On 4 April 2019 the Dutch Minister of Finance sent the Legislative proposal implementation registration ultimate beneficial owners of companies and other legal entities to the House of Representatives (the "Proposal").
The Proposal implements the obligation to centrally register information in respect of the ultimate beneficial owners ("UBOs") of companies and other legal entities that are incorporated or established in the Netherlands. Such register of ultimate beneficial owners (the "UBO-register") will be introduced ultimately on 10 January 2020. The UBO-register will be a part of the Dutch Trade Register.
This obligation derives from the 4th EU Anti-Money Laundering Directive (EU 2015/849), which directive has been amended by EU Directive 2018/843 (the "Directive"). Briefly summarized, the Directive is adopted in order to prevent the use of legal entities for money laundering and terrorist financing.
In order to implement the Directive, the Trade Register Act 2007 (Handelsregisterwet 2007), the Money laundering and terrorist financing prevention Act (Wet ter voorkoming van witwassen en financieren van terrorisme) (the "Prevention Act") and the Economic Offenses Act (Wet op de economische delicten) will be amended.
Which legal entities are to register UBO information?
The following entities are to register UBO information:
- private companies with limited liability (BV's), public limited companies (NV's);
- European public companies (Europese naamloze vennootschappen), European Economic Interest Groupings (Europees Economisch Samenwerkingsverbanden), European cooperative companies (Europese cooperatieve vennootschappen);
- cooperatives (coöperaties), mutual benefit associations (onderlinge waarborgmaatschappijen), associations (verenigingen), associations with full legal capacity (verenigingen met volledige rechtsbevoegdheid), associations with limited legal capacity that conduct a business (verenigingen met beperkte rechtsbevoegdheid die een onderneming drijven); and
- partnerships (maatschappen), limited partnerships (commanditaire vennootschappen), general partnerships (vennootschappen onder firma) and shipping companies (rederijen).
One-person businesses (eenmanszaken), legal entities governed by public law (publiekrechtelijke rechtspersonen), churches (kerkgenootschappen), associations with limited legal capacity that don't conduct a business (verenigingen met beperkte rechtsbevoegdheid die geen onderneming drijven), owners' associations (verenigingen van eigenaars), certain types of historical legal entities and foreign legal entities with a main office or branch office in the Netherlands are exempt from the obligation to register UBO information.
Furthermore, there is an exemption to the obligation to designate UBOs for companies subject to disclosure requirements as referred to in the EU Transparency Directive, or to regulations that are equivalent to such disclosure requirements, including its (direct) wholly owned subsidiaries.
Which information is registered?
Certain information needs to be made publicly available:
- month and year of birth;
- country of residence; and
- nature and extent of the economic interest held by the UBO divided into ranges.
Further information needs to be made available to the competent authorities as designated by governmental decree and the Financial Intelligence Unit, being:
- date, place and country of birth;
- residential address;
- Dutch citizenship number (BSN) or Foreign Tax Identification Number;
- copy of documentation on the basis of which the identity of the ultimate beneficial owner can be verified; and
- copy of documentation explaining why a person has the status of ultimate beneficial owner and evidencing the nature and scope of his interest.
Which safeguards are set up to protect privacy?
The UBO registration will impact the privacy of natural persons due to UBO information becoming publicly available. After all, with a public register, information can become public that was not previously available, which could pose a real risk for some UBOs. Access to the UBO information in the Dutch Trade Register will be provided with safeguards for, among other things, the protection of the privacy of the UBOs to be registered.
This concerns the following safeguards:
- customers of the Dutch Trade Register will be registered (insofar as those customers are not the designated competent authorities or the Financial Intelligence Unit) and will pay a fee for inspection;
- customers other than specifically designated competent authorities and the Financial Intelligence Unit will have access to the limited set of UBO information that is prescribed as a minimum in the Directive (as described above); and
- protection of all information about an UBO - except for the information on the nature and extent of the economic interest held by the UBO – for the public in case an UBO is a minor or otherwise (demonstrably) incapable of acting, as well as in case the UBO is exposed to a disproportionate risk, a risk of fraud, abduction, blackmail, extortion, bullying, violence or intimidation by making its data publicly available.
Who is to be considered an UBO?
In the Prevention Act, UBO is defined as the natural person who is the ultimate owner of or controls a company or other legal entity.
The Implementation Decree the definition of UBO specifies the categories of natural persons who in any case must be regarded as UBO:
in the case of a private company with limited liability or a public limited company, not being a company subject to disclosure requirements as referred to in the transparency directive, or to regulations that are equivalent to the disclosure requirements from that directive, including a wholly owned subsidiary of such a company:
(a) natural persons who ultimately own or control the company through: (i) holding directly or indirectly more than 25 percent of the shares, the voting rights or the ownership interest in that company, including the holding of bearer shares; or (ii) other means, including the requirements for consolidation of the annual accounts on the basis of article 2:406 of the Dutch Civil Code ("DCC") in connection with articles 2:24a, 2:24b and 2:24d of the DCC; or (b) if after exhausting all possible means and on the condition that there are no grounds for suspicion, none of the persons referred to in subsection (a) is determined, or if there is any doubt as to whether a person as referred to in subsection (a) is the ultimate owner or has control, or is the natural person for whose account a transaction is being made, the natural persons belonging to the senior management of the company;
in case of other legal entities:
(a) natural persons who ultimately own or control the entity through: (i) holding directly or indirectly more than 25 percent of the ownership interest in that entity; (ii) in the event of a decision regarding the amendment of the articles of association of the entity, directly or indirectly can exercise more than 25 percent of the votes; or (iii) exercise effective control over the entity; or (b) if after exhausting all possible means and on the condition that there are no grounds for suspicion, none of the persons referred to in subsection (a) is determined, or if there is any doubt as to whether a person as referred to in subsection (a) is the ultimate owner or has control, or is the natural person for whose account a transaction is made, the natural persons belonging to the senior management of the entity;
this applies mutatis mutandis to legal entities that are comparable with one of these legal forms.
in case of a partnership:
(a) natural persons who ultimately own or control the company through: (i) holding directly or indirectly more than 25 percent of the ownership interest in that partnership; (ii) in the event of a decision regarding the amendment of the agreement on which the partnership is based, or on the performance of that agreement other than through acts of management, directly or indirectly can exercise more than 25 percent of the votes in so far as agreement decision making by majority vote is prescribed; or (iii) exercise effective control over the partnership; or (b) if after exhausting all possible means and on the condition that there are no grounds for suspicion, none of the persons referred to in subsection (a) is determined, or if there is any doubt as to whether a person as referred to in subsection (a) is the ultimate owner or has control, or is the natural person for whose account a transaction is made, the natural persons belonging to the senior management of the partnership;
this applies mutatis mutandis to shipping companies, European cooperative societies as well as other legal entities similar to a partnership.
The essence of the UBO definition is that an UBO has control over the entity. Therefore, the definition under the Prevention Act includes, without being limited, cases in which a natural person has the right to appoint or dismiss the majority of the board members of a company, regardless of the percentage of shares that is being held. Another example concerns natural persons who – based on an agreement – have a dominant influence on the company regardless of the percentage of shares that is being held, which can be the case in respect of having economic ownership. Potential influence is sufficient; it is not required that the influence is actually used. Even in cases where a right of pledge or usufruct is vested on shares, under circumstances the pledgee or usufructuary can be regarded as UBO.
If no person qualifies as UBO, the natural persons belonging to the senior management of the legal entity whose UBO's have to be identified, must be designated as UBO (the "pseudo-UBO"). For this purpose "senior management" is to be understood as one or more directors within the meaning of article 2:9 of the DCC, or, in case of a partnership, one or more partners, not being a limited partner within the meaning of article 19 of the Commercial Code.
Who is obliged to provide ubo information and when is the information to be provided to the Dutch trade register?
Companies and other legal entities are to obtain and maintain adequate, accurate and up-to-date information about their UBOs, including detailed data on the economic interests held by the UBOs. Those entities are to submit the UBO information to the Dutch Trade Register. The information is to be provided at the time of first registration in the Dutch Trade Register of the entity or – if the entity is already registered in the Dutch Trade Register – by means of an additional statement. As said, the UBO-register will be introduced ultimately on 10 January 2020. Once the UBO-register is in place, new entities will have to register UBO information upon registration of that entity in the Dutch Trade Regitster; existing entities will have 18 months to register their UBOs.
An UBO is to provide the entities with the adequate, accurate and up-to-date information.
If an organisation that is subject to the Prevention Act or – under circumstances – a designated competent authority has reasonable doubts about the accuracy of information or the lack thereof in respect of an UBO of an enterprise or legal entity, it shall notify the Dutch Trade Register thereof.
What is the consequence of not complying with UBO registration?
Acting in violation of or not complying with the obligations as referred to under the preceding paragraph is prohibited. Acting in violation thereof is an economic offense within the meaning of the Economic Offenses Act and can be punished with imprisonment, community service or a fine. In addition, additional penalties can be imposed, such as being disqualified from the practice of a profession (including that of a managing director) or full or partial closure of the company.
Furthermore, the Minister of Finance can impose an order for incremental penalty payments and an administrative fine in case of not submitting the UBO information to the Dutch Trade Register.
If you would like to receive more information about this subject, please contact your contact person with CMS, Gieneke van Nierop, +31 20 3016 455, [email protected] or Tom van Duuren, +31 20 3016 353, [email protected].