Utlimate beneficial owner registry and what you should know about it
Authorities with the appropriate authorization and certain service providers will are able to request data from the registry since 1 February 2022. On top of that third parties will also be able to request data from 1 July on with certain restrictions.
After lengthy preparations, Act XLIII of 2021 on the Creation and Operation of the Data Reporting Background for the Identification Duties of Financial and Other Service Providers (“Afad Act”) entered into force on 21 May 2021.
As per in the preamble of the Act, the stated objective of the legislation is to create a data reporting framework for the identification duties of financial and other service providers, to make the ownership of economic and social actors more transparent and to promote the effectiveness of the fight against money laundering and terrorist financing by establishing and operating a central registry of beneficial ownership, bank accounts and safe deposit services.
One of the reasons for the new ruleset is the, by Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 that also aims to establish a registry for beneficial owners.
Plans for regulation to combat financial money laundering, terrorist financing, tax evasion and corruption has long been on the EU’s agenda. The system, also referred to as the UBO (ultimate beneficial owner) registry, has undergone several conceptual changes before the current regulatory approach was chosen, under which data collection and related services are provided by the Hungarian Tax Authority (NAV). As part of the operation of the registry, the organization concerned is assigned a national registration number and a so-called TT index. This index assesses the registered organization on the basis of their reliability in providing accurate data. The TT index classification rules entered into effect as of 1 February 2022 and the possible sanctions will only follow first from 1 July.
Who are the beneficial owners and to has a duty to report?
A beneficial owner is the person who ultimately benefits from the activity of an enterprise. The Afad Act refers back here to the rules of the Money Laundering Prevention Act (Pmt Act), according to which beneficial owners are natural persons who directly or indirectly hold at least twenty-five percent of the voting rights or ownership interest in the specified company or otherwise exercise effective management or control.
According to the provisions of the Afad Act, the duty to report apply in particular to:
- business entities and legal persons registered in Hungary,
- Hungarian branches of foreign companies registered in Hungary,
- voluntary mutual insurance funds and private pension funds registered in Hungary,
- non-governmental organisations registered in Hungary,
- in the case of trusts, fiduciaries, if the activity is carried out in Hungary or abroad, more precisely outside the EU, but the business relationship is established in Hungary or real estate is acquired in Hungary in accordance with Pmt Act,
- legal entities partly owned by the state or local government with at least 25 percent non-state ownership.
Who provides the information?
According to the provisions of the Afab Act, account-holding banks are the ones obligated to upload data on beneficial owners to the registry based on information previously collected from their customers. Banks are obliged to provide data on their customers on a monthly basis.
What is the subject of the reporting?
According to the law, the data must include the following information on the beneficial owner or owners
- the surname and first name of the beneficial owner;
- the name and surname at birth of the beneficial owner;
- the nationality of the beneficial owner;
- place and date of birth of the beneficial owner;
- the address of the beneficial owner, or, in the absence of an address, the place of residence;
- the nature and extent of their interest in accordance with Article 3, Section 38, points a) and b) and d) to f) of the Pmt Act;
- the TT index of the actual ownership data
TT index and client classification
Based on the registry, those obligated to report are assessed on the basis of a 10-point reliability index. Each data subject is assigned 10 points at the time of the first recording. In the event that any authority detects a material discrepancy between the data known to it and the data entered in the register, it may notify the tax authority.
On the basis of such a notification, the NAV will reduce the TT index of the client concerned. If the client’s TT index is reduced below 8 points, the client’s designation is changed to uncertain and unreliable below 6 points. The tax authority publishes the name, tax number and rating of the entity concerned immediately in the case of an unreliable rating and after 180 days upon receiving an uncertain rating. Service providers must treat clients with an unreliable rating as high-risk as per the PMT Act and refuse to execute transactions above HUF 4.5 million for them.
How long will the data be included in the register?
In order to prevent and combat money laundering and terrorist financing, the registry will keep the data of the data provider in the beneficial ownership registry for 8 years from the date of the data provider’s dissolution without legal succession.