15 October 2020

How the UAE’s new register requirements help improve transparency and combat financial crime

Briefing

On the 24 August 2020, UAE Federal Cabinet Resolution No. 58 of 2020 on the Regulation of the Procedures of the Real Beneficiary (or the RB Regulation) was issued.

Like the revised Economic Substance Requirements introduced a few weeks ago (and earlier legislation passed in 2018), it aims to strengthen the UAE’s position when it comes to fighting international tax avoidance and money laundering, and enhance UAE businesses’ transparency overall.

We've outlined all the key information you need to know about the RB Regulation below, including who it applies to and what the legal requirements involved are.

What is the RB Regulation and who needs to comply with it?

The RB Regulation has three core elements:

the implementation of a register for nominee directors
comprehensive rules requiring businesses to arrange and maintain registers of their shareholders, and
similar rules around arranging and maintaining registers of their Real Beneficiaries.

It applies to you if you represent a legal entity licensed or registered anywhere in the UAE, including the free zones (except the financial free zones). The only legal persons exempt from the RB Regulation are companies wholly owned (directly or indirectly) by the federal or local government.

Furthermore, the efforts you need to undertake in identifying and updating the registers for the Real Beneficiaries are relaxed if you're:

an entity that's subject to disclosure requirements that ensure adequate transparency for Real Beneficiary information
an entity listed in an organised stock market, or
an entity majority owned by such listed company.

In any of these scenarios, you can rely on the documents already disclosed to the authorities.

Register requirements

For many of you who own or manage entities in the UAE, the requirement to maintain a shareholder register and prepare information on the ultimate beneficial owners is not new. You will have already needed to record any change in the shareholding with the respective company registration authority. What's more, many of the free zone regulators will have already requested that you confirm the information of ultimate beneficial owners.

However, the RB Regulation seeks to streamline and organise the internal processes involved, providing a unified approach for all authorities and relevant entities about the kind of data you need to include in the registers, and how you administer and retain the data in your entities.

The shareholder or partner register

For the shareholder or partner register, the details you're required to capture include the information you provided to the relevant company registration authority when registering your entity – for example, the shareholder’s name, address and constitutional documents. Additionally, you'll need to include information about your shareholders’ senior management, and a proper address for your entity inside the UAE. The significant new requirement here is that the RB Regulation also requires you to record where there are trustee arrangements, and who is representing whom.

The Real Beneficiary register

The basic requirement you need to comply with when acting for a UAE entity and creating the register is that you must take all reasonable measures to obtain and preserve accurate and updated information, prior to the below mentioned deadline (and on an ongoing basis), about the entity’s Real Beneficiaries.

Helpfully, the term "Real Beneficiary" is now defined under the RB Regulation – it refers to any natural person who (directly or indirectly) exercises ultimate effective control over a legal person, which could be through ownership of least 25% equity, or via the right to vote for at least 25% of the entity's shares.

In scenarios where you can't identify at least one individual who meets these criteria, then the natural person exercising control over the entity may be listed as the Real Beneficiary, or in the last instance, the senior manager of the entity.

The Nominee Director Register and appointed representatives

The most novel aspect of the RB Regulation is the requirement to arrange and maintain a nominee director register, as well as the need to nominate a person towards the authority for communication about the registers. The nominated individual needs to reside in the UAE and you will have to authorise them to disclose the information for all three registers, in the form required under the RB Regulation and any executive regulations.

As a current nominee director – that is, if you act on instructions or according to guidance from another person – you have 30 days to provide the entity with your full name, address, place of birth, and a copy of your passport so that they can prepare the required nominee director register.

If you're going to be appointed as a nominee director in the future, then you have 15 days from the date of your appointment to complete this task, to ensure the entity can update its register.

What happens to the register information you provide to the relevant company registrar?

The registrar is obliged to submit the company information to the Ministry of Finance. However, the RB Regulation provides for information to be kept confidential unless written approval is granted by the Real Beneficiary or a nominal board member.

Upon request, the Ministry of Finance will provide Real Beneficiary, shareholder and partner information to other UAE authorities. This information can also be disclosed to foreign authorities, on the basis that the Ministry of Finance can access similar information held by the foreign authority in question. This is intended to combat money laundering and tax avoidance in the UAE.

Why should you comply?

Administrative sanctions could be levied against entities that fail to provide the necessary information to the relevant UAE registrar. Although these fines haven’t been published yet, if the catalogue of fines provided in the Economic Substance Regulation (which also aims to fight tax evasion) is any indication, then the potential penalty for non-compliance could run into the tens of thousands of Dirhams.

The deadline for compliance with the RB Regulation announced by the legislator is 27 October 2020. On this date, you – as the representative of a concerned entity – are expected to have established the three required registers, namely for the Real Beneficiaries, the shareholders, and any nominee directors of the UAE entities.

So, if you haven't started to prepare your registers yet, it's crucial that you act now to avoid potentially costly consequences!