On 28 August 2020, the UAE Cabinet adopted Resolution 58, which replaced Resolution 34 on 28 August 2020. This resolution aims to introduce corporate transparency by regulating the procedures of ultimate beneficial owners. The resolution also contains recommendations on the determination of UBOs for new and existing companies. The Resolution applies to all companies incorporated in the UAE mainland and free zones (with some exceptions). The Resolution emphasizes the need to establish and maintain a Register of Principal Beneficial Owners and supporting documentation. This register should be maintained by companies at all times. They must also provide updated information to the authorities and inform them of any changes to the register.
In order to reduce the chances of corporate money fraud, both the State and Federal Governments issued this notification. Unregulated companies can engage in financial and economic crimes that threaten the business environment in the country. The UBO prevents this risk by requiring organizations and institutions to identify the party that will benefit from the activities of the entity.
All legal entities need to quickly develop an understanding of all resolution requirements and filing processes, especially as obtaining and maintaining a list of beneficial owners has become a complex obligation. Let us start by defining the phrase “ultimate beneficial owner”.
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A person or organization that owns more than 25% of the shares and/or voting rights of a company. It is also the natural or legal person who benefits from any of the company’s transactions. A company may have a direct or indirect UBO. The Resolution (Cabinet Resolution 58) clearly sets out the application procedures to be followed by all relevant persons.
Under the Resolution, any type of agreement may be used to determine the UBO of the company. This means that organizations can seek assistance from various legal entities and/or third parties. The company must always keep an up-to-date record of the UBO once it has been disclosed.
The beneficiary is not the same as UBO. The persons who are considered to be the beneficial owners of the company are called shareholders. UBOs are persons who control at least 25% of the equity of the company. In addition, they have the right to influence the company in various ways, including through direct or indirect control. UBOs can control the activities of entire organizations. It goes without saying that these people can wield a lot of power.
Now that we have looked at what a UBO is and how the provisions of Resolution 58 work, let’s look at what legal entities in the UAE need to do to comply with this legislation. The Resolution sets out a clear set of rules that companies must follow in order to report their UBOs.
The Resolution states that all UAE-licensed companies are required to disclose their UBO. The exceptions are:
The Resolution does not require free zone licensed legal entities to declare their UBO. However, many financial-free zones already have their own procedures for identifying and declaring UBOs. The basic conditions for qualifying as a UBO, as well as the grounds for their identification, are identical to those set out in Resolution 58. For more information on how to declare UBOs in Free Zones, please contact the customer services of the Free Zone of your choice.
To understand the rules and obligations of legal entities regarding UBO compliance, please refer to Cabinet Order No. (58) Of 2020, which governs beneficial owner procedures.
Failure to comply with this regulation will result in penalties for organizations. The Ministry of Economy will take measures against them. Once these penalties have been imposed, the legal entity must lodge an appeal, which will be heard before the penalties can be discontinued.
The legal person is the ultimate beneficiary of the legal person’s decisions, as we have already shown. Let’s look at some UBO examples to help you better understand this concept:
ABC is an offshore company that has full control over 123 FZ-LLC, a commercial company located in the UAE free zone. Mr. A and Mr. C each own one share in ABC (50% each). The UBO of the company is Mr. A and Mr. B, who are both shareholders. However, this does not mean that they are ABC UBO.
Company XYZ is the parent company of five companies: A, B, C, D, and E. each of the five companies is controlled by one person. John owns organization A, Adam owns organization B, Sam owns organization C and Paul owns organization D and E. XYZ is owned by five companies, each of which owns half of the company. A, B, C, D, and E account for 20% of XYZ’s total equity. Paul owns 40% of XYZ because he owns companies D and E. This means that Paul is the UBO of XYZ.
The following approach should be used to identify and authenticate a company’s UBO:
Third-party assistance can simplify the UBO test. Once the UBO has been identified, the company should gather the necessary information and compile a register of beneficial owners for submission to the authorities.
The procedure of identifying the UBO and then collecting information about it, which is then entered into the UBO register, starts with the declaration. According to the Resolution, legal persons are required to submit:
The Register of Beneficial Owners will contain up-to-date information on the significant UBO of the company. The following information from the UBO must be recorded in the register:
Cabinet Resolution 58/2020 can tell you exactly what information you will need to establish the above documentation.
It is not easy to obtain information about your UBO and then compile the documentation for submission. A third party, such as BestaxCA, can help significantly. BestaxCA is a consultancy agency specializing in helping companies to comply with national legislation:
Legal entities that comply with the Resolution are issued a UBO certificate. This certifies that the company has approved its UBO and maintains an up-to-date register of UBO information.
If the company ever has to deal with law enforcement authorities in relation to financial malpractice, a UBO certificate can be very useful. The certificate is issued by the licensing authority responsible for registering companies in the country.
BestaxCA can help organizations to comply with the agreement because it has the necessary knowledge and understanding. It is a delicate matter to verify and declare your UBO. Your facts must be accurate and reliable.
Third-party professional assistance can make the UBO registration process easier for your company. It will also ensure that you meet all the criteria on time and without any problems.