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On June 1, 2021, the Act on Beneficial Owners Register comes into effect. While the register has existed since 2018, the new Act changes it fundamentally. Under the new Act, not only is it mandatory to create a record of the beneficial owner, but failure to do so can result in severe sanctions that may completely paralyze the activities of legal persons. Should you be concerned by the new Act, and how to anticipate its sanctions?
On June 1, 2021, the Act on Beneficial Owners Register comes into effect. The Act transposes new EU legislation and unifies legal regulation within the Czech legal order. The register was first established on January 1, 2018, from which date companies have been required to find their beneficial owners and create a record of them in the register. Nevertheless, there was no statutory sanction to ensure compliance, causing many companies to not be concerned by the register at all. However, under the new Act, failure to comply with the requirements can attract severe statutory sanctions, both financial and otherwise.
The obligation to have a record of the beneficial owner applies with some exceptions not only to companies, but to all legal persons, which are defined under the Act as so-called Registrant-Persons and trust funds. Legal persons that do not have a beneficial owner by law, such as le territorial self-governing units, contributory organizations, legal persons established by law or international treaty, political parties and movements, churches and religious societies, or associations of unit owners (SVJ), do not register beneficial owner.
Who are beneficial owners?
A beneficial owner is every natural person who is an ultimate beneficiary or ultimate influencer. One legal person could have more than one beneficial owner (typically 1-3). A different legal person cannot be a beneficial owner either. If, in relation to one legal person, there is a different legal person appearing as its ultimate beneficiary or ultimate influencer, the beneficial owner of the former will be every natural person who is the beneficial owner of the latter.
An ultimate beneficiary is legally defined as a person who is able to directly or indirectly acquire more than 25 % of the total property benefit that is created by activities or liquidation of a legal person, or administration or dissolution of a trust fund, and does not pass the benefits any further.
An ultimate influencer is legally defined as a person who is able to directly or indirectly influence the activities of a legal person, without having to follow instructions from someone else.
The Act also establishes that if a beneficial owner cannot be identified even with all effort that may reasonably be required, every person who is in its top management will be considered the beneficial owner.
How to register a beneficial owner?
Originally, only a court could decide upon registration of the beneficial owner in registration proceedings initiated at the request of the Registrant-Person. From 1 June 2021 however, a beneficial owner can be also registered by notary, without the need of an underlying notarial deed, and in some cases, data about a beneficial owner will automatically transcribe from data already available in other public registers (especially from Business Register).
What are the risks associated with inaccurate information provided at the time of registration?
There is a risk of sanctions in cases where a Registrant-Person does not have its beneficial owner correctly registered, or does not have them registered at all. The new Act establishes offenses for which the court may impose a fine of up to 500 000 CZK on the Registrant-Person or the beneficial owner,.
However, far more severe sanctions may be imposed such as the prohibition of payment of a share in the benefit, and prohibition of the exercise of voting rights in the supreme body of the legal person that affects unregistered beneficial owner.
If in any case, you are not certain on how the registration works, even after reading this article, or you would prefer to deal with the registration of beneficial owners individually with professionals, do not hesitate to contact us.
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Jasper Brinkman
Jasper Brinkman
"Following a devastating hotel fire in Prague, the law firm Holubová advokáti, led by attorney Klara Dvorakova, successfully represented our extended family as a group of victims. The firm navigated complex international insurance and compensation laws to defend our rights.
I would like to acknowledge the extraordinary efforts the firm had to make to bring our case to a successful compensation under extremely difficult circumstances."
Stewarts
Stewarts
"A visit to her daughter in London turned Eva's life upside down when she says she stepped into a crossing on a green light but was hit by a car. Despite her remarkable bravery, she faced a long treatment due to fractures in her pelvis, and the associated limitations and pain are likely to persist for the rest of her life. Regular headaches and impaired concentration compound her challenges.
Eva contacted us through an organization temporarily helping her manage her difficult living situation. At that time, she was destitute, relying only on subsistence payments. We were able to assist her because we specialize in personal injury and have contacts with proven colleagues abroad.
We worked with Stewarts, a UK law firm, on this case. Attorneys Klára Dvořáková and Rebecca Huxford helped Eva with the documentation in her case, explaining her options and the differences between the Czech and British systems of healthcare and social benefits reimbursement. Within a few months, thanks to the professional cooperation between the two offices, an offer of compensation from the insurance company of approximately CZK seven million was achieved. The client accepted this settlement because she did not want to deal with courts in the United Kingdom.
Subsequently, we assisted the client with related tax issues and contacted Auditone, a tax consultancy firm, which arranged for the filing of a tax return. Compensation for lost income is taxable, unlike most personal injury compensation.
'No one has done as much for me as you,' Eva said.
The fact that we were able to help Eva gives our work meaning and brings us great joy. We are very happy that, thanks to our many years of active involvement in the international professional organization PEOPIL, we can cooperate on such cases."