Like all EU states, Portugal is seeking to manage the thorny question of managing and recording Ultimate Beneficial Owner (UBO) information, as part of its obligations under Chapter III of EU Directive 2015/849.
The Directive seeks to tackle the use of financial systems by those bent on money laundering and terrorist financing. To this end, Portugal has drawn up Law 89/2017, which was enacted on August 2017 and came into force on November 19 last year.
The new legislation is comprehensive. For example, companies that do not exercise an activity or perform an act or business in Portuguese territory are not required to obtain a Portuguese tax number. However, if a foreign company acquires shares in the share capital of a Portuguese company, it will be required to obtain a Portuguese tax number. If so, then there is a school of thought that the foreign company would (whether itself carrying out any activity or not) also be required to register.
Interestingly, the law appears to deal with an act of omission leniently. Should a company fail to provide UBO identification information, then no offenses are committed. However, if UBO information is supplied and found to be false, then an offense is committed. So, it is better to remain silent than to lie.
The types of entities required to register are also far ranging: for example, associations, cooperatives, foundations, civil and commercial companies, Madeira Offshore Trusts, as well as any other entities with legal personality, subject to Portuguese or foreign law, that exercise an activity or perform an act or business in Portuguese territory that requires them to obtain a Portuguese tax number.
In addition, there is now a requirement for commercial companies to keep and maintain an internal share ownership register. This should record sufficient, accurate and updated information on:
- Their shareholder(s) and respective share participation(s)
- The person(s) that hold(s) directly or indirectly the ownership of the shares
- The person(s) that has/have the actual control over the company
- Their tax representative (when applicable).
Failure by the company to comply with any of the above obligations constitutes an administrative offense that may be punished with a penalty ranging from €1,000 to €50,000 (about $1,200 to $62,000).
Where a shareholder, without justification, fails to provide or update the information required within 10 days following service of a notice requiring such information, the company is entitled to redeem the non-compliant shareholder’s shares pursuant to the terms of the Portuguese Companies Code.
As highlighted above, the addition of a “Central UBO Register” has also been implemented. Effectively, all obligated entities are required to declare to the Central UBO register, as of the effective date (i.e. a date yet to be determined by ministerial order), sufficient, accurate and updated information on their UBO(s), as well as all circumstances that indicate that they are such and details of the economic interest held in the company.
Where the entity in questions fails to comply (in the sense of not providing the information as opposed to supplying false information), during the time in which it is in breach it may not:
- Distribute dividends (including interim dividends)
- Enter into agreements for the supply, public civil construction, or acquisition of services or assets with the Portuguese State, the Insular Regions, public institutes, local authorities and social care private institutions that are financed mainly by the State Budget or renew existing contracts
- Tender for public service concessions
- Be permitted to trade in regulated market financial instruments representing its share capital or that may be converted into its share capital
- Launch public offerings to distribute any financial instruments issued by it
- Benefit from EU fund structural supports or from public investments.
So, on the one hand, refusing to be compliant and maintaining silence, thereby declining UBO information is not a criminal act. However, on the other hand, when one visits the rules impacting the entity when UBO information is not forthcoming, the limitations triggered can impact the operation of a company significantly.
As with all UBO and central company registers, they are only as good as the information provided to them. It is still a relatively straightforward process to mislead those collecting the information. This said, at first glance the new Portuguese law/regulations appear to cover many of the bases. Time will tell if they will be successful.
Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors, a specialist investigative and asset recovery practice based in the BVI and focused on multi-jurisdictional fraud and grand corruption cases www.martinkenney.com |@MKSolicitors. He was selected as one of the Top 40 Thought Leaders of the Legal Profession in 2017 by Who’s Who Legal International and as the number one offshore lawyer for asset recovery.