Ultimate Beneficial Ownership in the UAE

The UAE has introduced new regulations¹ requiring certain UAE entities to maintain a register of its beneficial owners (the “New Regulations”). The scope of the New Regulations covers all corporate entities that are licenced or registered in the UAE (including in any commercial free zones) (an “Entity”). The only Entities that are not covered by the New Regulations are wholly owned government entities (and their subsidiaries) and Entities that are established within the UAE’s two financial free zones (the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM)). The New Regulations provide a more robust and prescriptive regime to record and disclose ultimate beneficial ownership of UAE entities.² Entities that are caught within the scope of the New Regulations need to take steps as soon as possible to ensure that they comply with the New Regulations as key compliance deadlines have already passed.

What needs to be disclosed?

From 27 October 2020, all Entities caught within the scope of the New Regulations must keep registers of “real beneficiaries” and shareholders (the “Registers”). The requirement to keep a shareholder register is not new,³ but the New Regulations set out specific information that should now be maintained in relation to each shareholder. The New Regulations also require Entities to keep a register of nominee directors (i.e. board appointees who act on behalf of another person, such as a shareholder).

What is a “real beneficiary”?

“Real beneficiary” is the term used in the New Regulations to describe an ultimate beneficial owner. Under the New Regulations, it is anyone that either:

1. owns or controls 25% or more of an Entity’s shares;
2. has the right to vote shares 
   representing 25% or more 
   of an Entity’s shares; or
3. controls the Entity through any other means, such as by appointing or dismissing the majority of directors.

When determining whether someone is a “real beneficiary”, it is important to look through any arrangements, intermediaries or other entities that are used in a chain of ownership/control so that you are able to identify the ultimate beneficiary and to include any joint or co-owners of particular shares (such as family members holding shares through a trust or similar structure). The New Regulations are clear that it is both direct and indirect ownership/control that is to be considered.

If it is not possible to ascertain whether anyone is considered to be a real beneficiary based on any of the tests set out above, then senior management (i.e. the decision-making authority of an Entity) will be deemed to be the “real beneficiary” under the New Regulations.

Impact on Nominee Arrangements

However, given the breadth of the New Regulations and, specifically, the definition of “real beneficiary”, our view is that a beneficiary under a nominee arrangement would be within the scope of the New Regulations (i.e. the beneficiary would be considered as holding shares or exercising control in spite of it doing so through a nominee).

When do I have to comply?

The Registers need to be created and filed with the registrar and licencing authority that has jurisdiction over the Entity (the “Registrar”) from 27 October 2020 onwards. Newly incorporated Entities will need to file the Registers with the Registrar within 60 days of incorporation.

Maintaining the registers

The Entity is primarily responsible for maintaining and filing the Registers and must take reasonable measures to obtain accurate and updated information regarding its real beneficiaries on an ongoing basis. However, if a real beneficiary is licenced or registered in the UAE or is listed (or owned by a company that is listed) on an reputable exchange that has adequate disclosure and transparency rules, then an Entity can rely on the information that such a company may have filed or disclosed to the relevant regulators without having to make further investigations as to the validity of such information.

If there are any changes in real beneficiaries or shareholders, these must be recorded in the Registers within 15 days of an Entity becoming aware of the change. An Entity must also appoint, and subsequently notify the Registrar, of a person who is resident in the UAE and is authorised by the Entity to submit all information and registers required under the New Regulations.

It is worth noting that there is a positive obligation on Entities to act if they become aware of a person that could be a real beneficiary, but who is not listed as such in the Registers.

In those circumstances, an Entity must send an inquiry to the suspected real beneficiary and, if they do not receive a response within 15 days, must send a formal notice (with certain prescribed information included) asking the person to confirm whether they are a real beneficiary. If the suspected real beneficiary fails to respond to such notice within 15 days, then the details of that person must be entered on the Registers. If a person thinks they have been incorrectly recorded as a real beneficiary on an Entity’s register, then an application to a competent court in the UAE can be made to correct the information.

Register of Nominees

A director is required to notify the Entity it is engaged by if he/she is acting as a nominee director and provide certain prescribed information within 15 days of their appointment. Any nominee directors that were appointed prior to the New Regulations must notify the Entities they work for as soon as possible as the deadline for compliance has passed (27 September 2020). Any changes to nominee directors (including their particulars) must be notified by the nominee director to the Entity within 15 days of such a change taking place.

Confidentiality

The Registrar is required to keep information that is disclosed to it under the New Regulations confidential and not to disclose such information unless approval is obtained from the person involved. However, the UAE Government may disclose information it receives under the New Regulations to third parties in order to comply with international laws and agreements that are in place, in particular, those aimed at countering money laundering and the financing of terrorism.

Penalties

The New Regulations do not yet include penalties or other sanctions for non­compliance. This has been delegated to the relevant government ministry and, at the time of writing, has not yet been published.

Next steps

We expect a list of penalties and sanctions for non-compliance to be issued soon along with a framework and additional guidance on how information is to be collected and submitted.

If you have any questions on the content of this alert or would like to speak to us about the New Regulations, please reach out to the key contacts.

¹ Cabinet Resolution No. 58 of 2020 on the Regulation of the Procedures of the Real Beneficiary.

² UAE Federal Law No. 20 of 2018 on Anti-Money Laundering and its implementing regulation (Cabinet Resolution No. 10 of 2019) provided a lot of the foundations for the New Regulations. That particular law and the implementing regulation obliged certain institutions in the UAE to identify the ultimate beneficial owners of its customers (which was a person who holds a controlling interest of 25% or more in the customer).

³ Required under the UAE Federal Law No. 2 of 2015 on Commercial Companies.