Legislation on registration of beneficial owners awaits changes
The current wording of the Act
The Act no. 304/2013 Coll. on public registers of legal and natural person, stipulates the current regulation of the register of beneficial owners. However, as the register has not yet fully fulfilled its purpose even though from January 1st 2018 there is an obligation for legal entities entered in to the public register and trustees entered in to the register of trustees to register the benefical owner. The deadline for fulfilling this obligation for legal entities registered in the Commercial Register has already expired on January 1st 2019. Other legal entities registered in other public registers (i.e. in particular associations, foundations, institutes and associations of unit owners) and trust funds entered in to the register of trust funds must register their beneficial owner by January 1st 2021.
Legal entities registered in the Commercial Register after January 1st, 2019 are obliged to register their beneficial owner without undue delay after their own registration. The problem is that Act no. 304/2013 Coll. or any other Act currently do not provide any direct sanctions for not registering of the beneficial owner. Thus, a legal entity is not subject to a fine or any other type of penalty if the details of its beneficial owner are not registered according to law.
Amendment proposal of Ministry of Justice
As there is no penalty for not registering the benefical owner, many legal entities have failed to meet this obligation. That is why the Ministry of Justice has submitted a proposal to the Goverment seeking an amendment to the Act no.304 / 2013 Coll. in accordance with directive 2018/843 of the Council of the European Union and of the European Parliament.
This new adjustment should amend the following main points:
- Definition of the beneficial owner
- Access to the register of beneficial owners
- Accelerating the administrative data enrollment process speeding up the registeration of incorrect or missing data
- Determination of penalties for breaches in accordance with the registration of actual owners
The benefical owner and its new definition
The amendment proposed by Ministry of Justice (hereinafter “amendment“) seeks to specify the definition of the beneficial owner in § 2. The benefical owner will be any natural person who is the final recipient or has final influence on management of the legal entity. The Act subsequently defines these terms in greater detail.
The law further specifies the rules for determining the beneficial owners of complex ownership structures even if the beneficial owner cannot be identified when all efforts are made. In such case, the § 5 states that the real owner of the corporation is the person in its senior management.
As far as public limited companies are concerned, these are governed by § 38, under which a natural person who has been registered as its sole shareholder or as the actual owner of a public limited company is automatically entered in the register.
Sanction
One of the main changes to the new law is the introduction of a misdemeanor in case of non registerataion. Such misdemeanor may be committed by a legal entity, but also by a natural person, in case of the trust funds. Under § 53 of the proposal, a legal entity subject to registration may commit an offence if:
- Even after the expiry of a reasonable period set by the court on the basis of Section 45, it will not ensure that an indication of its beneficial owner or the actual owner of the legal arrangement to be entered in to the register of the beneficial owners, for which offence it is subject to a fine of up to 50,000 CZK.
- Contrary to § 9, even after court’s ruling under, will not ensure that valid details of its beneficial owner or the actual owner of the legal arrangement correspond to the actual condition. In this case there is a fine of up to 250,000 CZK.
Legal entities which do not have a beneficial owner are not subject to the registration obligation. These entities are defined by a taxative list and include, for example, the state and local authorities municipal bodies, public research institutions, state-owned enterprises, etc.
Conclusion
The amendment is proposed to take effect on December 1st 2020 and its wording brings many changes to Act no.30 /2013 Coll. While it reduces the administrative burden, it does, on the other hand, introduce a fine for the failure to register, in order to stimulate with the company obligations. It must again be stressed that this proposal is in direct compliance with the Directive by the Council of the European Union and the European Parliament 2018/843.
For more information please contact:
Monika Rutland, partner
rutland & partners, advokátní kancelář s.r.o.
tel: +420 226 226 026
email: monika.rutland@rutlands.cz
