A New Law on Identification of Ultimate Beneficiaries: Nuisance or Necessity?

November 17, 2014 

Ukrainian law makers are notorious for passing ambiguous laws that appear to have good intentions, but ultimately cause negative consequences for the economy. As a rule, the full ramifications of these laws are not adequately considered prior to their passage, and the impact on foreign investment is usually not taken into consideration at all during the legislative drafting process. In the end, these laws are heavily amended or simplified once the practical problems related to their implementation come to the forefront (e.g., see the personal data protection legislation). 

Unfortunately, the law “On Amending Certain Laws of Ukraine Related to Identification of Ultimate Beneficiaries of Legal Entities and Public Figures” (the “Law”), which was signed on October 23, 2014, and comes into effect on November 29, 2014, is just this type of law. While the fight against money laundering is a noble task, the Law imposes quite a draconian compliance requirements on existing Ukrainian companies with large, global foreign shareholders. 

In a nutshell, the Law obliges founders of Ukrainian companies to disclose their “end beneficiaries” upon registration of their legal entities in Ukraine. Those Ukrainian companies that were registered prior to the Law’s effect will have six months to disclose their end beneficiaries from the date the Law comes into effect. 

The Law of Ukraine “On Prevention of and Countermeasures Against the Legalization (Laundering) of Income Obtained by Criminal Means or Financial Terrorism” broadly defines “end beneficiary” or “ultimate beneficiary” as a natural person who, regardless of formal possession, is able to decisively influence the management or commercial activity of a legal entity directly or via other parties. Such decisive influence means that the individual can: 

          • exercise the right of possession or use of all of a company’s assets or a significant part thereof;
          • exercise the right of decisive influence on the formation of a company’s management composition and the results of voting;
          • conclude transactions which grant the ability to determine the conditions of a company’s commercial activity;
          • assert an influence by way of the direct or indirect (via another individual or legal entity) ownership by one entity independently or jointly with affiliated individuals and/or legal entities of a share in a legal entity of 25 or more percent of the authorized capital or voting right in such legal entity. 

Note, however, that an “end beneficiary” cannot be an individual who is an agent, nominal shareholder (owner) or only an intermediary in relation to the above rights. 

Upon registration of a company (or, in case of existing companies, within six months) the founders now are required to submit the following information: 

          • list of founders (shareholders), including their full name, country of citizenship, passport data, place of residence, tax ID number (if available) – for natural persons, or full name, country of residence, location and identification (registration) code – for legal entities;
          • information about the ultimate beneficiary, including the ultimate beneficiary of its founder(s) – full name, country of citizenship, passport data, place of residence and tax ID number (if available);
          • information about the ownership structure of the founders (except political parties, creative associations, advocate associations, chambers of commerce and industry, state bodies, and local governing bodies and their associations). This information should enable one to determine the individual founders with a material interest in companies and, specifically, their full name, country of citizenship, passport data, place of residence and tax ID number (if available). 

The obligation to register information regarding a company’s end beneficiaries is imposed upon the Ukrainian company and, more specifically, the director or authorized representative (management body) of such company. Failure to submit or keep such information up-to-date can lead to a penalty in the amount of 300 to 500 untaxed minimum incomes or 5,100 to 8,500 UAH. Therefore, directors of Ukrainian companies are strongly advised to request their foreign founders to keep them inform of any changes in their global shareholdings. If there are any changes related to shareholders with a material interest (i.e., 10% or more shares or voting power whether held directly or indirectly), then Ukrainian companies are required to inform the state registrar about such changes. 

Questions regarding the impact of this law are two-fold. From a practical perspective, is the new Ukrainian government prepared to implement this daunting task while it is still in formation? Does it have the resources to deal with the overwhelming inflow of information into the State Register? 

From an investment policy viewpoint, does Ukraine really need to impose additional bureaucratic hurdles for foreign companies, who are already rethinking their Ukraine strategy for 2015? To obtain clear and concise answers regarding compliance under the new Law, please contact us anytime at This email address is being protected from spambots. You need JavaScript enabled to view it.

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Frishberg & Partners 2012