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.
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.