Ultimate Beneficial Ownership
Overview
- The Kingdom of Bahrain continues to improve its standards of transparency with its ongoing commitment to ensure that it is in line with international standards through implementation of a legislative framework that seeks to prevent the misuse of corporate vehicles and guard against money laundering, bribery and corruption, insider dealings, tax fraud, terrorist financing and other illegal activities.
- In line with this initiative, the Ministry of Industry, Commerce and Tourism, now the Ministry of Industry and Commerce (MOIC) issued Bahrain Decision No. 83/2020 Regarding Criteria, Conditions and Rules Governing the Disclosure of Ultimate Beneficial Owner. The MOIC also published additional clarifications in regard to the scope of Bahrain Decision No. 83/2020, including practical guidelines. These clarifications are particularly important given the significant penalties for non-compliance. Bahrain Decision No. 83/2020 only applies to natural or legal persons registered with the MOIC and holding a valid commercial registration (CR), including branches of foreign companies (registered entity). Entities licensed with the Central Bank of Bahrain do not fall within the purview of the MOIC.
- This Practice Note will discuss how Bahrain Decision No. 83/2020 has helped the Kingdom of Bahrain achieve this initiative.
Definitions
- MOIC: Ministry of Industry and Commerce.
- FATF: Financial Action Task Force.
- CR: Commercial registration.
- UBO: Ultimate Beneficial Owner.
- Registered entity: Branches of foreign companies.
Practical Guidance
Who or what is an ultimate beneficial owner?
The Financial Action Task Force (FATF) Rules form the basis of Bahrain Decision No. 83/2020, and it defines an ultimate beneficial owner (UBO) as a natural person or persons, who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement.
Article 3 of Bahrain Decision No. 83/2020 sets out the following qualifying attributes of the UBO of a registered entity:
- owning or controlling, directly or indirectly, 10% or more of the registered entity’s capital or voting rights;
- where the registered entity is a legal person owned by another legal person (or governed by a legal arrangement), the UBO is a natural person who is the ultimate owner within the chain of ownership and the person who exercises effective control over it;
- holding influence and decision-making power over the registered entity, either directly or indirectly through other means such as personal communications or through participation in the financing of the project, a familial relationship, any contract, arrangement or understanding, or through a hierarchical entity (in the chain of ownership in regard to legal entities);
- contributing to the financing of the registered entity’s business, its assets or the transactions made for the benefit of the registered entity, even if such contributions are hidden;
- having direct or indirect control over the operations of the registered entity through a management agreement, power of attorney or a similar legal instrument;
- having effective ultimate control of the registered entity through a series of ownerships or other means of control, other than direct control;
- exercising control through management positions within the registered entity so as to impact the strategic decisions, or influence the general direction of the registered entity; and
- any other conditions, criteria and rules as determined by the MOIC in accordance with best international practice in relation to the commitment to improve international tax compliance, anti-money laundering and combating the financing of terrorism.
The MOIC has also issued the following further clarifications regarding a qualifying UBO:
- only a natural person qualifies as a UBO;
- the same natural person(s) may be the UBO(s) for more than one registered entity;
- anyone can qualify as a UBO irrespective of age or nationality;
- a registered entity may have more than one UBO and the relevant information in respect of each UBO must be submitted to the MOIC; and
- once submitted, the UBO’s information and supporting documents (the data) will be valid for a period of one year, following which a registered entity will be required to re-confirm or revise the information on an annual basis (or earlier if there is a change in the UBO or their information).
Submitting UBO data
Submission of the required data is completed through the MOIC’s online Sijilat1 portal. Registered entities are required to login using their personalised e-key, and the relevant UBO section can be found under the service menu whereby “ultimate beneficial owner through registration” must be selected.
Bahrain Decision No. 83/2020 sets out the following data requirements in respect of each of its UBOs, which must be submitted by a registered entity:
- full name;
- passport number and a copy of the passport;
- ID number and a copy of the ID;
- country of tax residence and tax identification number in the country of tax residence of the UBO (if applicable); and
- residential address, email and contact information.
Such information is submitted to the MOIC using a standard UBO Declaration Form.
Registered entities should submit details of their UBOs without delay and such data will need to be submitted each time a UBO changes, such as following a share transfer or resignation of a director. Confirmation of a registered entity’s UBO will need to be submitted each year at the same time of the annual renewal of such registered entity’s CR.
Penalties for non-compliance
In the event that a registered entity fails to comply with the terms set out in article 7 of Bahrain Decision No. 83/2020 or submits incorrect data, the MOIC may impose the following sanctions:
- suspend the registered entity’s CR or strike it from the commercial register; and/or
- impose an administrative fine not exceeding BHD 1,000 per day for a first-time offence, and BHD 2,000 per day thereafter for subsequent offences, committed within three years from the date on which the previous notice of non-compliance was issued. The total fines may not exceed BHD 50,000; and/or
- an administrative fine not exceeding BHD 100,000.
Conclusion
In light of the influx of key reforms in the Kingdom of Bahrain, including the introduction of Bahrain Decision No. 83/2020 and Bahrain Ministerial Decision No. 106/2018 Concerning Economic Substance Requirements in the Kingdom of Bahrain and common reporting standards, it is increasingly important for businesses to review their corporate structure and clearly identify the UBOs of each entity in question.
Such information cannot merely be ascertained through a shallow analysis of the ultimate parent company’s share register, and businesses must instead conduct a thorough consideration of all UBO criteria as set out in Bahrain Decision No. 83/2020, thereby paying credence to the substance of a registered entity’s ownership and control structures rather than its form alone. In particular, the role of nominee shareholders and potential trustee arrangements ought to be carefully examined.
Reproduced with permission from LexisNexis Middle East. For further information, please visit their website.
1https://www.sijilat.bh/
