Significance of Complying with Ultimate Beneficial Owner (UBO) Declaration

On 24 August 2020, the UAE issued Cabinet Decision No. (58) of 2020 regulating the beneficial owner procedures (“Cabinet Decision”). As per the Cabinet Decision, companies must declare the details of their Ultimate Beneficial Owners (“UBOs”) before their respective licensing authorities. The licensing authorities are the free zones / offshores where the company is registered. In case of Dubai mainland companies, the licensing authority is the Dubai Economy.

Non-filing of the UBO details can invite penalties of up to AED 100,000. In this background, it is imperative to reflect upon the common questions surrounding UBO declarations. Below, we have answered some of the basic questions about UBO declarations that are currently running in the mind of business owners in the UAE:

1. Who is a UBO?

A UBO is an individual that eventually benefits from a company, although they may not directly be named as the owner of the company. In other words, a UBO is a person with considerable control over the company. A UBO is determined through presence of certain factors. UBOs are individuals who ultimately own or control the company either by way of shares or through voting rights. The Cabinet Decision defines a UBO as any individual having the right to vote with minimum of 25% shareholding of the company (whether through direct or indirect ownership). They also have the right to appoint or dismiss majority of the directors / managers.

Furthermore, UBO declaration also includes details of directors / managers acting in accordance with the instructions of another person, and the information about partners and shareholders such as the extent of their voting rights and the date they acquired ownership of the company.

2. Who Should Declare UBOs?

UBO declaration is applicable to all companies registered in the UAE, irrespective of whether the company is registered in the mainland or a free zone. Interestingly, the UBO declaration applies to offshore companies as well, which are companies registered in the UAE but operate outside the UAE.

Nevertheless, there are certain exceptions when it comes to free zones. Only companies registered in commercial free zones have to declare their UBOs, whereas the ones in financial free zones are exempted. To elaborate, there are only two financial free zones in the UAE namely:   Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC), which do not have to collect UBO details.

Further, the companies that are directly or indirectly entirely owned by federal or emirate government are exempted from filing their UBO declaration.

3. Where to File UBO Details?

As companies in UAE are predominantly categorised into mainland, free zone and offshore, each category has a different authority with which they are required to submit UBO details.

Mainland companies should file their UBO declaration with the concerned ministry of the emirate in which the company is registered. For example, mainland companies in Dubai have to register their UBO details with Dubai Economy.

There are more than forty (40) free zones in the UAE. The free zone companies are required to disclose the details of the UBO to the free zone that has issued the license of the company.

Similarly, there are multiple offshore jurisdictions in UAE. Some examples of offshores are Ras-Al-Khaimah International Corporate Centre (RAK ICC) and Jebel Ali Free Zone Authority (JAFZA). The offshore companies must file the UBO details with their respective UAE offshore authority.

The Government of UAE releases various deadlines for filing and updating the details of the company’s UBOs. All companies must comply with the prescribed deadlines to avoid violations and penalties.

4. What to Include in the UBO Declaration?

The following details must be disclosed in the UBO declaration:

  • Personal details of the UBO. For example – name, nationality, date, place of birth and address.
  • Number on the identity card, the country of issuance, date of issuance, and date of expiry.
  • Date and basis on which a person became the UBO.
  • Date on which a person ceased to be the UBO, if applicable.

Moreover, it is the duty of all companies in the UAE to maintain the above details in a register, along with the updated records of the shareholders, directors / nominee directors.

Any change in the details of a company’s UBO, shareholders, or directors need to be notified to relevant authorities within fifteen (15) days of the said change.

5. How Vital is UBO Disclosure?

The Cabinet Decision was issued to enhance the accountability in business transactions in UAE by developing effective procedures in respect to beneficial owner data.

The Cabinet Decision was issued to prevent financial crimes in UAE such as money laundering. This can take place through existence of shell companies where the names of the people gaining ultimate benefit from the company are concealed. To combat this, UBO declaration is vital for any economy to examine a flow of legitimate money. A failure to screen UBOs can not only risk violation of local and international laws but can also result in damaging the economy.

Non-filing of UBO data can affect the reputation of a company and invite hefty fines, which are discussed in the next sub-section.

6. What Are the Penalties?

The Ministry of Economy UAE shall penalise companies for not timely filing their UBO declarations.  The strictures under the Cabinet Decision are based on number of occurrences of the same violation. First time violation results in a written warning. Second time violations result in hefty fines. If the same violation is committed the third time, then the Ministry of Economy may impose greater fines and suspend the trade license of the company.

An indicative list of the administrative violations and penalties thereof are listed below:

  • Company’s failure to maintain a register comprising of details of UBOs – fines up to AED 100,000 and suspension of the trade license for at least twelve (12) months.
  • Company’s failure to maintain a register of partners / shareholders – fines up to AED 100,000 and suspension of the trade license for at least twelve (12) months.
  • Failure of a company to provide any additional information requested by the registrar – fines up to AED 10,000 and suspension of the trade license for at least one (1) month.

There are several other violations concerning details of shareholders, liquidators, filing and much more. Therefore, it is vital that companies comply with the governmental regulations and timely submit and update UBO declarations.  It is important to check the data entered in every step of the way to avoid information inaccuracy and prevent penalties.

7. How Can InZone Help?

InZone provides company formation and compliance services in the UAE. Our lawyers have deep understanding of the relevant laws pertaining to UBO declarations.  InZone can assist companies throughout the process of UBO declarations by arranging filing operations with the authorities, maintaining registers, and informing relevant authorities of any changes / amendments to the information provided. Please contact us for any assistance relating to beneficial owner procedures and related enquiries.

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