Demystifying Ultimate Beneficiary Ownership in the UAE: A Comprehensive Guide

This article provides an in-depth exploration of the Ultimate Beneficial Owner (UBO) concept, commonly referred to as UBO, and its significance for businesses in the UAE. The content covers the definition and purpose of UBO, distinguishes between UBO and Beneficial Owner, and delves into the relevant regulations. The article concludes by offering practical guidance on how businesses can track and report UBO compliance through a declaration, ensuring readers understand UBO and actionable next steps.

The Ultimate Beneficial Owner (UBO) is a term used to refer to regulations aimed at enhancing financial transparency in business ownership to combat money laundering and terrorist financing. These rules are relatively straightforward to fulfil, and seeking assistance from an expert can help businesses maintain full compliance with the regulations.

In the UAE, the Ultimate Beneficial Owner (UBO) is the individual who ultimately benefits from a company. The UBO can be determined by tracing the ownership or influence from one company to another. If a person owns significant shares in Company X, which in turn owns significant shares in Company Y, that person is considered the UBO of Company Y, unless the ownership is through an indirect arrangement. It is crucial to carefully unravel complex layers of ownership to identify the UBO accurately. UAE business owners are required to prepare a register of beneficial owners and submit it to the authorities, with exemptions being possible. Failure to comply with these regulations may lead to penalties, making it essential for businesses to take the necessary actions.

Exemption Scope: The Regulations are not applicable to the following entities:

• Companies that are 100% owned by the Federal or local government, or companies entirely owned by these government-owned entities.
• Companies that hold licenses or are registered in the Financial Free Zones of the UAE, including Dubai International Financial Centre and Abu Dhabi Global Markets.

The Significance of UBO:

The importance of Ultimate Beneficial Ownership (UBO) regulations in the UAE cannot be overstated. These regulations play a crucial role in enhancing transparency, and effectively combating tax evasion, money laundering, and other illicit activities.

Moreover, the implementation of UBO regulations contributes to a stronger regulatory environment, making the UAE more attractive to international businesses seeking a best-practice environment. This, in turn, solidifies the UAE’s position as a leading global destination for business endeavours.

Ultimate Beneficial Owner vs. Beneficial Owner

The distinction between an Ultimate Beneficial Owner (UBO) and a Beneficial Owner (BO) lies in the extent of benefits they receive from a financial transaction.

In straightforward terms, the UBO is the individual who gains the utmost advantage and welfare from a transaction, regardless of the chain of control. On the other hand, a Beneficial Owner enjoys the benefits of ownership, even though the title to the relevant property may be held in another name. UBOs may sometimes conceal their identities, making them less visible compared to general BOs, such as shareholders, guardians of minors, individuals with power of attorney, or nominee directors who indirectly or directly receive substantial benefits or profits.

Beneficial ownership involves a ‘natural’ owner, which includes individuals who establish ownership or control within a legal entity or arrangement, rather than being a mere member or shareholder.

The Ultimate Beneficial Owner (UBO) regulations in the UAE apply to all businesses except those established in financial free zones or owned by the government. These regulations were implemented in October 2020, allowing companies 60 days to establish a process for filing their UBO information. Though the responsibility lies with each business to determine its UBO, there is guidance available to assist them.

Identifying the Ultimate Beneficial Owner (UBO) in the UAE involves several criteria as outlined in Cabinet Resolution No. (58) of 2020. The UBO is a natural person who definitively controls or owns the establishment through direct or indirect ownership of 25% or more shares, or holds the right to vote by 25% or more, or has the authority to appoint/dismiss the majority of the establishment’s managers. If the UBO cannot be identified using these criteria, a natural person holding the position of Senior Management Official in the company may be considered the UBO. The Ultimate Beneficial Owner Procedures play a crucial role in the UAE’s efforts to combat money laundering, terrorism financing, and the spread of weapons of mass destruction, aligning with international requirements and the National AML strategy’s goals and Federal Decree-Law No. 20 of 2018. Cabinet Resolution No. 58 of 2020 regulates the ultimate beneficial owner procedures.

While partners and shareholders are already classified under UAE commercial company law, the UBO regulations require further details, including the voting rights of each shareholder.

It is essential for companies to promptly notify the authorities of any significant changes that could impact the UBO within 15 days of the change occurring.

Failure to comply with UBO regulations may result in penalties, including fines or other sanctions imposed by the UAE Ministry of Economy.

Ultimate Beneficial Owner (UBO) tracking and compliance through a declaration

The process for Ultimate Beneficial Owner (UBO) tracking and compliance through a declaration involves the following steps:

1. Initial Tracing and Identification: Registered entities must identify and authenticate their shareholders/partners and ultimate beneficial owners by filing a declaration with personal particulars such as name, nationality, address, passport details, date of birth, and extent of shareholding. This declaration is submitted to the Registrar and the licensing authorities during the incorporation or registration of new companies.
2. Additional Documentation: The Registrar may also request additional documents, such as passport copies, proof of residential address, share certificates, Memorandum of Association (MOA), and other relevant materials related to the UBOs, senior management, and nominee board members.
3. Maintenance of Data: Affected entities must compile and maintain accurate and up-to-date information on their real beneficiaries, and they are required to keep this information updated for any future changes that may occur.

Companies must maintain various registers to comply with the regulations:

• Shareholder and Partner’s Register
• Register of Beneficial Owners, which may include details of local sponsors based on agreements like side trusts, Mudaraba, or Foundation agreements.
• Register of Directors and Nominee Board Members/Directors.

Any updates or changes to this information must be promptly recorded and updated within fifteen (15) days from the date of the change.

Companies are required to submit a UBO declaration to the regulatory authorities. Non-compliance may lead to severe consequences, and sanctions can be imposed by the Minister of Economy or the Licensing Authority.

The UBO declaration can be submitted online. For guidance on how to file for UBO, please connect with our staff at 04 3476990. Your Trusted Partner for Seamless UBO Filing: Trustworth, Simplifying Compliance