Here is an outline of the term "beneficial owners" and how to calculate it. This newsletter is a supplement to our previous newsletter "New requirements to the registration of real owners", which we posted back in spring 2017.
The registration of beneficial owners must be with the Danish Business Authority’s website no later than 1 December 2017. If the company does not register before this date, the company will be fined by the Danish Business Authority.
Initially, it is worth mentioning that the Danish Business Authority has changed the phrasing of the term from “real owners” to “beneficial owners”. The meaning of the term remains unaffected. This is the reason why we use the term “real owners” in our prior newsletter. In this newsletter, we will adopt the new phrasing and use “beneficial owners”.
Back in May 2017, the Danish Parliament adopted, as part of the implementation of the Danish Tax Haven Package and the Fourth Anti-Money Laundering Directive, act no. 262/2016, that companies must register its ultimate, physical owners – their so-called beneficial owners. The idea behind the term is to increase the transparency of Danish companies and to make it more difficult to use companies for tax fraud or other economic crimes.
The introduction of the term of beneficial owners has no influence on the obligation to register a company's “legal owners”. Companies are still required to register all persons and companies that own 5 % or more of the company. Thus, in the future, a double registration requirement applies where the company must register the company's beneficial and legal owners.
The registration of beneficial owners can result in three different scenarios that are further explained below:
- The company has identifiable beneficial owners
- The company has no beneficial owners
- The company cannot identify its beneficial owners
The term “beneficial owners”
A beneficial owner is defined as a physical person "who directly or indirectly owns or controls a sufficient part of the shares or the voting rights, or who practice control through other means, with the exception of owners of companies which shares are traded on a regulated market".
If a company is owned by another company (e.g. a holding company), it is the physical person(s) who ultimately own(s) the company who shall be registered as beneficial owner(s).
For guidance, the Danish Business Authority has determined that a physical person owning or controlling approx. 25 % (or more) of the business presumably owns or controls a "sufficient part”. A fixed threshold has not been set and it is not only the shares or voting rights which determines whether a physical person is considered a beneficial owner. If for instance a physical person owns 10% of the share capital and is entitled to appoint members of the management, the physical person may be considered as a beneficial owner.
Case example – Hotel A/S
Based on the outlined chain of ownership, Hotel A/S must register its beneficial owners. The assumption of beneficial owners is based on the presumption of 25 %. Thus, Hotel A/S shall investigate who directly or indirectly owns 25 % or more of the company. Since it is only a presumption, the company must also investigate whether there are persons at the end of the chain of ownership which, through other means, controls the company.
The calculation of the beneficial owners will in accordance to the presumption of 25 % be as follows:
- George directly owns 25 % of Hotel A/S and is therefore a beneficial owner.
- Poul indirectly owns (0.19*0.51)*100 = 9.69 % of Hotel A/S and is therefore not a beneficial owner.
- Charlie directly owns 15 % and indirectly (0.8*0.3*0.51)*100 = 13.24 %. Combined, Charlie owns 15 % + 13.24 % = 28.24 % of Hotel A/S and is therefore a beneficial owner.
- Susanne indirectly owns (0.2*0.3*0.51)*100 = 3.06 % of Hotel A/S and is therefore not a beneficial owner.
- Rachel indirectly owns (0.51*0.51*0.51)*100 = 13.27 % of Hotel A/S and is therefore not a beneficial owner.
It is not in all situations where the presumption gives a complete and fulfilling answer. For this reason, a concrete assessment should be made in all cases to investigate whether there are other means by which a person de facto is a beneficial owner.
For example, let’s analyze Rachel’s scenario again: According to the presumption, she owns 13.27% of Hotel A / S, and therefore, she is not considered as a beneficial owner. However, Rachel has a controlling influence in all the underlying companies with 51% of the ownership. This implies that Rachel must also be designated as a beneficial owner. Therefore, it is important to make a concrete assessment of the ownership structure and not solely rely on the presumption principle.
The company has no or cannot identify its beneficial owners
The main rule is that companies have beneficial owners and can identify them. For this reason, the scenario where a company does not have beneficial owners or cannot identify them will be an exception. Therefore, the company must attempt to identify the beneficial owners, unless it is considered to be unreasonable to demand further investigation. In this case, the management must be registered as beneficial owner. It is worth mentioning that it is the management of the relevant Danish company that has to be registered and not the management of the company where the chain of ownership ends.
There are companies that have no beneficial owners. For example, if a company is owned by 10 physical persons, each of whom owns 10 % of the ownership and voting rights, and there are no other owners who can exercise control using other means. In such cases where a company does not have any beneficial owners, the company's management must be registered as beneficial owners. This means that there must always be registered beneficial owners for the company.
The company must be able to prove its identification attempts and keep the documentation for 5 years. For the next three years, the Danish Business Authority has announced that they will conduct control by requesting documentation of the given reasons for the registration of beneficial owners and how the company has reached this conclusion.
In conclusion, it should be noted that companies are obliged to update the information of beneficial owners at least once a year. This also applies if the company initially failed to identify the beneficial owners.
The Danish Business Authority’s full guidance on beneficial owners can be found here (only available in Danish).