Mandatory register of ultimate beneficial owners in the Czech Republic as of 1 January 2018

by White & Case LLP
Contact

White & Case LLP

Effective as of 1 January 2018, Czech law requires that "ultimate beneficial owners" of companies and trust funds be recorded in a central register, in the interest of bringing increased transparency to the ownership structures of legal entities.

Loosely speaking, the "ultimate beneficiary" is a natural person at the absolute top of the corporate hierarchy who exercises material control over the way in which a legal entity operates, and/or who profits from these operations. A typical example of an ultimate beneficiary is a private individual who directly or indirectly holds a decisive share in a company or receives a decisive share of its profit.

All legal entities who are entered in a public register and all trust funds entered in the record of trust funds are now obliged to promptly arrange for the entry of their ultimate beneficiary's identifying data in the "record of ultimate beneficial owners". The deadline for legal entities who are entered in the Commercial Register is 1 January 2019.

Click here to download PDF (English and Czech).

1. Ultimate beneficial owner

Act No. 368/2016 Coll. (the "Amendment") amended Act No. 304/2013 Coll. (on public registers of legal entities and natural persons - the "Public Registers Act"), and effective as of 1 January 2018, a new type of public record was created, known as the "record of data of ultimate beneficial owners of legal entities and trust funds" (hereinafter referred to as the "transparency register" for the sake of convenience).

For the purposes of the transparency register, the term "ultimate beneficial owner" (or ultimate beneficiary) is defined in Act No. 253/2008 Coll., on certain measures against the legitimization of proceeds from crime and the financing of terrorism, as amended (the "AML Act")1.

Pursuant to Section 4 (4) of the AML Act, an ultimate beneficial owner is a natural person who de facto or de jure has the ability to exercise direct or indirect decisive influence over a legal entity, trust fund, or other legal arrangement without a legal personhood of its own.

In the case of corporations specifically, the law postulates the refutable legal assumption that the ultimate beneficial owner is a natural person who:

(a) alone or together with others acting in concert with him/her holds more than 25% of the voting rights in the company, or a share in its registered capital of more than 25%, or

(b) alone or together with others acting in concert with him/her controls the company referenced in (a) above, or

(c) enjoys the right to participate in at least 25% of the company's profits, or

(d) if the beneficial owner is unknown or cannot be determined pursuant to (a) through (c) above: is a member of the statutory body (or represents a legal entity who is a member of the statutory body) of the company, or holds a position similar to that of such a member.

In other words, the ultimate beneficial owner is always a specific individual (or several individuals) who assumes a certain qualified position vis-à-vis the relevant legal entity or trust fund – (i.e., the natural person at the end or top of the ownership structure).

2. The transparency register as an information system

The transparency register, which is considered a public administration information system, is maintained in electronic form at the competent register court.

The transparency register is not a public register, i.e., it is generally not possible to access or search the data contained therein. Rather, such data is accessible only to a certain circle of persons and institutions (an exhaustive list of which is given in the Public Registers Act2) – i.e., in particular, the courts and law enforcement bodies, the tax administration, contracting authorities pursuant to the Public Procurement Act and other institutions. Extracts from the transparency register may only be obtained by a person on the record (i.e., a legal entity entered in a public register or a trust fund entered in the record of trust funds), and then only with respect to the data which it entered itself.

Among other things, the non-public character of the transparency register implies that it does not fall within the purview of the principle of reliance on public records (the "principle of material publicity").

The right to file a request for the entry of data lies solely with the person on record (or with the fund manager); no formal register procedure takes place and there are no direct penalties for the failure to meet the obligation to register one's ultimate beneficial owner (see also Section 5 below for more information on the consequences of such failure).

The transparency register will also serve to prove the identity of the ultimate beneficial owner of selected bidders under the Public Procurement Act (Act No. 134/2016 Coll., as amended). Contractors who are entered in the transparency register newly won't have to produce the requisite evidence for each individual tendering procedure in which they participate: the contracting authority will arrange for this information from the transparency register itself.

3. Data entered in the transparency register

The request for entering data into the transparency register must be submitted on a prescribed form supplied by the Ministry of Justice, which can be accessed here. The following data concerning the ultimate beneficiary must be entered in the transparency register:

(a) name and address of habitual domicile (and address of permanent residence, if different from the former),

(b) date of birth and birth identification number (rodné číslo – if assigned),

(c) citizenship, and

(d) information on

1. the ultimate beneficiary's share in the voting rights, if his/her status is based on direct participation in the legal entity,

2. his/her share in distributed earnings (or other funds), if his/her status is based on the fact that he/she is on the receiving end of such payments, or

3. other facts which may give rise to the status of ultimate beneficial owner.

The responsibility for the accuracy and up-to-dateness of the entry in the transparency register lies squarely with the relevant legal entity or the fund manager of the trust fund; the register court merely checks the formal aspects of the request for entry (i.e., it should not review the factual accuracy of submitted data).

4. Documentation needed to prove the status of ultimate beneficial owner

Neither the Amendment nor the Public Registers Act stipulates which specific documents can be used to prove the status of the ultimate beneficial owner.

The website of the Ministry of Justice provides a non-exhaustive list of examples of such documents. They include an extract from the public register or a copy of the legal entity's founding document (provided that such extract or copy reveals the ultimate beneficiary), lists of shareholders, shareholders' agreements, decisions by the statutory body (management) on the payout of profit shares, and an affidavit by the ultimate beneficial owner or legal entity. According to the website of the Ministry, in those cases in which the identity of the ultimate beneficial owner cannot be checked against the domestic population register, the register court must be presented with an extract from the relevant foreign country's population register or corresponding records.

Given the variety of reasons for which someone may become an ultimate beneficial owner, it will always depend on the register court to decide which documents may be indispensable for demonstrating the status of the ultimate beneficial owner.

5. Consequences of the failure to enter the data of ultimate beneficial owners in the transparency register

Under the Public Registers Act, legal entities and trust funds face no immediate penalty (such as a fine or the threat of being disbanded and liquidated upon court order) for the failure to comply with their obligation to provide the register court with the required data of their ultimate beneficial owner.

However, special laws may still provide certain adverse consequences for the failure to do so; for instance, the AML Act, which prohibits obliged persons (such as banks or notaries) from performing transactions for clients who do not show the requisite cooperation when performing identification obligations. Also, under the Public Procurement Act, the contracting authority in a tendering procedure will disqualify the selected bidder if no information on the ultimate beneficial owner can be found in the transparency register and the prospective contractor fails to present this information even after having been called upon by the contracting authority to identify its beneficial owner.

As is the case for most new obligations under the law, the obligation to have one's beneficial owner's data registered in the transparency register gives rise to certain questions as to the actual implementation of the new rules, in particular as regards the documents needed to prove the identity of the ultimate beneficiary. Here, as elsewhere, one will have to wait until case law leads to a settled interpretation and removes points of ambiguity.

Click here to download PDF (English and Czech).

1 The abbreviation AML (Anti-Money-Laundering) is in common use in the field of combating money laundering; one occasionally also encounters the abbreviation CFT (Counter Financing of Terrorism).
2 Sec. 118g (3) of the Public Registers Act in conjunction with Sec. 122 (3) of the Public Procurement Act.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© White & Case LLP | Attorney Advertising

Written by:

White & Case LLP
Contact
more
less

White & Case LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.