30 Jun 2019

DIFC Ultimate Beneficial Ownership Regulations

Authored by: Hadef & Partners, Sector Groups

In brief:

  • The DIFC Ultimate Beneficial Ownership Regulations were enacted on 12 November 2018.
  • The Regulations require all entities operating in the DIFC to establish a register of ultimate beneficial owners.
  • Failure to comply with the Regulations may result in a fine of up to USD 25,000

Background

In line with other jurisdictions around the world, the DIFC has continued to focus on increasing transparency and accountability by revising laws in line with international best practice. As a result, on 12 November 2018, the DIFC Ultimate Beneficial Ownership Regulations (UBO Regulations) were enacted.

More recently, on 7 February 2019, the DIFC Registrar of Companies (Registrar) issued a guidance note (UBO Guidance Note) in respect of the UBO Regulations.

The UBO Regulations require all entities operating in the DIFC to establish a register of ultimate beneficial owners (UBOs). In addition, all such entities are required to provide / verify their UBO details on the DIFC Client Portal and ensure that the information is up to date. Any subsequent changes to the register of UBOs maintained by the entity must be filed on the DIFC Client Portal within 30 days of the change.

If an entity has any Nominee Directors, the entity must maintain its own register of Nominee Directors, and file details of the Nominee Directors on the DIFC Client Portal. Any subsequent changes to the register of nominee directors maintained by the entity must be filed within 30 days of the change.

As prescribed in the Operating Law DIFC Law No. 7 of 2018 and UBO Regulations, failure to comply with any of the above requirements may result in a fine of up to USD 25,000.

Definition of a UBO

The UBO Regulations define a UBO of a Registered Person as a natural person (other than a person acting solely in the capacity of a professional adviser or professional manager) who:

(a) in relation to a company, owns or controls (directly or indirectly):

  1. Shares or other Ownership Interests in the Registered Person of at least 25%;
  1. voting rights in the Registered Person of at least 25%; or
  1. the right to appoint or remove the majority of the Directors of the Registered Person;

(b) in relation to a partnership, has the legal right to exercise, or actually exercises, significant control or influence over the activities of the partnership; or

(c) in relation to a foundation or a Non Profit Incorporated Organisation, has the legal right to exercise, or actually exercises, significant control or influence over the activities of the Governing Body, person or other arrangement administering the property or carrying out the objects of the foundation or the Non Profit Incorporated Organisation.

The UBO Regulations provide that beneficial ownership may be traced through any number of persons or arrangements of any description.

If no natural person is identified as an UBO, any natural person upon whose instructions the Registered Person or its Governing Body is required or is accustomed to act, shall be the UBO.

If there is no UBO of a Registered Person under the applicable regulations, each: (a) natural person that is a member of its Governing Body; and (b) UBO of a body corporate member of its Governing Body, shall be deemed to be an UBO.

Registers of UBOs and Nominee Directors

Under the UBO Regulations, Registered Person shall cause the following information to be entered in its Beneficial Ownership Register in respect of each UBO:

  1. full legal name;
  1. residential address and, if different, an address for service of notices under the UBO Regulations;
  1. date and place of birth;
  1. nationality;
  1. information identifying the person from their passport or other government-issued national identification document acceptable to the Registrar, including: (i) identifying number; (ii) country of issue; and (iii) date of issue and of expiry;
  1. the date on which the person became an UBO; and
  1. the date on which the person ceased to be an UBO (not applicable in this case).

Equivalent details in respect of a Registered Person’s Nominee Directors are required to be entered into a register of Nominee Directors.

A Registered Person is also obliged to provide to the Registrar the name and other required particulars of its UBOs and Nominee Directors.

A Registered Person must not disclose, or make available for inspection, the Beneficial Ownership Register, the Register of Nominee Directors or any particulars contained in either register to any person, except as provided in the UBO Regulations, as required under any applicable law or with the consent of the UBO or Nominee Directors, as the case may be.

The Registrar is required only to collect and process information relating to UBOs and Nominee Directors obtained by him under the Regulations for the purposes of regulation in relation to money laundering and terrorism financing, unlawful organisations and sanctions compliance in the DIFC, or to comply with any other applicable laws in the DIFC.

The Registrar shall only (unless the Registered Person consents to such disclosure) disclose such information at the request of a regulator, a law enforcement agency or other government authority prescribed by law, and then only to the regulator, agency or authority which made the request, for the purpose of such a request.

The Registrar may require a Registered Person to furnish to the Registrar such information or documents as the Registrar may require for the performance of his functions under the UBO Regulations.

The UBO Regulations provide that an aggrieved person or any other interested party may apply to the Court for rectification of the Beneficial Ownership Register to correct any errors or omissions.

Each entity will need to keep their own UBO registers at their registered address.

Exemptions

The requirement to maintain registers of UBOs and Nominee Directors and provide particulars to the Registrar does not apply to a Registered Person which:

  1. has its securities listed or traded on a Recognised Exchange;
  1. is regulated by a Recognised Financial Services Regulator;
  1. is a Recognised Company, Recognised Foundation or Recognised Partnership, which satisfies the Registrar that it is subject to equivalent international standards, which ensure adequate transparency of ownership information in its home jurisdiction;
  1. is a Non Profit Incorporated Organisation which does not, as its primary function, engage in raising or disbursing funds for charitable, religious, cultural, educational, social, fraternal or similar purposes;
  1. is wholly owned by a government or government agency of a Relevant Jurisdiction; or
  1. established under a law of the United Arab Emirates to perform governmental functions.

In addition, a Registered Person which is at least 25% beneficially owned or controlled (directly or indirectly) by a person (which includes a Registered Person or any other person) which satisfies paragraphs (a) to (f) above is not required to make any further inquiry as to its ultimate beneficial ownership to the extent that such ownership is directly or indirectly held by or through such a person. However, such Registered Persons are still required to maintain a register of UBOs which should contain the details of the relevant person (as well as to provide the relevant particulars to the Registrar).

The Registrar communicated in the UBO Guidance Note that a “Recognised Exchange” and “Recognised Financial Services Regulator” includes any stock exchange or financial services regulator from the following countries: Australia; Austria; Belgium; Canada; Demark; Finland; France; Germany; Greece; Guernsey; Hong Kong; Iceland; India; Ireland; Isle of Man; Italy; Japan; Jersey; Luxembourg; Malta; Netherlands; Norway; Portugal; Singapore; South Africa; Spain; Sweden; Switzerland; United Kingdom; and United States of America (in addition to obviously the Dubai Financial Services Authority).

Conclusion

The obligation to establish and maintain a UBO register is a significant new administrative and compliance requirement and given the potential fine for non-compliance, it is important to ensure that all obligations are met. The deadline for registering your UBO for your DIFC entity has since passed and failure to have filed will result in fines accruing as detailed above, however, you may not have considered that a UBO register does also need to be maintained additional to the mandatory filing. This can also leave you liable for further fines and therefore, if you are in doubt as to whether you have done the needful, our Corporate team would be happy to assist you by identifying the UBOs in your DIFC entity and guiding you through the various obligations under the new UBO Regulations, as detailed above.

Note - Capitalised terms used herein and not defined shall have the meaning ascribed to them in the UBO Regulations (or other applicable legislation).

For more information, please contact us on sectors@hadefpartners.com.