Overview of Regulations on Ultimate Beneficial Ownership Under the New Companies Law of UAE

The UAE has promulgated new regulations on Ultimate Beneficial Ownership (UBO) to align itself with global standards of transparency, as part of efforts to help in deterring financial crimes, including money laundering and terrorism financing. By virtue of Cabinet Decision No. 109/2023 and Cabinet Decision No. 132/2023, companies are required to declare and disclose their beneficial owners with a view to bring transparency in corporate ownership structures. The following article provides an in-depth look into the UBO regulations and their compliance obligations, non-compliance consequences included.

What is Ultimate Beneficial Ownership (UBO)?

UBO stands for the person who ultimately owns or controls the business entity, both directly or indirectly. Ownership may be applied by way of direct equity, voting rights, or even control of the decision-making process. The individual qualifies as a UBO if they:

• Owns 25% or more of the capital or voting rights of a company;
• Control the company, by way of ownership or otherwise, such as an appointment or removal of directors.

Where no obvious individual meets these criteria, the senior management officer of the company is considered the UBO.

These provisions are implemented with the view to enhance transparency and reduce risks associated with complex ownership structures that may disguise unlawful activities.

Key Regulations under the New Law

1. Disclosure Requirements

All companies incorporated in the UAE are now expected to duly disclose correct information about their UBOs to the relevant authorities at the time of registration and licensing. These companies should, therefore, put in place internal registers that detail their ownership and management structure, and are in a position to ensure current and transparent records.

2. Scope of Application

The new UBO regulations apply to all entities licensed to operate in the UAE mainland and non-financial free zones. Government-owned companies and those located in financial free zones, such as Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), are exempt, as they follow separate regulations. These reforms ensure a degree of transparency through most sectors in the UAE.

3. Maintenance of UBO Registers

The companies will have to create and maintain two key registers:

• Real Beneficiary Register (RBR): It contains information of individuals who have major ownership or control.
• Partners and Shareholders Register: It gives the breakdown of partners, shareholders, and the percentage of ownership.

Both of the above registers are to be filed with the Registrar and have to be continually updated regarding any change in them.

4. Regulatory Oversight and Compliance

The new regulations also afford the Registrar with the powers to ensure compliance and impose sanctions. Article 3(1) of Cabinet Decision No. 132/2023 empowers the Registrar to, upon repeated violation, suspend the commercial licence, close the commercial store of the violating juristic person, provided that the suspension is lifted once said juristic person pays the fine prescribed for the violation and corrects it by fulfilling the necessary requirements violated.

Penalties for Non-Compliance

The “Cabinet Decision No. 132/2023” prescribes severe sanctions for non-compliance or failure to file UBO information by an entity or in case of provision of false data. Such strong steps illustrate how serious the UAE is in implementing initiatives toward the containment of financial crimes and demanding accountability from corporations.

Why UBO Regulations Matter

UBO regulations offer a greater degree of transparency with respect to ownership structures and reduce possible financial crimes. In light of today’s international business platform, where every authority requires more and more transparency to track and obstruct money laundering, tax evasion, and terrorist financing, such rules become absolutely indispensable. Through the identification of actual owners behind companies, it ensures that UAE businesses comply with international requirements. It also reinforces corporate governance by fostering businesses in conducting operations with much-needed transparency and due diligence.

Benefits of Compliance

Compliance with UBO legislation secures a number of significant benefits, such as the following:

• Avoiding penalties and smooth business operations
• Increasing stakeholder trust and reputation
• Smooth foreign investment due to meeting international compliance standards
• Strengthening of internal corporate governance
• The adoption of UBO laws also increases investor confidence because it ensures that the operation of companies is transparent and accountable for their actions.

Practical Steps for Compliance

Businesses can prepare themselves for the new UBO regulations by the following pragmatic steps along with compliance:

• Identification of UBO: Assess ownership structure and identify the ultimate beneficial owner(s).
• Registers: Create and update the RBR and the respective register of shareholders periodically.
• Appointment of Compliance Officer: Designate an officer to be in charge of UBO-related responsibilities, including regulatory filings.
• File Updates Timely: Any changes in ownership or control are required to be notified to the Registrar within 15 days.

These steps ensure that a business does not face any penalties and can work hassle-free.

Conclusion

The UBO regulations are thus one sure step toward more transparency and consistency of the UAE’s corporate regime with the best international practice. The new regulations will, henceforth, require companies to maintain full records of their beneficial owners and file these in good time with the relevant authorities. Non-compliant businesses face the risk of heavy fines, suspension of license, or even closure. The UBO structure helps the companies to win confidence in their respective businesses for the stakeholders and not commit financial crimes. With the help of the UBO structure, the UAE achieves its vision: a transparent and responsible business environment.

How HHS Lawyers Can Assist You

The new UBO regime is not always straightforward. For professional legal advice and assistance on how your business should respond to the new requirements, please contact HHS Lawyers. The expert lawyers at our firm can assist you with the following:

• Understanding and correctly applying the new UBO rules
• Keeping appropriate records of beneficial ownership in a timely manner
• Sorting through complicated ownership structures to identify the actual owners
• Following the requirements for disclosure and avoiding administrative fines.

Contact the lawyers at HHS today to ensure that your business is in full compliance with these new UBO regulations and to protect your corporate interests. With our leading expertise and commitment to client service, we are very well-positioned as a partner for any business wishing to navigate this new regulatory landscape in the UAE.