise, it is necessary to submit a registration form to the court. The form contains basic information about the owner and the owner’s share of the voting rights or profit.
If the ultimate beneficial owner cannot be identified or the person with the ultimate influence is a legal entity without an ultimate beneficial owner, it is possible to use a legal fiction and assume that everyone in its top management is the ultimate beneficial owner. The directive also sets out that some entities do not have an ultimate beneficial owner. These include, in particular, states, state-owned companies, political parties or churches.
Access to the register
The UBO register will not be accessible to the public. The Ministry of Justice will allow remote access to the register to selected persons and authorities specified by law. These will include, among others, public contracting authorities, law enforcement authorities, the Czech National Bank, or the Supreme Audit Office. The register aims to make it possible to identify in each company at least one natural person who meets the legal definition of the ultimate beneficial owner.
How can we help?
If you have yet to register your UBO or are unsure about how to proceed, we will be happy to help and take care of the entire registration. Our team has a wealth of experience with UBO registration.
Please feel free to contact us if you have any questions on the topic.