Cabinet decision no. 58 of 2020 (the “UBO Decision”) entered into force on August 28, 2020 and replaced Cabinet Resolution No. 34 of 2020. The UBO Decision aims to ensure that there is complete disclosure and transparency by legal entities operating in the UAE. It does this by increasing the level of accountability required from registered legal entities in the UAE and by establishing effective and sustainable processes and regulatory procedures regarding beneficial ownership details.

Fighting financial crimes

The UBO Decision is particularly focused on preventing undesirable financial activities such as money laundering and financing of terrorism. It is a significant development when viewed within the context of the UAE government’s unwavering commitments to international organizations such as the Financial Action Task Force and the UAE’s overall unfaltering dedication to combat financial crimes within its borders.

Who is the Ultimate Beneficial Owner?

The Ultimate Beneficial Owner is the natural person who, directly or indirectly, owns and controls a legal entity. Individuals with ownership of at least 25% shares or voting rights of a legal entity, or someone with the power to dismiss and appoint a majority of a legal entity’s directors is considered an ultimate beneficial owner. If no natural person satisfies the aforementioned criteria, then the Ultimate Beneficial Owner is the natural person who exercises control over the legal entity by other means. If no natural person satisfies both the conditions above, then the Ultimate beneficial owner is deemed to be a natural person who is responsible for the senior management of the legal criteria.

Who does the UBO Decision apply to?

All legal entities in the UAE (except those in the financial free zones (ADGM and DIFC) and entities that are directly or indirectly wholly owned by the Federal or local government) are required to keep and maintain ultimate beneficiary owner data.

What type of information is required?

Except for the exempt entities that were mentioned earlier, all legal entities in the UAE must maintain in its office the following:

1. Partners and shareholders registers
2. Real beneficiary register
3. Register of nominee directors.

The information to be registered in respect of each beneficial owner shall include:

1. Full name, nationality, date and place of birth
2. Residential address or address on which notices can be sent to the beneficial owner
3. Passport number or ID card number, including details such as place of issue, date and expiry
4. Date and basis on which the person became a beneficial owner.
5. Date on which the person ceased to be beneficial owner, if applicable.

The UBO Decision also stipulates that any data pertaining to a beneficial owner must be provided by and within the knowledge of the natural person. Any information not provided by the natural person but registered by the entity on behalf of the natural person, must be communicated to the natural person within 15 days of entering such information in the register.

What are the penalties?

The UBO Decision provides for administrative sanctions in cases where a legal entity fails to create a record of its ultimate beneficiary owner(s). These were laid out in the Cabinet Decision no. 53 of 2021 containing the penalties meted out for violating the provisions of the UBO Decision

A first-time violation attracts a written notice to comply. If the provisions of the UBO Decision are contravened a second time, there shall be a fine of AED 50,000 and the legal entity shall be notified to rectify its position within 30 days from the date the penalty was issued. For third time violations by the same entity, Cabinet Decision no. 53 of 2021 imposes a more stringent fine of AED 100,000 and suspension of the commercial license of the legal entity for no less than 12 months.

How does this affect side agreements?

At present, it cannot be stated with certainty how side agreements will be affected. As far as any concerns regarding disclosures are concerned, the Register of partners and shareholders has historically been a requirement under the UAE Commercial Companies Law, as well as in respective Free Zone Companies Regulations. As such, it appears that the UBO Decision requires only additional information (such as details pertaining to voting rights) to supplement what has already been disclosed.

Conclusion

Legal entities that are subject to the UBO Decision should be well advised to ensure that they are maintaining compliant registers, including a register of ultimate beneficial owners, register of shareholders and register of nominee directors and to file details of their ultimate beneficial owners to their competent licensing authorities as and when required and without delay.

To know more, please contact:

Mojahed Al Sebae Partner +971 50 555 5635 mojahed@galadarilaw.com

Mustafa Khalid Associate +971 55 414 7029 mustafa.khaild@galadarilaw.com