Partial modifications of the Act in line with the requirements of the Commission

At the beginning of June, in response to the requirements of the European Commission (“the Commission”), the government of Petr Fiala approved a draft amendment to the Act on the Registration of Beneficial Owners no. 37/2021 Coll. (“the Beneficial Owners Registration Act” or the “Act”), which was subsequently passed by the Chamber of Deputies and the Senate and is now awaiting its publication in the Collection of Laws (no. 245/2022 Coll.).

The Commission made the amendment a condition for requests for payment under the National Recovery Plan, which serves to mitigate the impact of the COVID-19 pandemic on the domestic economy and to restart it. The Czech Republic can reach up to EUR 7 billion through this platform. The Czech Republic wants to apply for the first payment this year already, so it is essential for the amendment to come into force as soon as possible.

The proposal incorporates exclusively the points raised by the Commission against the Czech Republic. This is therefore not a fundamental reworking of the existing concept of beneficial ownership registration as we know it from the relatively new law, but only partial adjustment according to the requirements of the Commission.

Specifically, the distinction between beneficial owner as ultimate beneficiary or person with ultimate influence will be absent, compared to the current wording. The question is, of course, if this step will not lead to the loss of some of the informative value of the data recorded so far. The proposal narrows down the original terminology only to direct or indirect owners and further divides the actual owners into material (under article 4 of the Act), substitute (under article 5 of the Act), or formal ones (under article 6 of the Act). However, the Explanatory Memorandum states that “The fundamental change consists the introduction of a single material characteristic of the beneficial owner. This consists in the fact that the beneficial owner owns or controls the legal person or legal arrangement.”

At the same time, there is a change in article 7 of the Act, which until now exhaustively defined the group of entities that were deemed not to have a beneficial owner. This is narrowed down by the proposal to:

1. the state and a territorial self-government unit, a voluntary association of municipalities, a state-funded contributory organisation, a contributory organisation of a territorial self-government unit, and 
2. a Czech legal entity founded or established for the purpose of meeting needs of public interest, which are not of industrial or commercial nature, if the Czech Republic, a region or a municipality predominantly finances it, exercises decisive influence in it or appoints or dismisses a majority of the persons, who are members of its statutory or supervisory body; in the case of a business corporation, it is always required that all shares in it are held directly or indirectly by the Czech Republic, a region or a municipality. 

For the remaining subjects, the original fiction of law is replaced by a rebuttable presumption (see article 7 paragraph 2 of the Act).

The amendment also expands the possibilities of remote access to the records. This change primarily affects grant providers, who previously obtained the statement directly from the applicant in the case of a grant application. Now they will get to it on their own.

The effectiveness of the amendment to the Act is set as of 1 October 2022. The discussion of the amendment has not been accompanied by controversy, it is not a major work of recodification and its approval has not caused any difficulties; hopefully it will be similar with its subsequent application in practice.

Conclusion

The data of most business corporations are entered into the register automatically. The Ministry of Justice shall carry out the transposition of the original data by 1 November 2022. For legal persons or groups that have not yet been required to register, the deadline for registration is 6 months. The same time limit applies to registrants, whose registration needs to be adjusted as a result of the changes described above. If you are currently addressing this topic, we will be happy to help you. Please do not hesitate to contact us.

Author: Veronika Odrobinová, Aneta Koubková