As a result of the amendments to the Money Laundering and Terrorist Financing Prevention Act enacted by the Parliament of the Estonian Republic in November 2017, companies registered in Estonia will have to submit information on the Beneficial Owner (Actual Beneficiary) to the Commercial Register Information System.

This measure is in line with the EU’s 4th AML Directive, and identical changes have been implemented or are being implemented in all EU Member States. For example, the register of the Person with Significant Control in the United Kingdom is a continuation of the EU and OECD’s aspiration to bring transparency to the ownership of legal entities and other legal arrangements by publicly publishing information on the real owners of an entity, also known as the Beneficial Owners or Ultimate Beneficiaries.

The stated purpose behind the regulation is to increase the transparency of business operations and potentially identify any criminals who may own companies.

According to the law, a Beneficial Owner (Actual Beneficiary) is any person or legal entity who owns the company directly or indirectly.

Direct ownership means possession of 25% of the shares by a natural person.  Indirect ownership is defined as the same percentage of shares owned through a legal entity.

However, as with any company managed from abroad, advice should also be sought in the country from which the Estonian company will be managed. This will help to establish whether a local Tax Authority may consider the Estonian company liable for income tax there, on the grounds that the company is to be managed from that location.

Submitting the information, although not yet required at this time, will not be complicated when the structure of the company is simple and clear, but problems may arise when its structure contains a chain of foreign legal entities. If it is impossible to identify the Beneficial Owner, a member of the highest body of management will be appointed as the Beneficial Owner (Actual Beneficiary). This means that when a real Beneficial Owner cannot be established, the most senior figure in the management board of the company is deemed so.

The law obliges the saving and documenting of every action taken to identify the Ultimate Beneficial Owner, but it is yet unclear if and how much effort has to be made before the most senior member of the management body can be appointed in their place.

The information will be publicly available after being submitted to the commercial register, but the disclosure of the Beneficial Owner (Actual Beneficiary) can be restricted by the Police and Border Guard in some cases, e.g. if the Beneficial Owner (Actual Beneficiary) is a minor.

If a company fails to provide the information within 2 months of the law taking effect (1st September 2018), it may, under the law, be liable to a fine of up to 32 000 EUR. Employees, and board members responsible for not providing this information may be fined 1200 EUR.

How the new requirement is to be implemented and how the information is to be submitted to the Commercial Register will be clear once the new law takes effect on 1st September, after which legal entities have 60 days to make amendments, since the information has to be submitted with the Commercial Register by 1st November. Please check our webpage to be kept up to date with any news regarding this matter.

Lauri Kurs

[email protected]