UBO Compliance

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”.

Also, Check: Economic Substance Regulations Services In Dubai

What does the term “ultimate beneficial owner” mean?

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.

Identification of the UBO

• According to the Resolution, a UBO is a person who directly or indirectly owns and manages a company. A UBO is a person who has the power to dismiss and appoint the majority of the directors of the company. Persons who have control over at least 25% of the shares of the company and the power to do so are referred to as UBOs.
• If no natural person meets the above criteria, a person who has control over the company in some other way should be considered to be a UBO.
• If no natural person can be found who meets the criteria set out in paragraphs 1 to 2, the person appointed to a senior management position in the undertaking shall be deemed to be the UBO.
• Where more than one person meets the criteria for determining a UBO (e.g. 25% of the voting rights are held by two persons), all these persons are considered to be joint owners.

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.

Ultimate beneficial owner vs. beneficial owner

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.

Declaration

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:

• Licensed free zone entities (Dubai International Financial Centre and Abu Dhabi Global Markets).
• The federal and emirate governments own many corporations which are referred to as legal persons.

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.

Responsibility of the legal entity

• Businesses must accurately provide all required information at the time of registration and licensing.
• Companies must advertise their trading name and official address in the Emirates on all documents.
• If there is any doubt as to who the beneficial owner is, the company must disclose all beneficial owners.
• Companies must provide the relevant information on the UBO to the Registry as soon as it has been identified and declared. The registry keeper must also ensure that the register is kept up to date. Any changes notified to the company must be amended in the register within 15 days of becoming known.
• Businesses must submit all information about their UBO (and any other requirements of the Resolution) within 60 days of signing the Cabinet Resolution 58. To register and license a business, the process must be completed within 60 days of the business being registered and licensed.
• Provide the information as instructed by the Registrar. Information for authorized employees must be provided in the same manner.
• The registrar must notify any changes made to the data submitted to the registrar within 15 days of the changes.

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.

Example: 1

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:

Example: 2

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.

Example: 3

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.

How to prove the ultimate beneficial owner?

The following approach should be used to identify and authenticate a company’s UBO:

• To verify that the company is legal and registered, obtain the credentials of the legal entity that manages it.
• To find out who owns the legal entity, collect data on the chain of ownership for each person who has direct or indirect control over the legal entity through shares or capital stock.
• Investigate the ownership share, percentage, and management control of the beneficiary. This may help you to identify the persons who have the most power over the company.
• Compare the levels of ownership and control of each NPO with the conditions for identifying a UBO set out in Resolution 58. The UBO will be the person who meets the criteria.

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.

Register

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:

• Register of the beneficial owner
• Information on the nominated board member
• Register of partners or shareholders

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:

• Full name, address, place of birth, and nationality.
• Residential address to which notices are to be delivered
• Number, place of birth, country of issue, date of issue, and expiry date of the work identification card or passport.
• The date on which the natural person became a UBO and the grounds on which he has selected
• The date on which the UBO ceases to be a natural person.

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:

• The first step is a chain of ownership analysis and UBO approval.
• Helping you to collect data on your UBO, nominee directors/managers, and partners/shareholders and compile it. They can ensure that your document accurately meets the resolution standards.
• Help you organize the procedure for filing with the authorities.
• Help you to organize your registers and ensure that the information contained in them is up to date.

Certificate

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.

How can BestAxca help?

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.

• Summary of the current situation: We have the resources and expertise to offer you the appropriate assistance. They will help you to collect and verify all the necessary information with your authorities.
• Help with registration: Once they have gathered the necessary information, they can organize and compile it according to the rules. They will ensure that your registration form is free of errors and that it is in line with the resolution.
• Providing ongoing support: During the registration procedure, companies usually have to submit additional information as needed. We can quickly and accurately generate any additional data you might want. Frequent review: any changes to the data that entities have submitted in their registers must be reported to the authorities. We can keep track of any changes to your data and respond promptly if the authorities request a new update. They can ensure that you notify the authorities within 15 days.
• De-registration: If your UBO changes, you must notify the relevant authorities. We can help you with this process by ensuring that you deregister in accordance with the law.
• Confidentiality of personal data: The data recorded in the registers is not made public to anyone. BestaxCA, as a professional and reputable organization, can guarantee that your data is stored securely (in accordance with Article 15(1-2) of Cabinet Resolution 58/2020).

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.