A new Czech Act on the UBO Register has embarked on the journey from bill to law. The bill anticipates fundamental restrictions for UBOs who are not entered in the register, as well as financial penalties for companies that do not look after the proper entry of their beneficial owners.
This article follows up on our earlier discussion of proposed ammendment UBO Act from November 27.11. 2019, please see here: Will the Czech UBO register revolutionized?
In the future, courts will be able to initiate, ex officio, a proceeding over inaccuracies if it is brought to their attention that the data entered in the UBO register is not in line with the facts (or if a company has failed to enter its ultimate beneficial owner to begin with). In such a case, the court shall flag the entry in the register as inaccurate. As long as this note by the court exists, the rights and obligations from which the ultimate owner derives his or her benefits or exercises ultimate influence shall be suspended.
If the ultimate beneficial owner is not entered in the UBO register, the company must not distribute profit to them and they must not exercise their voting rights. This holds true even if the profit is to be paid out to a legal entity or if the voting rights are to be exercised by a legal entity, if the company is aware that the ultimate beneficial owner of that legal entity is not entered in the UBO register. If the distribution of profit does not take place by the end of the accounting period, the right to the distribution of profit expires and the undistributed funds are posted to Retained Earnings.
An important part of the new law is the introduction of financial penalties. A company which fails to enter its ultimate beneficial owner in the UBO register even after it has been called upon to do so by the court faces a fine of up to CZK 500,000. The same fine can be imposed also on the beneficial owner who has not provided the synergy to the company within the registration process.
As we have seen, recording the ultimate beneficial owner will turn from mere administrative hassle which can be ignored without serious consequence into a substantial reporting duty. Companies which will continue to evade it expose themselves to the risk of fines and jeopardize the smooth functioning of their corporate governance. We will continue to monitor the fate of the bill and timely inform our clients if and when it is written into law, and about its final wording.
Bill for an Act on an UBO Register and its explanatory memorandum