The Corporate Transparency Act (“CTA”) was enacted in the United States of America (“USA”) in January 2021 and is set to take effect on 1st January, 2024. The aim of the CTA is to combat financial crimes such as tax evasion, money laundering, and fraud (activities often conducted by “shell companies”).
The law requires certain entities registered in the USA to report information about their ultimate beneficial owner (“UBO”) to the federal government. This information will be stored in a centralized, secure, and confidential government database called the “Beneficial Ownership Secure System” (“BOSS”). BOSS will be administered by an agency of the U.S. Department of the Treasury, the Financial Crimes Enforcement Network (“FinCEN”), responsible for combating financial crimes.
In CTA terminology, “Reporting Companies” are entities that must report information about their ultimate beneficial owner. This includes corporations, limited liability companies (“LLCs”), or any other entities created through the filing of documents with a U.S. commercial registry or similar entity, whether domestic or foreign.
However, it’s worth noting that 23 types of entities are exempt from the definition of “Reporting Company” because they are already subject to sufficient disclosure requirements. These include charitable organizations, public companies, insurers, financial institutions, and others.
The CTA regime requires Reporting Companies to submit an initial declaration called the “Beneficial Ownership Information Return” (“BOIR”) to FinCEN. This initial declaration should include information about:
- The Reporting Company itself – including its name, trade name, all tax identification numbers associated with the company, the state of registration, its registered office, and the person filing the declaration (only for companies formed after 1st January, 2024). There is no need to update information for the applicant of the company for companies formed before 31st December, 2023; and
- The Ultimate Beneficial Owners – including their full name, date of birth, residential address, identification number (e.g., passport), and a valid passport photo. If the UBO is a U.S. citizen, an additional identification document issued by the states (e.g., a driver’s license) will also be required.
In brief, an individual will be considered a UBO if they hold at least 25% ownership interest or substantial control in the company. This ownership or control can occur directly or indirectly, such as through an intermediary company.
For companies formed after 1st January, 2024, the UBO information declaration must be submitted to the government within 30 days of formation. Companies formed before 31st December, 2023, must submit their declaration by 1st January, 2025.
Furthermore, companies that fail to submit the declaration or submit it inaccurately are subject to civil and criminal penalties. The company and those responsible for the violation may be held accountable, with monetary penalties ranging from $500 per day to a total of $10,000 for civil penalties and criminal penalties of up to 10 years in prison.
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Published on October 20, 2023