As opposed to a company’s mainstream public records, there are instances where a business may have another individual with significant control. To promote corporate transparency and ensure regulatory accountability, UAE legislation requires companies to identify and declare their true owners. In this blog, we provide a foundational understanding of the concept of Ultimate Beneficial Ownership (UBO) from the UAE compliance perspective, beginning with key background insights.
Who is a UBO?
The ultimate beneficial owner (A.K.A. UBO) is a natural person who owns or controls the business. This can be either directly or indirectly. For instance, a good test to confirm the beneficial owner is to look at the person with ultimate decision-making power. However, this cannot be true in every case, as sometimes a person can delegate decision-making powers to another person. Therefore, the real beneficiary of the business may not be listed in the official records.
In the UAE, Cabinet Decision No. 58 of 2020, Beneficial Owner Procedures, provides the legal background on this subject. The UAE is clear about promoting transparency and accountability; therefore, the idea of concealing the real ownership will not work in the UAE.
As per the mentioned Cabinet Decision, a UBO can be any of the following persons:
- Person owning 25% or more of the business’s shares (directly or indirectly)
- Person controlling 25% or more of the voting rights
- Person with the power to appoint or remove key positions (directors) of a business
In some cases, the UBO can be a person who exercises control through other means, and therefore, it is difficult to highlight. However, there are cases when a UBO is unidentifiable; then the most senior employee, such as a director, is considered to be the beneficial owner.
UBO Compliance in the UAE
As per the guidelines of Cabinet Decision No. 58 of 2020, certain entities in the UAE must make declarations concerning the true ownership. However, there are other compliance responsibilities as per the law. Let us discuss some of the key responsibilities of businesses operating in the United Arab Emirates.
Register of Beneficial Owner
Relevant companies must maintain records of UBOs concerning the following particulars.
- The legal entity must enter the data of each beneficial owner in a register. This is binding within 60 days from the date of the Cabinet Decision or the date of the existence of the business. The entity must update the register if there is any change in information within 15 days of becoming aware of the change.
- The register must include the following particulars of each beneficial owner:
- Full name, nationality, date, and place of birth.
- Residential address or other correspondence address.
- Passport or identity card number, the country of issuance, date of issuance, and expiry.
- The basis and date on which the person became a beneficial owner of the legal person.
- Date of cessation to be a beneficial owner of the entity.
- If the corporation enters the name of a natural person as a beneficial owner in its register, it must inform the natural person. However, this should be happening within 15 days of the inclusion.
- A relevant person may apply to the court to rectify the register of beneficial owners. However, this is only allowable in the following cases.
- The name of a person is removed or entered into the register without sufficient cause.
- The name of a person is not entered into the register.
- There is an undue delay in the inclusion or removal of the name from the register.
Register of Partners and Shareholders
The legal entity must maintain detailed information about each partner and shareholder in a register. Any change in any particular information must be updated within 15 days of becoming aware of such a change. The register must include the following particulars.
a) Number of shares held by each partner/shareholder, mentioning their categories and associated voting rights.
b) Date when each partner/shareholder attained that capacity/control in the legal entity.
c) In case the partner/shareholder is a natural person, the entity must enter the personal details. These include the full name (same as it appears on the identification card or passport), nationality, address, place of birth, and name of the employer, including its address. Furthermore, they should include a copy of a valid passport or identification document.
d) In the case of corporate partners or shareholders, the entity must include the following details.
- Name, legal form, and memorandum of association.
- The head office address or the principal address of the business. However, in the case of a foreign entity, the name and address of its legal representative in the state, with proof thereof, are needed.
- Articles of Association or similar documents approved by the relevant authority in the state.
- Names of the relevant persons who are holding higher management positions in the legal person, providing their data from their passports or identity cards. Notably, the entity must include such documents’ numbers, issuance and expiry dates, and issuing authority.
As a global hub of business, the UAE always maintains its integrity through promoting transparency and accountability. There are instances where a business or corporation might conceal its true beneficiary. There can be several reasons to hide the beneficial ownership, for instance, to conceal the origin of income and taxes, money laundering, and so on. Therefore, in the UAE, there is a detailed guideline available on the subject of the ultimate beneficial owner. Thus, entities operating in the UAE must be aware of the laws and the supplementary guidelines available on the subject to avoid the consequential penalties.
Conclusion
It is advisable to consult an expert or a consultant on the complex areas, such as the UBO. There might be declarations pending on your side regarding the ownership of your business. To avoid litigation and hefty penalties, give us a call and get expert opinion for your business. Contact us today.
Creative Zone Tax & Accounting (CZTA)
