Penalties for LLCs that fail to register their UBOs in the UAE

The United Arab Emirates (UAE) has recently introduced new regulations that require all legal entities, including limited liability companies (LLCs), to disclose and register their ultimate beneficial owners (UBOs) with the relevant authorities. The aim of these regulations is to enhance transparency, combat money laundering and terrorist financing, and align the UAE with international standards and best practices.

According to the Federal Decree-Law on Commercial Companies, which was issued on 20 September 2021 and will come into force on 2 January 2022, LLCs must keep a register of their UBOs at their head office and provide it to the competent authority upon request. A UBO is defined as any natural person who ultimately owns or controls, directly or indirectly, at least 25% of the shares or voting rights of the LLC, or who has the right to appoint or dismiss the majority of its managers or directors, or who exercises ultimate control over the LLC by other means.

The Decree-Law also stipulates that LLCs must notify the competent authority and the Registrar of any changes or amendments to the registered particulars of their UBOs within 15 working days of such changes or amendments. Moreover, LLCs must provide the competent authority and the Registrar with a statement of the UBOs' particulars in January of every year, as well as any other data, information, or documents required by the Decree-Law and the decisions issued in implementation thereof.

Failure to comply with these obligations may expose LLCs and their managers or directors to severe penalties, as prescribed by the Decree-Law and the list of administrative penalties that will be issued by the Council of Ministers. According to the Decree-Law, the penalties may include:

• Imprisonment for a period of no less than six months and not exceeding three years, and a fine of no less than 200,000 dirhams and not exceeding one million dirhams, or either of these two penalties, for whoever intentionally records in the LLC's documents false statements or any statements in violation of the provisions of the Decree-Law, or whoever knowingly signs or distributes these documents.
• A fine of no less than 100,000 dirhams and not exceeding 500,000 dirhams for the chairman, board member, executive officer, or general manager of the LLC who accepts to provide a loan, guarantee, or security to a board member of the LLC or to his spouse or relatives up to the second degree, in violation of the provisions of the Decree-Law.
• A fine of no less than 50,000 dirhams and not exceeding 500,000 dirhams, or either of these two penalties, for the chairman, board member, or other employee of the LLC who uses or discloses a secret of the LLC or deliberately attempts to cause damage to the activity of the LLC.
• A fine of no less than 100 dirhams and not exceeding 10 million dirhams, depending on the type and severity of the violation, as determined by the list of administrative penalties that will be issued by the Council of Ministers.

In addition to these penalties, the competent authority may also suspend or cancel the registration or licence of the LLC, or refer the matter to the public prosecution or the competent court, if it finds out that the LLC has ceased to conduct its business or that it conducts its business in contravention of the provisions of the Decree-Law and the decisions issued in implementation thereof.

Therefore, LLCs operating in the UAE should take the necessary steps to identify and register their UBOs, and to update and maintain their UBOs' registers, in order to avoid any legal risks and ensure compliance with the new regulations.