An amendment to the UBO Act brings a change in the definition of the ultimate beneficial owner and narrows the scope of subjects who under the UBO Act are deemed to have no ultimate beneficial owner.
Act No. 37/2021 Coll., on a register of ultimate beneficial owners (the “UBO Act”) came into force as recent as 1 June last year, but an amendment is already underway which will bring tangible changes.
The draft bill amending the UBO Act was approved by the government at the cabinet meeting of 8 June 2022; it is now headed for a first reading in the Chamber of Deputies.
The reason behind the planned change to the UBO Act is that the European Commission found its current wording to be incompatible with what is known as the 5th AML Directive1 , and made the release of funds within the National Recovery Plan conditional upon establishing compliance with the 5AMLD.
First and foremost, the draft bill does away with the two categories of ultimate beneficial owners – the final recipient and the person with ultimate influence – instead defining the UBO as “any natural person who in the final consequence owns or controls a legal entity or legal construct.”
For determining whether a given individual is the ultimate beneficial owner of a trading company, the amendment bill provides the following criteria:
“A corporation is in the final consequence owned or controlled by any natural person who, directly or indirectly through another person,
a) has a share in the corporation or a share in the voting rights of more than 25%,
b) is entitled to a share in profit, other equity funds, or the liquidation balance of more than 25%,
c) exercises decisive influence in the corporation, or in corporations which individually or collectively hold a share of more than 25% in the erstwhile corporation, or
d) otherwise exercises decisive influence in the corporation through other means.”
As we can see, the individual criteria are conceived similar to those contained in the current UBO Act, keeping the criterion of a share in the voting rights or of a right to a share in the company’s performance (based on the proposal for distribution of a share in profit or other equity, or in the liquidation balance) of more than 25%. As such, the changes are of a rather formal character, and do not give rise to any major differences when it comes to who fulfils the definition of the ultimate beneficial owner.
A second, no less consequential change concerns the list of entities which have no ultimate beneficial owner within the meaning of the UBO Act, and thus no obligation to determine the UBO and have him or her entered in the UBO register (i.e., typically, nation states and their territorial units of self-governance). According to the amendment bill, the list shall no longer include, among others, associations of apartment owners, political parties and movements, trade union organizations at employers, or churches and religious communities.
Aside from the major changes described above, the amendment also makes various modifications e.g. with respect to the rules ensuring automatic entries (where the identity of the UBO follows by law from the other information entered in the public record for the given legal entity), or with respect to the extension of the time period during which the suspension of voting rights does not apply, from 15 to 30 days (i.e., if UBO status was acquired within this time period prior to a decision by the supreme body of the legal entity, the ban on the exercise of voting rights as per Sec. 54 of the UBO Act does not apply).
Once the amendment to the UBO Act comes into force, we will no longer have to differentiate between persons with ultimate influence and final recipients; instead, we will simply work with the term ultimate beneficial owner. At the same time, record-keepers and clerks may become obliged to bring current entries in the UBO register into line with the amended wording of the UBO Act; also, those entities which will no longer be considered “entities without an ultimate beneficial owner” under the amended wording of the UBO Act will have to determine their ultimate beneficial owner and have them entered in the UBO register (or, as the case may be, at least verify the accuracy of the automatic entry, where applicable). For the sake of completeness, we note that the draft bill anticipates, subject to the fulfillment of certain conditions, that record-keepers are exempt from the court fee otherwise charged for entries in the UBO register, if the motion in question serves to bring the entry in the UBO register in line with the amended wording of the UBO Act and is filed within six months from the promulgation of the amendment.
Draft bill amending Act No. 37/2021 Coll., on a register of ultimate beneficial owners, accessible at: https://apps.odok.cz/veklep-detail?pid=ALBSCCYG8XHD (13 June 2022)
1 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, amending Regulation (EU) No 648/2012 of the European Parliament and of the Council, and repealing Directive 2005/60/EC of the European Parliament and of the Council and Commission Directive 2006/70/EC, as amended by Directive 2018/843 (known as 5AMLD, or the 5th AML Directive).