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Ultimate Beneficial Owner (UBO) regulations: Check if you have missed it!

With the introduction of mandatory rules to ensure financial transparency, the last two decades have witnessed the worst situation of terrorist financing and money laundering by many organizations in the UAE. To launder money, hide ill-received wealth, finance terrorism or dodge taxes, various business organizations had used complex corporate plans. These plans included advanced ownership strategies to hide the real face of terrorist hands, politically exposed personalities and other criminal entities. These ill practices were out following the Panama Papers and Paradise Papers (a huge leak of 25 million legal information) that displayed the confidential legal and financial data that included corruption, crime and dishonest practices by various offshore companies.

These practices have led to the rise of UBO (Ultimate Beneficial Owner) legislation around the world. The UAE has set UBO regulations to stop the role of financial frauds to point out the ultimate beneficiary in such organizations.

What is UBO (Ultimate Beneficial Owner)?

A UBO is a person who is the ultimate beneficiary of an organization when a transaction is being initiated. Generally, depending upon the jurisdiction, a UBO holds a minimum of 25% of the capital or ownership rights in a company.

To put it in simple words, imagine that a person named “X” has more shares in a company named “Y”. The company “Y” being globally acceptable, may have a major share in the company named “Z”. In this case, the person “X” will be the UBO of the organization “Z” through an indirect agreement. Finding out a UBO is not that easy as there will be various ownership arrangements in a company.

UBO Legislation

The procedures associated with real beneficiaries of a company about UBO comes under Cabinet Resolution No. 58/2020.

Zones that comes under UBO legislation

The UBO legislation regulations in the UAE are intended to follow by:

  • Mainland companies
  • Jebel Ali Free Zone
  • Dubai Multi Commodities Centre
  • Ajman Free Zone

In total UBO legislation must be followed by companies in the mainland zone and the non-financial free zone. The financial free zones of Dubai International Financial Centre and Abu Dhabi Markets have their own set of regulations on UBO’s and must be followed strictly accordingly.

UBO regulations to be followed by a company

UBO regulations to maintain in a company is nothing but finding the right Ultimate Beneficial Owner.

It is done under the regulations act like:

  • Article Five says that a UBO who is the ultimate owner of a company has the right to own the company if he has a 25% share in the company. He may have a direct or indirect ownership agreement and has the right to appoint the director board of managers. If there are no persons that come under such rules, then the senior manager of directors shall be appointed as UBO.
  • Director/manager register: The register must-have details of managers or the directors and also the details of shareholders. It also must have voting rights along with the acquisition dates too.
  • Article 17 says that the companies must pay a penalty of AED 100,000 from July 2021 for those who violate UBO regulations and do not submit the proper information by June 30, 2021, regarding UBO to corporate regulators.

The UBO regulations provide a detailed framework for registering UBOs and nominee directors for their beneficial attention. The regulations help to prove legal and financial transparency, prevent corruption and enhance corporate governance. Thus the business entities should approach professional advisors of Audit Firms in Dubai to make sure the company comply with the UBO legislation regulations.

 

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