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Legal newsletter December 2020

Registry of ultimate beneficial owners newly with sanctions

Currently, the obligation to register the ultimate beneficial owner is regulated by the Public Registers Act. This obligation applies to all entities entered in one of these registers. However, no sanction for the non-compliance with this obligation has been set by the above-mentioned law or other legal regulations.

Newly, this issue is to be incorporated into a separate law. It is in the process of approval by the Parliament of the Czech Republic and it is assumed that it will be adopted without major complications. One of the main changes that the law will bring will be the introduction of sanctions for the non-compliance with the obligation to register ultimate beneficial owners. It will be possible to impose a fine up to CZK 500,000 on an entity obliged to register the ultimate beneficial owner if it does not enter the required data in the register of ultimate beneficial owners even at the request of a court. The ultimate beneficial owner may then also be fined up to CZK 500,000 if he / she does not provide the necessary cooperation to the entity obliged to register.

Another sanction for the non-compliance will be a ban on the payment of profit share to the ultimate beneficial owner of the business corporation or to other entities within the chain. In addition, these entities, including the ultimate beneficial owner, will not be allowed to exercise voting rights in the decision-making of the highest company body for the duration of the breach. Last but not least, the law sets down a private law sanction in the form of unenforceability of all legal acts aimed at obscuring the ultimate beneficial owner, unless the person is registered. The legislator is thus attempting to prevent, in particular, the use of so-called white horses. The unenforceability of legal acts may however also affect, for example, ordinary commission contracts used for legitimate purposes.

Another change concerning the registration of ultimate beneficial owners will be the transformation of its character from non-public to partially public. Currently, the data in the register of ultimate beneficial owners serve only to state institutions and the general public does not have access to them. That is set to change in the future. Newly, the public will have access to some personal data entered in the register, in particular the name of the beneficial owner, information about the state in which he resides, the year and month of his birth, as well as his citizenship.

At the same time, the law changes the definition of the ultimate beneficial owner. The ultimate beneficial owner will be any natural person who is a final beneficiary or a person with the final influence at a company. In short, this means natural persons who have a substantial part of the company's property benefit and persons who exercise decisive influence in the company at their own free will. The law also lists entities that do not have an ultimate benficial owner. Such persons include, for example, those in which the Czech Republic, regions or municipalities have all shares in the benefit and voting rights. 100% state-owned companies will therefore be legally without an ultimate beneficial owner.

Last but not least, the law reduces the administrative burden for legal entities with a simple ownership structure. It envisages that their ultimate beneficial owner will be entered in the records automatically from the Commercial Register. For example, for single-member companies, the obligation to deal with the registration of the beneficial owner may be waived. However, all other entities who have not yet done so can only be advised to make an entry in the register of beneficial owners as soon as possible. Otherwise, with the advent of the new law, they may be subject to significant sanctions.


Time test related to the real estate sale

Income from the sale of real estate is traditionally exempt from taxation provided that the condition of the expiration of certain time from its acquisition or its use for housing purposes is met.

The current regulation exempts from income tax, in particular, the sale of residential real estate, i.e. houses and related land or apartments, provided that the seller has resided in such real estate for at least two years immediately prior to the sale or funds obtained from the sale of such real estate will be used to procure seller’s own housing needs. This legal regulation will remain unchanged. The changes concern sales of real estate that do not meet these conditions.

Currently, also a sale of real estate that is not used for housing may be exempt from income tax provided that it is not included in business property. When selling such real estate a time test of five years from the real estate acquisition must be met for the sale exemption from income tax. The same applies to the settlement of co-ownership of such real estate. It is this time test that concerns the abovementioned law amendment. The legislator decided to double this period starting from the beginning of 2021. The real estate will have to be owned by the seller for a period of ten years instead of five before the sale takes place for the sale to be exempt from real estate from income tax.

It is clear that this change is intended by the legislator to partly compensate for the abolition of real estate acquisition tax. Thus, in certain cases the tax burden is being transferred from the purchaser of the property to its seller to a certain extent.


Home office

The Labour Code does not comprehensively regulate work from home. Therefore, a number of questions arise regarding its implementation and proper setup.

First of all, the question often arises as to whether it is possible to order that an employee works from home or whether the employee’s consent with home office is required. In general, work for the employer must be performed during working hours at the employer's workplace or at another agreed place. It is therefore clear that it is not possible to unilaterally order employees to work from home, regardless of whether work from home is taken as a benefit or not. Therefore, an obligation to this end provided for only by an employer’s internal regulation would not suffice as it is an employer’s unilateral regulation of rights and obligations.

A suitable way of setting down work from home is therefore to include it in a written agreement between the employee and the employer determining the period for which the work is to be performed from home, the place where it is to be performed, and the rules for work assigning and its reporting. The internal regulation may supplement this agreement.

In addition to the above, the agreement should also stipulate the method of employee compensation of costs incurred in connection with the performance of work from home. These costs may be incurred e.g. in connection with the energy consumption (electricity, gas), or expendable supplies (printer toners, paper). In principle, the employer cannot be released from this liability, since dependent work is to be carried out at the employer's expense, and if an employee incurs costs in connection with the work performance, the employer is obliged to reimburse these.

Last but not least, employers are not absolved of the obligation to ensure safety and health at work even when an employee works at home or other agreed place and not at the employer’s workplace. For these purposes it is therefore appropriate to draw up a written record on the employee's training in safety and risks related to working from home.

It follows from the several mentioned partial issues that although the regulation of home office may seem to be a marginal matter its correct setting in practice is quite complex from legal perspective.