In brief
Over the last few months, the United Arab Emirates (UAE) have made a few legislative changes in relation to the Ultimate Beneficial Ownership (UBO) regulations as well as the associated administrative penalties, with the issuance of:
- Cabinet Resolution No. 109 of 2023 on the Regulation of the Real Beneficiary Procedures (the “New Resolution“), which came into effect on 16 November 2023 and superseded Cabinet Resolution No. 58 of 2020. The New Resolution applies to all corporate entities incorporated in the UAE mainland and in the non-financial free zones (or “Commercial Free Zones“);
- Cabinet Decision No. 132 of 2023 (the “New Decision“) relating to the administrative fines for violations of the New Resolution, which was issued on 15 December 2023 and superseded Cabinet Decision No. 53 of 2021.
Under the previous Cabinet resolution, the main challenge that corporate entities and the authorities faced was in relation to identifying the UBO in entities that adopt complex structures and have multiple layers of ownership or that are ultimately owned, for example, by a trust, foundation or a private equity firm. The New Resolution has introduced amendments and updates to the requirements for the beneficial ownership procedures with the aim of providing some more clarity in light of these challenges.
The New Decision has also been updated to align with the New Resolution and includes a penalty for failure to disclose the various entities in the chain of ownership in the case of complex structures.
With the experience gained by the authorities in the application of the previous Cabinet resolution, the New Resolution is anticipated to be better equipped to address the complex structures and needs of businesses.
Key takeaways
- All entities in the UAE, both in the mainland and Commercial Free Zones, are subject to the New Resolution with the exception of:
- companies owned by the Federal or local government and their subsidiaries;
- entities incorporated in the financial free zones (Abu Dhabi Global Market and Dubai International Financial Centre); and
- governmental partners – an exception that is newly introduced and defined in the New Resolution as a Federal or local government that contributes or owns shares in the company.
- The New Resolution keeps the same disclosure requirements for mainland companies and companies set up in the Commercial Free Zones that were provided in the previous Cabinet resolution.
- The New Resolution introduces a discretionary right for the relevant company registrar and licensing authorities in each relevant jurisdiction (the “Registrar“) to determine the beneficial owner by taking into account a risk-based approach in the case of complex structures.
- Under the New Resolution, each relevant Registrar is now required to ensure that each entity within its jurisdiction is not misused for the purposes of money laundering and financing of terrorism through taking certain measures as set out in the New Resolution.
- The New Resolution also introduces a Supreme Committee responsible for the supervision of anti-money laundering strategy and combatting the financing of terrorism.
- Similar to the previous Cabinet decision, the New Decision outlines various administrative penalties for different violations of the New Resolution. These penalties range from written warnings to monetary fines. The New Decision, however, grants a new right to the relevant Registrars to temporarily suspend commercial licenses or close entities in the case of repeated violations (for the third or subsequent offences) until the fine is paid.
- The New Decision has also clarified the description of the various penalties and, in some cases, divided the penalties set under the previous Cabinet decision into separate more itemized violations. The New Decision also places a 14-day time restriction in which the entity would need to respond to any requests for further information from the relevant Registrar.
- The New Decision also includes a new penalty which relates to the failure of an entity to disclose the layers of the ownership in complex structures.
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To speak with us in relation to the UBO regulations or for any assistance with preparing the relevant registers and filing with the Registrar, please feel free to contact one of the lawyers below or your usual Baker McKenzie contact.
