Why UBO Compliance Is Critical for UAE Businesses?
One of the most popular principles of company laws is that- a company is a juristic person having a separate legal entity. At the same time, it cannot be denied that such entities though separate are always controlled by a natural person. Therefore, it becomes essential to determine the person who owns and runs the company. This becomes extremely significant in affixing the liability of companies and their owners.
It has a direct nexus with the theory of ‘lifting the corporate veil.’ The UAE Law reinforces this theory through its extensive provisions such as the UBO Declaration. It essentially implies that authorities will look beyond the company’s separate legal personality to identify who is using the corporate structure to evade legal obligations.
In this article, we explain the concept of UBO, its legal basis, and its connection with corporate accountability under UAE law. Read till the end to understand how UBO compliance impacts businesses.
Who is a UBO?
Before moving forward, we need to understand who is considered a UBO as per UAE law. The Cabinet Resolution No. 58 of 2020[1] provides the detailed framework concerning Ultimate Beneficial Owners (UBO). Article 5 of the Resolution states that a UBO is someone who satisfies one or more of the following conditions:
- A person who controls/owns the establishment definitively, through direct/indirect ownership shares of 25 % or more, or;
- A person who has 25% or more voting rights, or the power to appoint or remove most of the company’s managers, or otherwise exercises ultimate control over the company; or
- In cases where UBO cannot be identified through the two conditions above, then a person who holds the position of Senior Management Official in the company may be deemed as the UBO[2].
The concept of UBO is a critical measure to prevent money-laundering and financing of illegal activities though a facade of corporate structure[3].
Why UBO Compliance Is Critical for UAE Businesses?
It is important to note that there are different aspects for identifying a UBO, such as ownership, control, and nominee arrangements, and companies are required to assess all these aspects collectively rather than relying only on formal shareholding records.
Sometimes, a person may appear to be the ultimate beneficial owner because he exercises the decision-making authority on paper. However, that may not be the case always. This is because often such person is acting as a nominee on behalf of another person. Therefore, it is essential to go beyond paper to determine who possesses the real authority.
The company must disclose the details of the nominee and the individual on whose instructions the nominee acts to prevent confusion.
Exempted Entities Under the UBO Framework
There are certain entities that are exempt from the UBO requirements. This is because they are already subject to higher or equivalent regulatory requirements under separate legal frameworks, such as:
- the companies in economic free zones like ADGM, DIFC and
- the companies directly or indirectly owned or affiliated by the Federal or Emirate Government.
These exemptions should not be considered as providing a beneficial status. These are listed solely to prevent duplicate compliance obligations under different laws and regulations.
Key Compliance Obligations Under the UBO Framework
The Cabinet Resolution No. 58 of 2020 lists down all the compliance obligations that every relevant entity, excluding those falling under the exempted category is required to fulfil under the UBO framework. This includes the following:
- Maintaining statutory registers: Every relevant entity is required to maintain the following types of registers at its registered office address or headquarters.
- Register of Partners and Shareholders;
- Register of UBOs;
- Register of Directors and Nominee Directors (if applicable); and
- Copies of supporting documents and forms[4].
- Submitting undertaking of accuracy: The companies are also required to submit an undertaking confirming that the above registers have been made and are up-to-date and all the information recorded therein is accurate.
- Timely update of UBO information: If any amendments or changes occur in the original UBO information submitted then the companies must update the same within 15 days of such change.
- Designation of a UAE-Resident Contact Person: The companies are also required to appoint a designated contact person who should be a UAE Resident. The purpose is to ensure that licensing authorities can easily contact companies in relation to UBO data, verification requests or compliance checks[5].
Why UBO Compliance matters in the UAE?
UBO compliance is essential for businesses operating in the UAE, as failure to identify and disclose the Ultimate Beneficial Owner can result in fines, regulatory action, and suspension of trade licences under the UAE’s strengthened AML and UBO framework. Inaccurate or outdated UBO records may also lead to banking issues, delayed licence renewals, and compliance audits, disrupting business operations. Given the complexity of ownership and control structures, engaging experienced legal advisors such as Khalifa Bin Huwaidan Advocates and Legal Consultants helps ensure timely and accurate compliance while avoiding penalties. If you are unsure about your UBO obligations, seeking professional legal guidance early can protect your business from regulatory risk.
UBO compliance is mandatory for most companies and entities in the UAE such as mainland, commercial free zone or LLC etc. However, certain categories of entities are exempted because they are already subject to higher or equivalent regulatory frameworks.
[1] Cabinet Decision No 58 of 2020 Regulating the Beneficial Owner Procedures (UAE) https://rulebook.centralbank.ae/en/rulebook/cabinet-decision-58-2020-beneficial-owner-procedures
[2] Article 5, Cabinet Decision No 58 of 2020 Regulating the Beneficial Owner Procedures (UAE)
[3] Anti-Money Laundering and Combating the Financing of Terrorism and Illegal Organisations (UAE) https://rulebook.centralbank.ae/en/rulebook/anti-money-laundering-and-combating-financing-terrorism-and-illegal-organisations
[4] “Ultimate Beneficial Ownership (UBO),” LexisNexis Middle East Glossary https://www.lexisnexis.com/in-en/glossary/compliance/ultimate-beneficial-ownership-ubo
[5] United Arab Emirates: Changes to the Ultimate Beneficial Ownership Regulations to Address the Complex Structures and Needs of Businesses, Baker McKenzie InsightPlus (19 January 2024) https://insightplus.bakermckenzie.com/bm/mergers-acquisitions_5/united-arab-emirates-changes-to-the-ultimate-beneficial-ownership-regulations-to-address-the-complex-structures-and-needs-of-businesses_
[6] Cabinet Resolution No 109 of 2023 Regulating the Real Beneficiary Procedures (UAE)
FAQs
UBO compliance is mandatory for most companies and entities in the UAE such as mainland, commercial free zone or LLC etc. However, certain categories of entities are exempted because they are already subject to higher or equivalent regulatory frameworks.
Providing incorrect UBO information can lead to serious consequences such as fines, suspension of trade license, regulatory action and difficulty in continuing banking, financial activities[6].
No, UBO compliance is not a one-time compliance requirement. It needs to be updated as soon as there is any change in the data. Therefore, entities need to be vigilant about company structure and ownership changes that can trigger changes in UBO information.
