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.

Conclusion

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.

A Amendment to the Czech ARBO bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

In addition to a stricter definition of the term ‘beneficial owner’ and related definitions, the new law also regulates in more detail the proceedings for registration in the records of beneficial owners in the Czech Republic. And what is even more important, compared to the previous regulation, it introduces completely new sanctions for failure to comply with the obligation to perform proper registration in the records of beneficial owners. These new sanctions comprise, on the one hand, the possibility of a financial fine for a missing or incorrect record in the records of beneficial owners, but also a restriction or prohibition on the payment of a profit share and a restriction on the exercise of voting rights for those members not recorded as beneficial owners even though they are.

New definitions 

The Registration Act was adopted in connection with the requirements of the fifth EU Anti-Money Laundering Directive. These are intended to improve the transparency and efficiency of the legal regulation of records of beneficial owners. The Registration Act therefore imposes on ‘registrants’ (basically meaning every legal person with a registered office in the Czech Republic and the trustees of trust funds) the obligation to ensure that all natural persons who meet the definition of beneficial owner are registered in the records of beneficial owners in the Czech Republic.

According to the new definition, a beneficial owner is any natural person who is an ‘end beneficiary’ or person with final influence. The Registration Act then defines in detail these new terms for various types of legal person. For example:

• an end beneficiary of a business corporation (meaning an enterprise) is any person with a direct or indirect right to a share in the profit, other own resources, or the liquidation balance of a business corporation of over 25%, and who does not pass this share onto others;

• a person with final influence in a business corporation is any natural person who is a controlling person pursuant to the Czech Business Corporations Act.

If it is not possible to determine any beneficial owner even after the registrant take all efforts that can reasonably be required of them (while the performance of such steps must be demonstrably documented), every person in the senior management of the corporation will be considered a beneficial owner.

Registration, public access and inconsistencies in records of beneficial owners in the Czech Republic

The new Registration Act also newly regulates the proceedings for registration in the records of beneficial owners performed by register courts. There will now be partial public access to records of beneficial owners in the Czech Republic. This means that anybody will be able to obtain a partial extract from the records showing information about the beneficial owner.

The Registration Act also introduces the institute of ‘inconsistencies in the records of beneficial owners and court proceedings on inconsistencies. This is intended to enable the register court to effectively enforce the obligation to register. New obligations in relation to inconsistencies are also imposed on obligated persons pursuant to the Act on Selected Measures Against the Legitimisation of the Proceeds of Crime and Financing of Terrorism (e.g. financial institutions like banks and insurance companies, but also e.g. auditors, lawyers, notaries, tax advisers and others) who will, in some cases, be obliged to notify their clients – and potentially also the register court – of inconsistencies.

Significant new sanctions

Sanctions for failure to comply with the obligation to perform proper registration in the records of beneficial owners in the Czech Republic will also undergo significant changes compared with the current legislation.

In accordance with the requirements of the fifth EU Anti-Money Laundering Directive, sanctions of up to CZK 500,000 (roughly EUR 20,000) will be introduced for infractions. These can be imposed both on the registrant (e.g. a business company) but also on its beneficial owner, end beneficiary or e.g. person with final influence, if they do not provide the necessary cooperation to the registrant. The introduction of sanctions impacting the internal decision-making of a business corporation is completely revolutionary.

If a beneficial owner of a business corporation is not registered in the records of beneficial owners in the Czech Republic, the business corporation may not pay them a share of the profit. Nor may it pay this share to a different legal person (e.g. a parent company) where they are also a beneficial owner. The same applies if the business corporation does not have any beneficial owner recorded in the records of beneficial owners. The payment of a share of the profit in violation of this prohibition would represent, on the part of the statutory bodies of that company, a breach of their obligations and could establish their personal obligation to compensate the company.

Similarly, if the beneficial owner of a business corporation is not recorded in the records of beneficial owners, they may not exercise voting rights during decision-making by the general meeting of that business corporation or make decisions as its sole member. Decisions taken in breach of this prohibition would be invalid, and would need to be enforced at a court of law through a procedure pursuant to the Business Corporations Act.

These latter sanctions (restrictions or prohibition on the payment of a share in the profit and restrictions on voting rights) represent an unprecedented and significant intervention through the public law regulation of records of beneficial owners in the internal relations of legal persons, in particular business corporations.

For the above reasons, we recommend in particular that all statutory bodies of business companies and also members do not underestimate their preparations for the Registration Act. It is in the interest of companies and their beneficial owners to supplement any missing or incomplete records in the records of beneficial owners as soon as possible.

If you have any queries 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.

A Changes to records of beneficial owners in the Czech Republic bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.