The Ultimate Beneficial Owner (UBO): Protective Measure For Companies in the UAE

Introduction: UBO Resolution

To create a safer and more financially sound environment for businesses, a new cabinet resolution, also known as the UBO Resolution, came into place on August 28, 2020, regulating the reporting and registration of the Ultimate Beneficial Owners (UBOs). The new resolution has been created following the Anti-Money Laundering and Anti-Terrorist Financial regulations.

According to the Dubai Development Authority (DDA) and Department of Economic Development (DED) all businesses, including the FZ LLCs or Branch Offices, are required to disclose their Ultimate Beneficial Owners (UBOs) who directly or indirectly own or partially control companies, entities, or other structures.

What are UBOs?

The Ultimate Beneficial Owners (UBOs) are individuals who own or control a customer or a natural person on whose behalf a transaction is conducted. UBOs are those who exercise a form of legal control over a person or an arrangement. They are required to identify and disclose their complete business and financial transactions to the regulatory authorities.

This means that companies need to be transparent about their professional dealings with other parties, especially with those they are doing business with. This includes their customers, vendors, suppliers, and other corporate entities.

At times, it may be difficult to identify a UBO as they are camouflaging their identities under their corporate or organizational structure.

Why are UBOs important?

Over the years, the UAE has created stringent measures to combat terrorism and money laundering activities that have been hindering the economic transparency initiative of the nation. In certain cases, criminals send illegal funds and conduct transactions using proxies or corporate entities such as shell companies to conceal their identities.

Billions are lost every year through shell company-related money laundering activities. Shell companies have been formed for legitimate reasons but are frequently misused by criminals using legitimate financial systems. A UBO check is important for a business partner check. The corporate entity should be aware of the parties they are dealing with.

Many fraudulent parties have been detected that utilize offshore accounts to mask their suspicious transactions to fictitious addresses of seemingly credulous residents. By investigating ultimate beneficial ownership, companies can mitigate the risks of shell companies, detect money laundering activities, and eliminate the misuse of any corporate and financial infrastructure.

To prevent businesses from dealing with criminal parties, all companies are obliged to file a UBO declaration that establishes the identity of a UBO. Specific UBO requirements should be put in place for companies to report their beneficial or business owners to the government. By doing this, the companies will adhere to the international rules and regulations of AML, corruption, bribery, KYC, and WWFT. This will protect companies from fraud, high fines, reputational damages, and possible imprisonment.

What are the requirements?

Companies need to maintain a register for shareholders, beneficiary owners, and nominee directors. They need to file the complete information of beneficiary owners and interests in the company. Aside from the requirements of the UBO registration and maintenance, companies need to disclose if there are any changes among their beneficial owners and nominee directors within a designated period.

How do you identify a UBO?

A UBO is the ultimate beneficiary of an organization that does a business transaction. To identify a UBO, there are certain guidelines that authorities adhere to:

• Owns at least 25% of share capital
• Exercises at least 25% of voting rights
• Holds at least 25% of the entity’s capital
• Possesses power of attorney
• Recognized as guardians of minors
• Appointed as corporate directors or nominee directors
• Selected shareholders and holders of bearer shares

What companies are part of the UBO resolution?

The UBO resolution applies to all the companies that are licensed and registered in the UAE. Companies that are registered as FZ LLC or a branch office of a foreign company are required to submit the completed UBO form as part of their license renewal. The companies that are part of the UBO resolution are:

• Mainland or Onshore Companies
• Non-Financial Free Zone Companies

These companies follow processes and have acquired resources that make them distinct from the rest and they are:

• Shareholdings
• Subsidiaries
• Branch offices
• Direct and indirect ownership
• Ultimate owner

o   The actual and supposed, independent owner of the company

• Corporate group

o   Companies with the same owner 

What companies are not part of the UBO resolution?

Companies that are solely owned by a local, government body or are set up in the DIFC or ADGM financial free zones don’t belong to the UBO resolution since they have their own UBO disclosure requirements. They have a separate set of regulations that apply to companies incorporated in financial-free zones which are Abu Dhabi Global Markets (ADGM) and Dubai International Financial Center (DIFC).

What must be disclosed?

One register must be maintained for the UBOs and another register for shareholders/partners. If a company has trustees or nominees then it must include information about them and the shareholders and partners as well. As per the new UBO resolution, companies are required to update and maintain their registration with information about their beneficial interests.

Who is part of the UBO register?

Ultimate Beneficial Owners (UBOs) are natural persons who ultimately own or control a legal unit or arrangement, such as a company, a trust, a foundation, or other entities on whose behalf a transaction is conducted. It includes those persons who exercise ultimate control over a legal person or arrangement.

Over the years, UBO controllers have become more meticulous globally regarding the registration process by highlighting the need for transparency in the financial sector, and the stringency of law enforcement. As per the resolution, the UBO Register discloses the real beneficiaries of the company which are defined as:

• Natural persons
  • Own or control, directly or indirectly, at least 25% of the company’s share capital.
  • Hold at least 25% of the voting rights.
  • Have the right to appoint or dismiss most of the directors or managers.
• If no natural person satisfies the above criteria
  • A real beneficiary is a natural person who exercises control over the company by other means.
• If no natural person satisfies both the conditions above
  • A real beneficiary is a natural person who is responsible for the senior management of the company.

For each Real Beneficiary, the Register must include the following:

• Full name
• Nationality
• Date and place of birth
• Place of residence or notice address
• Passport or identification number
• Country of issuance
• Date of issue and expiry.
• The natural person’s reason to be identified as a beneficiary.
• The date the person became a Real Beneficiary
• The day the person ceased to be a Real Beneficiary (if applicable)

Shareholder/Partner Register

For each partner or shareholder register, the following must be included:

• The number and class of shares/equity held, and the voting rights attached to these shares.
• The date on which the shareholder/partner acquired the shares/equity.
• The natural persons as shareholders/partners with the same information required for a Real Beneficiary.
• Legal entities that are shareholders/partners:
  • Name, legal form, and memorandum/articles association.
  • Address of main office or headquarters
    • For a foreign legal entity, the name, and address of its legal representative in the UAE
  • Names of the natural persons holding senior management positions
    • Passport or identification number
    • Country of issue
    • Date of issue
    • Expiry date

Trustees and Nominee Managers

The Shareholder/Partner Register must include information about the trustee or nominee manager that is the same as the Real Beneficiary. A trustee or nominee can be a shareholder or partner of a company or a person who is acting on behalf or as per the instructions of another person.

Authorized Disclosure

The authorized “discloser” must be a UAE resident and authorized to disclose to the licensing authority the information required by the UBO resolution which is the name, address, contact information, and ID copy of the authorized individual.

Reporting deadline

On October 27, 2020, the UBO resolution required companies to file the Register with their relevant licensing authority. Companies have to maintain and update their registers. If there is any change to the information, then it must be reported to the relevant licensing authority within 15 days.

Compliance measures

Apart from the exempt categories, Registers are necessary for all companies established in the UAE to ensure compliance. These companies need to compile updated information and create a file for the Registers. They have to carefully review and consider their ownership and control structures to properly identify their UBOs since most of them have internal agreements between shareholders or partners concerning control, rights, obligations, and management. This can affect who is considered the UBO under the resolution.

How to establish a UBO?

By employing the appropriate Know Your Customer (KYC) measures as part of the Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regulations, companies can establish the Ultimate Beneficial Owner (UBO) through:

• Due Diligence
  • Classification of information about the customers which includes their names, addresses of company directors, and company incorporation.
• Transaction Examination
  • Companies can identify shell companies through the examination of the transactions, especially unusual transaction patterns from high-risk countries.
• Agreements Assessment
  • Customers subject to international sanctions must be assessed for using shell companies to access financial services.
• PEP Inspection
  • Politically Exposed Persons (PEPs), such as government officials, must be by AML measures to clear their PEP status.
• Negative Media
  • Customers who are involved in UBO-related money laundering activities need to have a news screening continually to establish credibility.

What are the penalties?

Under the UBO Regulations, the Mainland Companies and Non-Financial Free Zone Companies are required to submit complete information about their Ultimate Beneficial Owner (UBO) to the relevant authorities. The criteria to determine a UBO are set out in the UBO Regulations.

Since it’s necessary to declare the UBO, if the mainland and non-financial free zone companies are in breach of the UBO Regulations or are unable to submit their UBO information, then the Ministry of Economy has the right to impose penalties or fines of up to AED 100,000.

How can we help?

Our flexible solutions protect companies from potential risks and third-party fraud. We create risk-aligned strategies provide insights for better decision-making processes and support businesses from different jurisdictions. We are transparent with our procedures and follow compliance regulations to fulfill all the requirements to be at par with the evolving financial landscape.

By complying with due diligence and audit reporting laws, we fight financial corruption and bribery and create trusted relationships with our customers.

As UBO registration is an important requirement for companies established in the UAE, EZONE has partnered with reputable financial firms to give you the right information on time. We save you from non-compliance penalties and provide you with the most suitable risk-management measures.

Book a FREE consultation with us by calling us at 800-EZONEUAE or messaging us at setup@e.zone. Our consultants are ready to assist you with all your needs.