The Amendments
to the Law on the Prevention of Money Laundering and Terrorism Financing (hereinafter —
the Amendments), due to enter into force shortly, will provide significant changes
in the regulation regarding disclosure of beneficial owners (hereinafter —
BO). The Amendments extend both - the powers of the Register of Enterprises
(hereinafter — the Register); and the group of entities that shall be
obliged to disclose their BO. On 13 June 2019, the Latvian Parliament
supported the Amendments in the third reading and they will become effective on
the next day following their proclamation.
The Reregister shall initiate liquidation of a legal
entity, if within one month following a warning the BO will not be disclosed
In accordance
with the existing legislation legal entities were obliged to disclose their BO
by submitting an application to the Register by March 1, 2018. However, a large
part of legal persons still have not complied with this obligation. Therefore,
the Amendments provide that if a legal company has not yet submitted an
application regarding its BO and does not do so within one month following a
written warning, then liquidation of the legal entity will be initiated on the
basis of a decision of the Register.
Importantly, the
Register has determined that limited liability companies, whose owners are
foreign merchants, shall be the primary target group for achieving compliance
with the obligation to disclose its BO. Therefore, it is highly recommended for
all legal persons, especially those belonging to the primary target group, to
submit the application for registering the BO to the Register as soon as
possible, in order to avoid unanticipated liquidation of the company
.
The Register shall have right
to request for additional documents
Following the entry
into force of the Amendments, the Register will have the right to request
additional documents that confirm the truthfulness of the information provided in
the application for registration of BO. Namely, upon request by the Register,
documents confirming the BO’s exercised control over the company, as well as
documents confirming the BO’s identification information (copy of a personal
identification document certified by a notary, certificate of a foreign Residential
Register, or similar) will have to be submitted.
Obligation to provide justification in cases when it
is not possible to establish a BO of a legal entity
The current
regulation provides that, when it is not possible to determine the BO of a
legal entity, the legal entity must verify this fact in the application
submitted to the Register. Following the entry into force of the Amendments,
additionally the legal entity will have to provide a justification as to why the
entity has concluded that it is not possible to establish any BO by using all
of the possible determination means. Moreover, upon a request of the Register,
the legal entity will have to submit additional documents proving this
justification.
Hereafter branches and representative offices of
foreign merchants, as well as permanent establishments registered in the
taxpayers’ register shall disclose their BO
The Amendments provide
that hereafter branches and representative offices of foreign merchants, that
are registered in the registers maintained by the Register, as well as
permanent establishments of foreign entities that are registered in the
taxpayers’ register maintained by the State Revenue Service (hereinafter —
the SRS) shall disclose their BO. The norms of the law obligating the
aforementioned subjects to disclose their BO will come into force on July 1,
2020.
Respectively, branches
and representative offices of foreign merchants that are registered in the
registers maintained by the Register, shall disclose their BO by submitting an
application to the Register until January 1, 2021. If the BO will not be
registered by January 1 2021, the respective branches and representation
offices of foreign merchants shall be excluded from the register.
However, permanent
establishments of foreign merchants that are registered in the taxpayers’
register maintained by the SRS, shall disclose their BO by submitting an
application to the SRS by January 1, 2021. If the BO are not registered by January
1, 2021, the respective permanent establishments of foreign merchants shall be
excluded from the taxpayer’s register.
BO will be registered by default
The current
regulation provides for an exception that legal persons shall not submit the
application on BO to the Register if the status of BO of the legal person
arises from the status of the natural persons within that legal person. By
default the BO are considered to be: (1) shareholders of limited liability
company — natural persons who own more than 25 % of capital shares; (2) members
of a partnership, if there are no more than 3 members in a partnership;
(3) owners of individual companies; (4) owners of agricultural or fishing
farms; (5) members of board of foundations. In these cases legal persons were
only obligated to submit an application to the Register if the BO was another
person.
Following entry
into force of the Amendments, the Register, in the above-specified cases, will
register the respective natural persons as BO by default, unless the legal
person informs the Register until July 1, 2019 that the BO is another natural
person.
More severe criminal penalties for offences related to
non-compliance with the obligation to disclose BO
At the same
time, on June 6, 2019, amendments to the Criminal Law were supported in the
third reading by the Latvian Parliament. The respective amendments provide for
more severe criminal penalties for the offence of non-provision of the
information specified in law regarding the BO or provision of knowingly false
information. Namely, a natural person may be punished with deprivation of liberty
for a period of up to 1 year (previously, the most severe punishment was
temporary deprivation of liberty). However, if by the mentioned activities a substantial
harm has been caused to the State or business, or to the rights and interests
of other persons protected by law then a person might be punished with a deprivation
of liberty for a period of up to 2 years (previously, the most severe
punishment was deprivation of liberty for a period of up to 1 year).
If you need assistance with registration of BO or you
have any other questions regarding the forthcoming Amendments, we invite you to
contact lawyers of Leinonen Latvia.
This information
has been prepared by Leinonen Latvia, Tax & Legal Advisory Department.
25.06.19
