New regulation regarding ultimate beneficial owners (UBOs) has come into effect in the Czech Republic. The new rules define who will be considered the UBO of a legal entity, provides that key information on UBOs shall be publicly available and introduces sanctions for non-compliance.
The key aspects of the newly passed law No. 37/2021 Coll. on the UBO register, which implements the EU AML Directive 2018/843, are summarised below.
Who is considered a UBO?
The new act changes the rules on who will be identified as a company’s UBO and specifies that all individuals that fall within the new definition of an ultimate recipient of profit and persons with ultimate influence will be considered UBOs as of June 2021. Similarly, anyone receiving 25% or more of profit directly or indirectly or individuals exercising influence over voting rights directly or indirectly can be considered a UBO. These thresholds are, however, only indicative. Every company must identify its actual UBOs in the substantive meaning of the term, rather than by reference to the formal criteria.
If a company does not identify a UBO, all individuals in the top management who perform the everyday business leadership of the company will be considered UBOs, including members of the company’s statutory bodies and all top managers and proxies who are directly subordinate to the members of the statutory bodies. In some cases, top management of a parent entity with ultimate influence over the Czech company will also be deemed UBOs of the Czech company and will need to be registered as such in the UBO register .
Public access to information in the UBO register
Under previous legislation, information in the UBO register (database) was not publicly available. As of June, however, the new law makes key data such as the identity of the UBO and the nature and extent of the beneficial interest publicly accessible online.
Sanctions for non-compliance
A further change introduced by the new law is that failure to provide information on UBOs as required by the law may be subject to a fine of up to CZK 500,000 (EUR 19,000 The individual UBOs can also be fined up to the same amount if a court finds that they did not cooperate with the company in complying with the UBO legislation.
Other consequences of failure to register an UBO or to provide the registry with true and up-to-date information include:
- bans on payment of dividends to an unregistered UBO, to any other corporation where the individual is also a UBO, and to any corporate shareholder who has not registered its UBO; and
- bans on exercising voting rights at a general meeting or passing resolutions as the company’s sole shareholder, applicable to the same group of legal persons specified above.
All companies are required to take the following actions:
- If they have already registered details in the UBO register, these need to be updated in line with the requirements of the new law by 1 December 2021.
- If they have not yet registered their UBO, who is an individual holding (directly or indirectly) more than 25% ownership interest in case of a limited liability company or 100% of shares in a joint-stock company, they can rely on this information being automatically replicated to the UBO register from the commercial register. No action is required.
- If they have not yet registered their UBO and cannot rely on the information contained in the commercial register being replicated to the UBO register, they are obliged to provide the required information without undue delay now that the new rules have come into effect.
Companies must also maintain up-to-date internal records of the UBOs and the steps taken to identify them.
For more information on this law and other regulations that Czech corporations and companies must follow, contact your regular CMS advisor or local CMS experts.