In order to combat money laundering and terrorist financing, and in compliance with the EU Money Laundering Directive (Directive 2015/849/EU), Austria has created a register in which legal entities must record their beneficial owners. The legal basis for this register may be found in the Beneficial Owner Registration Act (“WiEReG”).
Legal entities affected
The legal entities affected, in addition to partnerships and companies, are private foundations, associations, foundations and funds (as defined by the Austrian Federal Foundations and Funds Act (Bundes- Stiftungs- und Fondsgesetz)), which have their registered office or legal seat in Austria. As well as these entities, trusts and trust-like arrangements also fall within the compass of the WiEReG, if they are administered or managed in Austria. It should be noted that, in principle, fiduciary relationships should also be reported.
Beneficial owners
A general provision in the WiEReG defines a beneficial owner as a natural person who is the ultimate owner of, or who has the ultimate control over, a legal entity. This general definition is amplified by illustrative examples. Thus at the very least, the following persons number among beneficial owners of a company or partnership:
- persons owning more than 25% of the shares or having a participating interest of more than 25%;
- persons having sufficient voting rights in the company or partnership; or
- persons exercising control over the management of the company or partnership.
The three definitions are non-exclusive, so all persons meeting any of the definitions must be identified as beneficial owners. Successfully identifying one or more beneficial owners in one group of cases does not avoid the duty to identify all other possible beneficial owners in remaining groups of cases. Where no beneficial owner can be identified (e.g. because no natural person holds more than 25%), every individual who belongs to the highest tier of management qualifies as a beneficial owner. This provision reinforces the penalty provisions of the WiEReG in applying pressure on management to take all necessary steps to identify the true beneficial owner.
In a multi-member corporate structure, it is the person who has active control – by means of a majority of over 50% of the shares or voting power in intermediate legal entities – who qualifies as the beneficial owner.
The draft legislation contains special provisions concerning private foundations and trusts. As regards private foundations, it is the founder, the beneficiaries (or group of potential beneficiaries), the members of the foundation’s board of management, as well as other natural persons controlling the foundation, who must be reported as beneficial owners. With trusts, the beneficial owners are the settlor or trustor, the trustees, the protector, the beneficiaries or group of potential beneficiaries and any other natural persons controlling the trust property.
For that matter, a grantor establishes control through a fiduciary relationship.
EXTENSIVE OBLIGATIONS IMPOSED ON A LEGAL ENTITY:
The WiEReG imposes due diligence and reporting obligations on legal entities.
As part of their due diligence obligations, legal entities and their administrative organs must obtain the information in relation to their beneficial owners listed in section 5 of the WiEReG, keep it up to date and report it to the registration authorities. As part of the process of identifying their beneficial owners, legal entities must undertake the necessary research in order to assure themselves as to who their beneficial owner truly is.
The required scope of these research measures and the degree of certainty needed depends on the complexity of the ownership structure of the particular legal entity. The due diligence obligations must be met on
an annual basis. The documentation and information required for these obligations must be preserved for five years.
As part of their reporting obligations, legal entities are required to transmit the data concerning their beneficial owners electronically via the Austrian Government’s Business Service Portal.
Details to be reported are the name and surname of the beneficial owners, their place of residence (where there is no place of residence in Austria, the number and nature of their official photo IDs), date and place
of birth, and nationality. In addition, the nature and the extent of the economic interest that each beneficial owner has in the legal entity must also be reported.
The information concerning the beneficial owners must be reported to the register electronically via the Business Service Portal. Reporting may be carried out on the legal entity’s behalf by professional epresentatives (tax advisers, auditors).
Changes to the information must be reported within 4 weeks of becoming aware of the change. In the case of new legal entities, reporting must be carried out within 4 weeks of registration in the appropriate legal register
(Commercial Register, Register of Associations).
Inspection of the register
The register is not generally open to the public (as with the Commercial Register), but several groups of persons have the right of inspection. This includes all credit institutions, lawyers, notaries, auditors and tax advisers, but also estate agents, business consultants and insurance intermediaries as necessary in order to comply with their due diligence obligations as regards combatting money laundering and terrorist financing.
In addition, numerous public officials (tax inspectors, prosecutors of tax offences, supervisory authorities, the public prosecutor’s office) have the right to inspect the register when carrying out their lawful duties.
Finally, any person able to demonstrate a legitimate interest may submit a written inspection request to the registrar’s office.
In principle, every legal entity is entitled to check the register for information on itself, in order to assess whether the register contains the correct data or an update is necessary.
Penalties
Non-compliance with the duty to report will be punishable as a financial offence. Deliberate non-compliance may incur a penalty of up to 200,000 EUR; gross negligence a penalty of up to 100,000 EUR. Penalties may be
imposed on the legal entity itself (legal responsibility of legal entities) as well as on the responsible persons (management bodies). The submission of a report can also be enforced by means of fines.
What should I do?
- Check whether the duty to report under the WiEReG applies to you as a legal entity.
- Identify the beneficial owner(s).
- Make your initial registration in the new register no later than 1 June 2018.
- Carry out ongoing reviews of whether the information reported to the register is still up to date.
- Report to the register (within 4 weeks of becoming aware thereof) when any change in the reportable information takes place.
The rules on the Register of Beneficial Owners are complex in their detail and require closer attention due to the substantial penalties involved. BDO is ready to assist you in complying with the due diligence obligations and to undertake the reporting obligations on your behalf.