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.

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In the first issue of our 2019 CEE newsletters we present you the beneficial owner concept applied in twelve countries in Central and Eastern Europe. We have written about the current regulations of this area in different CEE countries in several previous articles, but now we have summarised the situation and we can compare what is happening regarding the registration of UBOs in some EU countries (Austria, Czech Republic, Estonia, Hungary, Latvia, Lithuania and Poland) as well as third countries like Russia, Serbia and Ukraine.

Implementation of Directive (EU) 2015/849

The data reporting obligation affecting ultimate beneficial owner (UBO) data, or in other words, the registration of UBOs, is designed to comply with the provisions of Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing. The Directive stipulates that “With a view to enhancing transparency in order to combat the misuse of legal entities, Member States should ensure that beneficial ownership information is stored in a central register located outside the company, in full compliance with Union law. Member States can, for that purpose, use a central database which collects beneficial ownership information, or the business register, or another central register.”

For the registration of UBOs some European countries have already launched such a central register, while the non-European countries have their own legislation and specialties too.

Definition, default penalty and court practices

Our articles focus not only on the definition of the beneficial owner, the obligations regarding the registration of UBOs or the status of central registers. In some countries, a default penalty derived from non-compliance with the registration obligation also has to be taken into consideration, and there are still uncertainties in this context. For example, the Russian beneficial ownership concept, which follows the OECD approach, has already become one of the major mechanisms applied by the Russian tax authorities to counteract tax avoidance schemes, limit capital outflow and raise fiscal revenues in Russia, but the number of uncertain issues related to applying the beneficial ownership concept and negative court practices are also growing.

Strange abbreviations in connection with registration of UBOs

After reading the articles about the registration of UBOs in the different countries, you will probably remember that WiEReG or MAMLA are not magic spells but the name of the beneficial owner register in Austria and the related law in Bulgaria. The trends suggest that the number of strange abbreviations used for such registers is set to increase and all countries will introduce this system.

We hope you will find our articles informative and useful, but please bear in mind that before starting anything you should contact your local tax advisor to understand all the rules and requirements in detail.

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In line with the Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (4^th Anti-Money Laundering Directive) ultimate beneficial / real owners have to be registered in many Central and Eastern European countries too. (We have already written about this implementation in Austria, the Czech Republic and Lithuania.)

Deadlines for registering real owners

In Serbia, Article 17 of the Law on the Central Register of Real Owners was adopted and published in the Official Gazette of the Republic of Serbia No. 41/2018 on 31 May 2018. According to this law, the Business Register Agency in Serbia had to establish a Central Register of the Real Owners of Legal Entities and Other Entities Registered in the Republic of Serbia no later than by 31 December 2018.

The same article stipulated that the person authorised to represent the registered entity is obliged to register the necessary data and information on the real owners and the registered entity by 31 January 2019. This was the deadline for all companies incorporated by 31 December 2018 at the latest. Thereafter, newly established companies in Serbia have to register their real owners with the Central Register of Real Owners within 15 days of incorporation.

Data to be provided

The data required is prescribed by Article 5, § 2 of the Law on the Central Register of Real Owners, including:

• for a domestic natural person – name, unique registration number for citizens and country of residence;
• for a foreigner – name, passport number and country of issue and / or personal number for foreigners and / or identity card number of the foreigner and the country of issue in accordance with the regulations governing the conditions for entry, movement and stay of foreigners on the territory of the Republic of Serbia, date (day, month, year) and place of birth, country of residence and citizenship;
• for refugees or displaced persons – personal name, number of ID card, date (day, month, year) and place of birth and country of residence;
• the reason for acquiring the status of the real owner of the registered entity.

The actual owner of the registered entity can be:

• a natural person who directly or indirectly holds 25% or more of the shares, voting rights or other rights, based on which they participate in managing the registered entity, or participate in the capital of the registered entity with 25% or more of the shares;
• a natural person who directly or indirectly exerts a dominant influence on the conduct of business and decision-making;
• a natural person who indirectly provides or secures funds for the registered entity and, on that basis, significantly influences the decision-making of the managing body of the registered entity when deciding on financing and operations;
• a natural person who is a founder, a trustee, a protector or a beneficiary, if any, and a person holding a dominant position in the management of a trust, or in another entity of foreign law;
• a natural person registered to represent cooperatives, associations, foundations and institutions, if the authorised person for representation was not registered by another natural person as the actual owner.

Obligation to register an email address

Apart from the obligation to register the real owners, since 1 October 2018 companies are also obliged to have a registered email address in accordance with Article 21 of the Company Law published in the Official Gazette of the Republic of Serbia No. 36/2011, 99/2011, 83/2014, 5/2015, 44/2018 and 95/2018. 

If you would like to know more about the registration of real owners in Serbia or other taxation or legal issues in the country, please visit the website of WTS Serbia.

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In accordance with the Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (4th Anti-Money Laundering Directive) since January 2018, ultimate beneficial owners have to be registered also in many Central and Eastern European countries, such as Austria or the Czech Republic. As of 1 January 2019, also all companies registered in Lithuania must obtain, collect and register information on their ultimate beneficial owners with the Information System on Participants of Legal Entities (JADIS) by 1 July 2019.

The obligation to disclose information on the ultimate beneficial owners to JADIS arises from implementation in Lithuania of the 4th Anti-Money Laundering Directive. Accurate and up-to-date information on ultimate beneficial owners is considered to be a key measure in combating potential misuse of the corporate veil by hiding the true identities of persons behind corporate structure.

Ultimate beneficial owners – persons who own or control the company

Ultimate beneficial owner is deemed to be a natural person who owns or either directly or indirectly controls the company or otherwise exercises control over the company. Direct ownership implies a shareholding of 25% plus one share or an ownership interest of more than 25% in an entity. Indirect ownership occurs when one or more legal entities, under the control of the same natural person, holds 25% plus one share or an ownership interest of more than 25% in another legal entity. Further, the ultimate beneficial owner of the company is considered to be a natural person who holds the position of senior managing officer in an entity if neither direct nor indirect control has been established or doubts arise as to whether a person identified is the ultimate beneficial owner.

Ultimate beneficial owners in trusts

In the case of trusts, the ultimate beneficial owner is considered as any of the following: the settlor, the trustee(s), the protector, if any, the beneficiaries or persons in whose main interest the legal arrangement or entity is set up or operates, or any other natural person exercising ultimate control over the trust by means of direct or indirect control. Lastly, in the case of legal entities such as foundations and legal arrangements similar to trusts, the ultimate beneficial owner is the natural person holding equivalent or similar positions to those identified as ultimate beneficial owner in trusts. 

Filing information with JADIS

Information about ultimate beneficial owners must be filed with JADIS by all legal entities having their registered office in Lithuania. By way of derogation, no obligation arises to publish data on JADIS for legal entities whose owner (sole participant or shareholder) is either the state or a municipality. The obligation to file data with JADIS lies with the managing director (CEO) of the undertaking. Any change in the data must be filed with JADIS within 10 days.

The sanction for failing to file data about ultimate beneficial owner or for providing incorrect and/or incomplete information varies from EUR 30 to EUR 1,450 and is imposed on the managing director (CEO) of an entity.

Click here if you want to read the original article on the homepage of Sorainen, the exclusive partner of WTS Global in Lithuania!

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As we have written in an earlier article, since 15 January 2018, all Austrian legal entities have to report their beneficial owners to a central register according to the Austrian Beneficial Owners Register Act (Wirtschaftliche Eigentümer Registergesetz, WiEReG). The purpose of the Beneficial Owners Register Act is to prevent money laundering and terrorist financing in accordance with EU Directive 2015/849.

Who is subject to the Austrian Beneficial Owners Register Act?

The Beneficial Owners Register Act addresses all relevant company structures in Austria, e.g. unlimited liability partnerships (OG), limited liability partnerships (KG), limited liability companies (GmbH), public limited companies (AG), Societas Europaea (SE), (European) cooperatives, insurance companies, private foundations, as well as trusts and trust-like agreements that are administered in Austria.

The addressed entities have to verify their beneficial owners and their identity. In general, all natural persons who own or control a legal entity are considered to be its beneficial owners and must be registered. With regard to companies, the law provides for three different approaches:

• A natural person directly holds more than 25% of the shares or has a participating interest of more than 25%.
• A natural person exercises control over the management of the company or partnership, meaning that more than 25% of the shares in an Austrian company are held by another legal entity that is controlled directly or indirectly by a natural person; control in this respect is indicated by directly or indirectly holding more than 50% of shares.
• A natural person has sufficient voting rights in the company or partnership, directly or indirectly.

Exemptions and special provisions

In the case that no beneficial owner according to the above-mentioned parameters can be identified, the top-level management of the company shall be seen as the beneficial owner. There are a few exemptions from the reporting obligation. For example, limited liability companies are exempted from the obligation to transfer information to the registry if all shareholders are natural persons.

Specific provisions exist for foundations (e.g. private foundations according to the Austrian Private Foundations Act or foundations and funds according to the Federal Foundation and Fund Act 2015) and trusts (or agreements similar to a trust) that are domiciled in Austria or are managed from Austria. About the details of these special provisions you can read in our earlier article.

Which data have to be reported and when?

According to the Beneficial Owners Register Act, in principle, for every beneficial owner the following data have to be reported: first name and surname; place of residence (where there is no place of residence in Austria, the number and nature of an official photo identification); date and place of birth; nationality and nature and scope of the economic interest. The required data concerning the beneficial owners have to be transmitted electronically via the Austrian Government’s Business Service Portal. It must be mentioned that also legal advisers (tax consultant, lawyer and notary) are entitled to undertake the notification. The initial registration in Austria was due no later than 16 August 2018. Newly established companies are obliged to register their ultimate beneficial owners within four weeks of incorporation. Moreover, if changes occur regarding registered data, entities are obliged to amend their registration accordingly within four weeks of the first notice. Furthermore, a verification of the data shall be undertaken once a year. The documentation and information required for these obligations must be stored for five years.

Penalties and access

In case of non-compliance with registration duties the Austrian tax authorities automatically impose administrative penalties of up to  EUR 5,000 by default. Strong reporting violations carry a financial penalty of up to EUR 200,000 in case of intentional infringement and up to EUR 100,000 in case of gross negligence. These penalties primarily address entity representatives (e.g. the managing director). However, legal entities themselves can also be punished.

According to the Beneficial Owners Register Act, the Federal Ministry of Finance acts as competent authority for the register. It is generally not open to the public (such as the Commercial Register), but it is accessible for several groups of persons and certain authorities. This includes all credit institutions, lawyers, notaries, auditors and tax advisers. Moreover, estate agents, business consultants and insurance intermediaries as necessary also have access in order to comply with their due diligence obligations as regards combatting money laundering and terrorist financing. Please note that an unauthorised access is subject to a fine of up to  EUR 10,000. Finally, tax inspectors, prosecutors of tax offences and supervisory authorities also have the right to inspect the register when carrying out their lawful duties.

If you would like to know more about the WiEReG, the Beneficial Owners Register Act or other taxation issues in Austria, please visit the homepage of WTS Austria!

RELATED ARTICLES:

New requirements for Austrian private foundations and trusts

Registration of beneficial owners of Czech companies

Service provider obligation to forward data in respect of beneficial owner information in Hungary

RELATED PUBLICATION:

WTS Private Clients Newsletter # 2.2018

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