On August 28, 2020, the UAE government released Cabinet Resolution 58, which replaced Cabinet Resolution 34. The goal of this resolution is to improve corporate accountability by regulating Ultimate Beneficial Owner Processes. The resolution includes UBO guidelines for both new and existing businesses.
All legal firms established in the UAE mainland and offshore zones would be affected by the decision. The need to review and update an Ultimate Beneficial Ownership (UBO) register and associated papers is the centerpiece of this resolution. Entities must have this register on hand at all times in their offices.
Before we dive into more explanation, let’s look at what it means to have beneficial ownership? What difference does it make? What does the UAE ultimate beneficial ownership regulation include & how will the companies suffer if they fail to maintain the UBO registers?
Let’s dive into the article to explore!
What is An Ultimate Business Ownership?
A person who has the following rights can be considered as an ultimate beneficial owner:
- owns or manages more than 25% of the shares
- the voting rights in a business entity also has the power to hire or dismiss most of the board members
- has considerable impact or influence over the corporation
When the criteria mentioned above cannot be determined, leading managing authorities can be beneficial owners.
What is the importance of the UBO Check?
All businesses must identify Ultimate beneficial owners of users, providers, and other 3rd parties as a part of the business partner check. You need to know who your business partners are and the beneficial owner of the company.
Financial providers and all overseas enterprises must work on beneficial ownership declaration & have a UBO statement confirming the status of a UBO. And this must be based on the jurisdiction they have been dealing in. This is to avoid trading with unlawful entities, hefty fines, damaged reputations, and even incarceration.
What information do You need about a beneficial owner?
To successfully determine who will benefit from dealings with your organization, you must first understand who the company’s ultimate beneficial owner is.
The following are the data sources you’ll need to check a beneficial owner against:
- Structure of corporate ownership
- Subsidiaries and shareholders
- Lists of Politically Exposed Persons (PEP)
- Lists of sanctions
- Subsidiary companies in the very same legal framework, having the same ultimate owner.
- Lists of inspections
- Ownership for the sake of right vs. ownership for the sake of ownership
- Information about that company in the news and the media
What Must a Company Do Under New UBO Regulations?
Under the new UBO Regulations, a company must prepare and maintain:
1. A UBO Register
For UBO Regulations, a UBO is an innate person who owns or controls or has the voting rights, with at least 25% share capital of the corporation, whether it be through explicit or implicit ownership, or who has the authority to elect or dismiss the most of of the business’s Directors/Managers.
If no natural person meets the preceding criteria, anyone who exerts control over the organization by other measures shall be considered the UBO, but if no one meets this condition, anyone who is accountable for the company’s top management will be regarded as the beneficial owner of the company.
2. A Register of Professional Directors/Managers
To encompass the multitude of stock ownership kept by each partner or shareholder, the right to vote affixed to certain stock ownership, and the date of the takeover of these interests.
3. Register of Associates
To include the number of shareholdings possessed by each partner or the shareholder, the right to vote tethered to these stock ownership, and the date of acquiring of these interests.
A share register will be present in every company registered in the UAE. According to the beneficial ownership Guidelines, any modifications to any of the information given should be reported to the competent governing body after 15 days of the revision or amendment.
Do the UBO Rules Apply to All Businesses in the UAE?
The Cabinet Decision on the Ultimate Beneficiary owner applies to all mainland companies and also the companies in free zones, excluding the following;
- Companies based in Financial Free Zones are referred to as “financial free zones” (DIFC, ADGM). There are 40 free Zones in UAE & many are being constructed. Out of 40, two of the oldest Free zones are present in Ajman. These are named Ajman Free Zone & Ajman Media City Free Zone.
- Companies owned by Federal Govt and its Affiliates are also exempt from UBO rules.
What about companies with UAE Local Partners / Sponsors?
It is unclear if the decision’s extent will influence the existing ownership structure solutions. (For example, domestic UAE partners hold 51 percent of a corporation due to foreign ownership restrictions). The decision necessitates that such local partners’ names and contact information be recorded in the shareholder registry.
However, it does not state if the structural arrangements must be revealed. However, since the regulations are comprehensive and necessitate disclosure of “management” relationships, the ultimate beneficial ownership register must have the details of the ultimate beneficiaries of the company.
What Else Should You Know?
The UAE Ministry of Economics inflicts severe penalties on enterprises deemed to violate the new UBO Rules. In case of recurrent and persistent noncompliance, these penalties include the issuance of written warnings up to enforcing Dh100,000 in fines and extra-disciplinary action such as a suspended license for one year and limitations on board members’ authority.
Each register should be kept for the business or organization’s life and five years after its de-registration, suspension, or dissolution.
Every business should take the necessary steps to gather relevant, reliable, and current data for the registers and protect its data from damage. They should also name a specific contact point (who must be based in the UAE) and supply contact information.
How Can Accelerate Ideas Help?
Corporate companies must keep a UBO record and disclose information on the Ultimate Beneficiary to the Registrar under the new rules. This will force organizations to evaluate their ownership structure, which Accelerate Ideas in Dubai can help with.
Accelerate Ideas has a team of professional business setup advisors and other staff to ensure that the businesses are fully compliant. Accelerate Ideas educates and guides company employees on keeping the Real Beneficiary Register (RBR) to avoid penalties & fines.
We also assist businesses in managing their registers on their account and offer secretarial services to keep them up to date and compliant with rules at the time of establishment, renewal, and modifications.
Wrapping Up
Determining ultimate beneficial ownership can indeed be costly and time-consuming when international administrative systems are complicated. However, a sheer volume of international legislation necessitates that you get beneficial ownership declaration correctly the first time and provide all relevant data.
With the correct tools and processes in place, you’ll be able to spot one needle amid the others, comply with transparency laws, and better manage client relationships.
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