UBO UAE: Essential Insights and Regulatory Compliance Explained
The concept of ultimate beneficial ownership (UBO) has gained significant importance over the last few years. In the dynamic and evolving economic position of the UAE, regulatory requirements require transparency and accountability in businesses. In this blog, we delve into the landscape of UBO, its importance, and regulatory requirements in the UAE.
What is UBO?
In simple terms, UBO refers to the natural person(s) who ultimately owns or controls the business (a legal person). There could be layers of ownership, but the individual who ultimately owns the line of business must be traced, and they will be considered the UBO.
Let us understand this with an example-
A company, “X Technology FZC,” is registered in the UAE. The company’s ownership structure is as below:
- 60% of X Technology FZC is owned by “Y Technology LLC,” which is registered in a foreign jurisdiction.
- 40% of X Technology FZC is owned by “Z Corporation,” registered locally.
Ownership Details:
Y Technology LLC is, in turn, owned by two individuals:
- A holds 70% of Y Technology LLC.
- B holds 30% of Y Technology LLC.
Z Corporation is wholly owned by another individual:
- C owns 100% of Z Corporation.
Determination of UBO:
- A: Since he owns 70% of Y Technology LLC, which in turn owns 60% of X Technology FZC, his indirect holding in X Technology FZC will be 0.7*0.6=0.42 or 42%. Therefore Mr. A is UBO of X Technology FZC.
- B: He owns 30% of Y Technology LLC, which in turn owns 40% of X Technology FZC, his indirect holding in X Technology FZC will be 0.3*0.6=0.18 or 18%. Generally, the threshold of 25% is considered under UBO, so, Mr. B may not be classified as UBO.
- C: She owns 100% of Z Corporation which in turn owns 40% of X Technology FZC, her indirect holding in X Technology FZC will be 1*0.4= 0.4 or 40%. Therefore Ms. C is UBO of X Technology FZC.
Regulatory framework in the UAE:
The UAE has proactively established a regulatory framework around UBOs to enhance transparency and combat financial crimes. The key regulations regarding the UBO’s include:
- Cabinet Decision No. (58) of 2020: This decision covers the most updated requirements on UBO and mandates that all entities registered in the UAE must disclose their UBOs. The regulation aims to increase transparency and aligns with international standards.
- Federal Decree-Law No. (20) of 2018 (Go AML): This law focuses on anti-money laundering and combating the financing of terrorism. It sets out requirements for identifying UBOs and reporting suspicious activities.
Economic Substance Regulations (ESR): The ESR requires companies to have substantial economic activities in the UAE. As part of these regulations, companies must also identify and disclose their UBOs.
Key responsibilities of the business:
- Identification of the beneficial owner:
- Determine the natural person(s) owning the business, directly or indirectly, and hold 25% of the shares or voting rights.
- The UBO must be traced through any number of legal persons (business entities) or arrangements.
- If two or more natural persons jointly own or control a ratio of capital in the business entity, then all of them shall be considered joint owners or controllers of such capital and will be treated as UBO if the ratio is more than 25%.
- Even if, after all measures, no natural persons are determined, then the person who exercises control over the business entity by any other means or the person who holds the highest position in the business entity shall be treated as the UBO.
- Maintenance of registers:
- The business entities are required to maintain a UBO register. Such register shall contain the basic information explicitly mentioned in the cabinet decision.
- The entities must also maintain a register of partners or shareholders containing the number of shares or voting rights, the date of acquisition of the capacity, and so on.
- Submission of registers:
- Business entities must submit information regarding their UBO at the time of incorporation.
- Further, whenever any changes are made to those registers, they must be submitted to the regulatory authority within 15 days of the amendment.
- Make the UBO register available:
- When availing services from businesses dealing with specific activities, the supplier or vendor may ask to share the UBO registers to comply with the provisions relating to AML (anti-money laundering).
- If an ESR (Economic Substance Regulations) notification or report is applicable for the business, then details of the UBO must be filled in during submission.
Also take a look on our most loved guide on – How Outsourcing Accounting Can Benefit Your Business in Dubai?
Final Words:
UBO regulations in the UAE are essential to enhance transparency, align with international standards, and prevent financial crimes.
We understand that, as a business entity, your focus must be directed towards the primary business activities. We, BCL Globiz, are here to assist you in complying with the regulatory requirements effectively. Get in touch with our experts at punith@bclglobiz.com.
