Implementation of Ultimate Beneficial Owner (UBO) Database in Hungary in 2021
In 2017, the anti-money laundering legislation ("AML") entered into force in Hungary, which requires a wide range of service providers (primarily credit institutions and financial service providers, but also including accounting service providers, auditors, tax advisors and real estate agents) to conduct due diligence and continuous monitoring of their clients based on certain criteria. One of the tools used to do this is to obtain an Ultimate Beneficial Owner (UBO) statement for the ultimate beneficial owner private individuals behind the legal entity clients. The information provided in the UBO statement had to be included in the single beneficial ownership database in line with the European 4th and 5th Anti-Money Laundering Directives (DAC5).
Currently, the registers operating in Hungary (e.g. company registers, court registers of NGOs) do not contain ultimate beneficial ownership data, therefore the draft law passed by the Parliament will create the legal background for an UBO database. The medium-term government objectives include the establishment of a Single Register of Legal Persons, which would be operational from 2022-2024 and would take over the role of the currently fragmented registers, including the UBO data, too.
Under the adopted draft law, all business entities and NGOs registered in Hungary, as well as fiduciaries and partially state-owned entities with a non-state ownership share of more than 25% will be required to provide ultimate beneficial owner information. Entities will have to set up internal procedures to ensure that their beneficial ownership records are kept up to date. To this end, owners will have to inform the entities they own of any changes in their reported data within 15 days at any time. Organisations will continue to inform their AML providers of any changes to their data within 5 working days, in accordance with the provisions of the AML Act currently in force.
The actual ownership data are transmitted by the account-holding banks to the central register operated by the Hungarian Tax Administration. This will first be done when the register becomes operational (from 6 June 2021 for existing customers until 2021 and from 1 October 2021 for customers acquired in 2021) and then regularly during normal operations thereafter.
At the time of the first recording, the entity is assigned a registration number and a trust index (so-called "TT"), with an initial value of 10. The TT index may change in response to notifications: if it falls below 8 points, the actual ownership of the entity is automatically classified as "uncertain", and if it falls below 6 points, it is classified as "unreliable". In either case, the entity has the opportunity to confirm or amend its data within the legal deadlines and thus regain the 10-point "reliable" TT index.
Entities with an unreliable rating (i.e. with a TT index below 6 points) must be treated as high-risk customers by the service providers in scope of the AML Act and refused to execute transactions above HUF 4.5 million.
Entities that have faced negative legal consequences because of their unfavourable trustworthiness index can lodge a complaint with the Ministry of Finance if the actions taken towards their account-holding bank have not been successful.
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Should you have any questions as regards the UBO database, the tax experts of VGD Hungary will be pleased to assist you.
This newsletter provides general information and does not constitute tax advice.
