Have you registered your beneficial owner yet?

The beneficial owner concept is not new in the Czech legal environment. It has been introduced by anti-money-laundering legislation deriving from EU regulations. The beneficial owner is generally understood to be an individual who, directly or indirectly, exercises decisive influence over the management of a legal entity. Czech legislation imposes a duty on all legal entities to know their beneficial owners and on some of them, to register them in a new register.

In operation since the beginning of 2018, the register of beneficial owners is a non-public register to which access is permitted only to persons specified by law, including in particular public authority bodies such as courts and tax authorities as well as persons liable to identifying their clients pursuant to Act No. 253/2008 Sb., on Some Measures against the Legalisation of Proceeds from Criminal Activity and the Financing of Terrorism (the AML Act), including but not limited to tax advisors, auditors and accountants. 

Much uncertainty prevails with respect to both the administrative process of registration and the actual identification of a beneficial owner. Especially where large holding structures are concerned, it is often very difficult to determine who should actually be recorded as the beneficial owner in the register. Czech lawmakers have not made the situation easier for liable persons, as some legal provisions are ambiguous from an interpretation viewpoint. Since the registration courts have no experience with recording information in the register and no clear rules for documenting the registered information are in place, the registration of their beneficial owner poses difficulties for many entities. The failure to meet this duty is not sanctioned by law and, as a result, many a company regard the recording of their beneficial owner in the register as a redundant administrative burden they knowingly ignore.

However, it should be kept in mind that the identification of a beneficial owner plays an important role, e.g. in the awards process of public contracts or subsidies. If an applicant for a public contract or a subsidy does not have their beneficial owner registered or if they do not document their beneficial owner on the awarding entity’s or the subsidy provider’s request, the applicant can be excluded from the proceedings. In addition, the identification of a beneficial owner is also a prerequisite for access to certain types of services; e.g., a bank may refuse to provide a loan or any other service if it is unable to determine the beneficial owner of its client as a legal entity in the register and the client does not provide any supporting documentation in this respect.

It is therefore not reasonable to perceive the registration of beneficial owners as a redundant formality. In fact, meeting this statutory duty may actually help improve the everyday operations of a large number of companies.