As we have reported earlier, on 1 June 2021 a new law about the registration of ultimate beneficial owners took effect in the Czech Republic. After practically one year of operation of the new Act No 37/2021 Coll. on Register of Beneficial Owners (ARBO), further changes are taking place in this field. An amendment to the Act has been promulgated in the Collection of Laws and has entered into force on 1 October 2022. The Czech government was forced to respond to the ongoing proceedings brought by the European Commission against the Czech Republic due to incorrect implementation of the or Anti-Money Laundering Directive, because the European Commission made amendment of the Czech ARBO a condition for the possibility of drawing funds under the National Recovery Plan.
Which changes do you need to prepare for?
The European Commission in particular objected to the incorrect definition of the so-called material beneficial owner, which the Czech Republic conceived in the ARBO differently from the Anti-Money Laundering Directive, this being by means of a two-component definition. This is to say that in its wording to date, the ARBO distinguished between an ultimate beneficiary and a person with ultimate influence.
The amendment to the ARBO now omits this division altogether and redefines beneficial owner as “a natural person who ultimately owns or controls a legal entity or legal arrangement”.
The amendment to the ARBO continues to work with the 25% threshold for the size of the shareholding, for voting rights and for profit received, which means that the profit-sharing criterion will continue to be maintained. However, in addition to the persons who receive a specified portion of the distributed funds or control the company, a person who only owns a share of the relevant size is also deemed to be a beneficial owner.
It is still the case that the concept of beneficial owner is linked only to a natural person. It also holds true that there may be more than one beneficial owner.
The amendment also significantly narrows the exceptions to the obligation to register the beneficial owner. In addition to other legal entities, the obligation to register the beneficial owner will now also apply to home owners’ associations, for which the concept of beneficial owner did not exist according to the previous wording of the ARBO. In the case of these legal entities, the members of their statutory body (typically the members of the HOA committee) will automatically be “copied from other registers and records” as the beneficial owners.
Transitional provisions of the amendment to the ARBO
The new legislation, effective as of 1 October 2022, determines a six-month deadline for meeting of the registration obligation in the case of entities which were previously deemed not to have a beneficial owner.
The transitional provisions also contain so-called protective provisions for legal entities which have duly met their registration obligation under the current legislation. These legal entities will have a period of six months from entry into force of the amendment to register a beneficial owner that meets the criteria of the new legislation. However, the ARBO provides for a transition period only for corporations which have everything properly registered, otherwise the obligation exists that they register or modify their entry without undue delay.
If any details need to be changed in the Register of Beneficial Owners during the transitional six-month period, the obligation exists that the party concerned adapt its entry to comply with the new rules together with this change.
In the period of one month, according to the latest information, it will not be possible to make changes to the recorded data due to its extensive automatic overwriting and lock-out of the Register.
Business corporations will be forced to evaluate who their beneficial owner is according to the new statutory definition after the amendment comes into force. Formal changes in the designation of beneficial ownership status will also be made by automatic copying from other registers and records. However, some business corporations, particularly those with complicated ownership and management structures, will be forced to submit a new proposal for change to their registered details.
Basically, all business corporations should check their entry in the Register of Beneficial Owners after the amendment comes into force and verify whether there are any material or formal errors even in the case of automatic copying from other registers and records, or whether the amended entry is complete.
If you have any queries about the Czech ARBO or need to adapt to the new legislation, the experts of WTS Alfery, the exclusive representative of WTS Global for the Czech Republic will be happy to provide you with professional support.