Table of contents
- What is the beneficial owners register and why was it created?
- Who is a beneficial owner and how do you identify them?
- How to identify the beneficial owner of a Czech s.r.o. step by step
- Who must register in ESM and how?
- Automatic transfer vs. notary registration: when to use which?
- What happens to a company without an ESM registration?
- How does an obliged entity verify ESM during client due diligence?
- What should you do if you find an ESM discrepancy?
- Frequently asked questions about ESM
What is the beneficial owners register and why was it created?
The Evidence of Beneficial Owners (ESM) is a public register administered by the Czech Ministry of Justice. Its legal basis is Act No. 37/2021 Coll., on the Evidence of Beneficial Owners. Access to ESM is free through the esm.justice.cz portal.
The main purpose of ESM is to make ownership structures of legal entities transparent and prevent anonymous company ownership used for money laundering, tax evasion or corruption. ESM therefore has two separate functions:
- for companies (registering entities): a duty to register and continuously update beneficial owner data
- for obliged entities under Act No. 253/2008 Coll. (real estate agents, accountants, tax advisers, lawyers and others): a duty to verify ESM during client identification and due diligence under Section 9(2)(b) of the AML Act
Act No. 37/2021 Coll. has been effective since 1 June 2021. A key amendment extending automatic data transfer entered into force on 1 October 2022.
Who is a beneficial owner and how do you identify them?
The definition of a beneficial owner is set out in Section 2(c) of the ESM Act. A beneficial owner is any natural person who ultimately owns or controls a legal entity or legal arrangement, typically a trust.
In practice, this is a natural person who:
- has a direct or indirect share in voting rights or registered capital of more than 25%
- has a right to a share in profits, own resources or liquidation balance of more than 25%
- exercises decisive influence in another way, for example through controlled intermediaries or contractual arrangements
If the beneficial owner cannot be determined in this way, a fallback category applies: persons in senior management, meaning the statutory body or persons directly subordinated to it who manage day-to-day operations. A company therefore can never be entirely without a registered beneficial owner.
Note on associations and homeowners' associations: Non-profit legal entities, associations, unit owners' associations, foundations and investment funds in the legal form of a variable-capital joint-stock company are subject to special rules for identifying a formal beneficial owner under Section 6 of the ESM Act. Automatic transfer from public registers may cause all members of the statutory body to be treated as beneficial owners, including cases where one of them is a PEP. This can transfer AML duties to the legal entity itself under Section 54(8) of the AML Act.
How to identify the beneficial owner of a Czech s.r.o. step by step
For a standard Czech limited liability company, identifying the beneficial owner is usually straightforward. More complex holding structures require a systematic process.
Step 1 — Check the Commercial Register
On justice.cz, review the list of shareholders and their ownership shares. Any shareholder with a share above 25% is a candidate beneficial owner.
Step 2 — Verify the ownership structure above the company
If the shareholder is another legal entity, you must go one level higher and identify who controls that parent company. Repeat the process until you reach a natural person with decisive influence.
Step 3 — Check ESM
Search the client on esm.justice.cz and verify whether the registered beneficial owner matches the identified structure. ESM is the starting source, but not the only one. If you have doubts, the law requires verification from additional sources.
Step 4 — Request documents from the client
If the structure is not transparent or the ESM record is not reliable, FAU Methodological Guideline No. 3 recommends requesting articles of association, shareholder lists, general meeting minutes, a beneficial owner declaration or an extract from a foreign register similar to ESM.
Step 5 — Document the process
Records of the beneficial owner identification process must be kept for 10 years after the end of the business relationship (Section 16(1)(d) and (e) of the AML Act). The result alone is not enough; keep the steps that led to it.
Who must register in ESM and how?
In principle, all Czech legal entities and foreign legal entities doing business in the Czech Republic through a branch or establishment must register their beneficial owner. Exceptions are exhaustively listed in Section 7 of the ESM Act and mainly cover public-law entities such as the state, municipalities and regions.
Sole traders are not subject to ESM registration. A natural person doing business in their own name cannot be their own beneficial owner.
Three ways to register
Registration through the registry court
A standardized form, court fee, more administrative burden and longer waiting times. Suitable only in specific cases.
Registration through a notary
A notary enters the data directly into ESM without court proceedings. The process is much faster, costs are often lower than the court fee and it is suitable for complex or cross-border structures.
Automatic transfer
For entities whose data is transferred automatically from public registers. Since 1 October 2022, it is possible to request automatic transfer also for persons in senior management, solving future entries when changes occur.
The following data is usually entered into ESM:
- beneficial owner's first name and surname
- date of birth
- country of residence
- nationality
- reason and scope of beneficial owner status
- description of the ownership structure
Part of the data is publicly displayed, such as country of residence, month and year of birth or nationality. More sensitive data, such as birth number or exact address, is available only to authorized persons.
Automatic transfer vs. notary registration: when to use which?
The choice depends on the company's ownership structure and how often it changes.
| Situation | Recommended method |
|---|---|
| Simple s.r.o. with 1–2 direct natural-person shareholders | Automatic transfer from the Commercial Register |
| Company with a holding structure | Notary |
| Foreign owner in the chain | Notary, because they can work with translations |
| Frequent ownership changes (investors, startups) | Automatic transfer + request for transfer of senior management persons |
| Association or homeowners' association | Automatic transfer, but watch for PEP contamination risk |
| Trust fund | Notary — formal BO under Section 6 of the ESM Act requires individual assessment |
Automatic transfer is the cheapest solution, but it works only where register data is accurate and up to date. If there is a mismatch between the register and the actual ownership structure, automatic transfer will not catch it. The obliged entity will detect the discrepancy during client due diligence and must proceed under Section 15a of the AML Act.
Verify the client's beneficial owner in ESM directly in AML PROOF
AML PROOF automatically connects ESM verification with the identification process. The result is saved into an audit trail ready for the FAU.
What happens to a company without an ESM registration?
Missing or outdated ESM registration has three major consequences:
Fine under the ESM Act
Failure to register a beneficial owner is an offence punishable by a fine of up to CZK 500,000.
Ban on profit distribution and voting rights
Under Sections 53 and 54 of the ESM Act, a business corporation must not pay a share in profits, own resources or liquidation balance to an unregistered beneficial owner. The unregistered beneficial owner also cannot exercise voting rights at the general meeting. A right to a profit share not exercised by the end of the relevant accounting period expires.
Business paralysis
Obliged entities under the AML Act may refuse to enter into a transaction with a company that has no registered beneficial owner. In practice, such a company may be unable to sell real estate, obtain a loan or receive legal representation. Missing registration is also an obstacle to drawing subsidies and participating in public procurement.
How does an obliged entity verify ESM during client due diligence?
For real estate agents, accountants, tax advisers and other obliged entities, Section 9(2)(b) of the AML Act creates a duty to identify and verify the client's beneficial owner from reliable sources during client due diligence.
ESM is the primary source, but not the only one. FAU Methodological Guideline No. 3 expressly warns that an obliged entity must not blindly accept ESM data without further verification. If there are doubts about the correctness of the record, the obliged entity must:
- carry out its own checks from publicly available sources, such as the Commercial Register and the Collection of Deeds
- request documents from the client, such as articles of association, shareholder lists or general meeting decisions
- for a risky client, combine multiple sources and document the result
A client's declaration of beneficial ownership is not sufficient on its own. The FAU has repeatedly sanctioned obliged entities that relied on declarations without verification from independent sources.
The result of BO verification must be documented and retained for 10 years after the end of the business relationship (Section 16(1) of the AML Act).
What should you do if you find an ESM discrepancy?
If an obliged entity discovers during client identification or due diligence that ESM data does not match reality, the mandatory three-step procedure under Section 15a of the AML Act starts:
Step 1 — Notify the client (Section 15a(1))
Tell the client what discrepancy you see and allow them to respond. A reasonable period for remedy is generally considered to be 30 days.
Step 2 — Notify the competent court (Section 15a(2))
If the client does not remove or disprove the discrepancy, the obliged entity notifies the regional court competent according to the client's registered seat. The notice must include a description of the discrepancy, available documents and any client response.
Step 3 — Reassess the client's risk profile
Until the discrepancy is resolved, ESM information cannot be treated as reliable. Adjust the client's risk profile and adopt appropriate measures under Section 9 or 9a of the AML Act.
Exception: If reporting the discrepancy could endanger an investigation of a suspicious transaction or ongoing criminal proceedings, the FAU may instruct the obliged entity not to apply the Section 15a procedure (Section 15a(4) of the AML Act). In such a case, it is recommended to contact the FAU informally first or submit a suspicious transaction report.
Sanctions for failing to comply with Section 15a of the AML Act (Section 44a)
| Offence | Fine |
|---|---|
| Failure to notify the client of a discrepancy (Section 44a(2)) | up to CZK 100,000 |
| Failure to notify the court of a discrepancy (Section 44a(3)) | up to CZK 1,000,000 |
| Failure to comply with an FAU instruction (Section 44a(4)) | up to CZK 200,000, or CZK 1,000,000 if the investigation is endangered |
Frequently asked questions about ESM
Must a sole trader register in ESM?
No. A natural person doing business in their own name is not required to register in ESM. The law applies to legal entities and legal arrangements. A sole trader may, however, be the beneficial owner of another legal entity, in which case that legal entity must register.
What if the beneficial owner is a foreign natural person or foreign company?
If a foreign natural person sits at the top of the ownership structure, they must be registered in Czech ESM like a Czech beneficial owner. If a foreign legal entity is an intermediate link, you must identify the natural person who ultimately controls it. If that is impossible after exhausting available means, the fallback BO under Section 5 of the ESM Act applies.
How often must ESM data be updated?
The ESM Act does not set a fixed periodic update deadline. The duty to update arises whenever the person or status of the beneficial owner changes. The registering entity should therefore monitor the ownership structure continuously and update the record without undue delay after every relevant change.
Can an obliged entity refuse a transaction only because the client has no BO registered?
Yes. Missing ESM registration is a risk factor that the obliged entity must consider in the client risk assessment. If the obliged entity cannot properly verify the beneficial owner's identity because of missing or discrepant ESM data, it must refuse to carry out the transaction or establish the business relationship under Section 15(1) of the AML Act.
Does ESM also apply to trust funds?
Yes. A trust fund is a legal arrangement within the meaning of the ESM Act and its trustee must ensure registration of the fund's beneficial owner. The rules for identifying a trust fund BO are specific and follow Section 6 of the ESM Act, including formal beneficial owners such as the settlor, trustee and beneficiary.
ESM verification as part of the AML process, not an extra step
AML PROOF integrates beneficial owner verification in ESM directly into client due diligence. The result is automatically saved to the case and creates an audit trail for the FAU.