The Kingdom of Saudi Arabia has recently taken a significant step towards enhancing corporate transparency and aligning with international regulatory standards. The Ministry of Commerce has issued new Rules for the Ultimate Beneficial Owner (UBO Rules), set to take effect on April 3rd, 2025. This move marks a pivotal shift in the Kingdom’s approach to corporate governance and financial oversight.
What are the UBO Rules?
The UBO Rules mandate that most companies registered in Saudi Arabia disclose their ultimate beneficial owners (UBOs) to the Ministry of Commerce. This requirement aims to increase corporate accountability, combat financial crimes, and strengthen anti-money laundering (AML) enforcement.
Why are these rules important?
These new regulations are a key component of Saudi Arabia’s commitment to international best practices, including compliance with recommendations from the Financial Action Task Force (FATF). By implementing these rules, the Kingdom seeks to create a more transparent and secure business environment, fostering greater trust and attracting further investment.
What has changed?
Previously, while companies in Saudi Arabia were required to maintain ownership records, there was no widespread obligation for private companies to disclose their UBOs. UBO identification was primarily enforced within financial and regulated sectors under AML and Know Your Customer (KYC) requirements.
The new UBO Rules expand the regulatory scope beyond financial institutions, requiring all companies (with specific exemptions) to formally register and maintain a record of their UBOs with the Ministry.
Who is a UBO?
Under the new rules, a UBO is defined as any natural person who meets at least one of the following criteria:
- Owns at least 25% of the company’s share capital, directly or indirectly.
- Controls at least 25% of the company’s voting rights, directly or indirectly.
- Has the power to appoint or remove the majority of the board, manager, or chairman.
- Has the ability to influence the company’s operations or decisions.
- Represents a legal entity that meets any of the above conditions.
If no individual qualifies under these criteria, the company’s manager, board member, or chairman will be deemed the UBO.
Key Obligations for Companies
Companies operating in Saudi Arabia must adhere to several key obligations under the UBO Rules:
- Disclosure at Incorporation: Newly formed companies must disclose UBO information during the registration process.
- Annual Filings: Existing companies must confirm UBO details annually, within 30 days before their registration anniversary.
- UBO Register & Updates: Companies must maintain a UBO register containing specific details such as the UBO’s name, ID information, address, contact information, and the criteria for determining their UBO status. The register must be maintained within the Kingdom.
- Updates to UBO Information: Companies must notify the Ministry of any changes to UBO details within 15 days of the change.
- Regulatory Requests: The Ministry retains the discretion to request UBO-related information and supporting documents.
Exemptions
Certain entities are exempt from the UBO disclosure requirements, including:
- Companies wholly owned by the state or state-owned authorities.
- Companies undergoing liquidation under the bankruptcy law.
- Companies specifically exempted by a decision of the minister.
Exempt companies are required to submit proof of their exemption to the Ministry.
Penalties for Non-Compliance
Failure to comply with the UBO Rules can result in penalties, including fines of up to SAR 500,000 (approximately USD 133,000).
Preparing for the Changes
Companies operating in the Kingdom should take proactive measures to ensure compliance with the UBO Rules. This includes:
- Understanding the specific requirements and how they apply to their organizational structure.
- Establishing processes for identifying and documenting UBO information.
- Implementing systems for maintaining and updating UBO records.
- Seeking professional guidance to ensure adherence to all regulatory obligations.
By taking these steps, businesses can effectively navigate the new regulatory landscape and contribute to a more transparent and robust business environment in Saudi Arabia.
Need expert guidance navigating the complexities of the UBO Rules?
Contact our dedicated Saudi Team today: enquiries@cbdcorporateservices.com
