Bahrain Ultimate Beneficial Owner (“UBO”) Rules Take Effect

Background

The Kingdom of Bahrain continues to improve its standards of transparency with its ongoing commitment to ensure that the Kingdom 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 (“MOICT”) recently issued Resolution No.83 of 2020 concerning the Standards, Requirements and Rules to Determine Ultimate Beneficiaries (the “Resolution”). The MOICT has also published additional clarifications in regard to the scope of the Resolution, including practical guidelines.  These clarifications are particularly important given the significant penalties for non-compliance. The Resolution only applies to natural or legal persons registered with the MOICT and holding a valid Commercial Registration (“CR”) (“Registered Entity”).  Entities licensed with the Central Bank of Bahrain do not fall within its purview.

Definition of UBOs

The Financial Action Task Force (“FATF”) definition of a beneficial owner (the FATF rules form the basis of the Resolution) is that of 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 the Resolution sets out the following qualifying attributes of the UBO of a Registered Entity:

1. Owning or controlling, directly or indirectly, 10% or more of the Registered Entity’s capital or voting rights;
2. Where the Registered Entity is a legal person owned by another legal person (or governed by a legal arrangement), the UBO is the natural person who is the ultimate owner within the chain of ownership and the person who exercises effective control over it;
3. 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);
4. 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;
5. Having direct or indirect control over the operations of the Registered Entity through a management agreement, power of attorney or similar legal instrument;
6. Having effective ultimate control of the Registered Entity through a series of ownerships or other means of control, other than direct control;
7. 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
8. Any other conditions, criteria and rules as determined by the MOICT 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 MOICT has also issued the following further clarifications regarding a qualifying UBO:

1. Only a natural person qualifies as a UBO;
2. The same natural person(s) may be the UBO(s) for more than one Registered Entity;
3. Anyone can qualify as a UBO irrespective of age or nationality;
4. A Registered Entity may have more than one UBO and the relevant information in respect of each UBO must be submitted to the MOICT; and
5. Once submitted, a UBO’s information and supporting documents (the “Data”) shall 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 his/her information).

Submission of the Data

Submission of the required Data is completed through the MOICT’s online Sijilat portal. Registered Entities are required to login using their personalised e-key; the relevant UBO section can be found under the service menu whereby ‘ultimate beneficial owner – registration’ must be selected.

The Resolution 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.

Penalties for Non-Compliance

In the event that a Registered Entity fails to comply with the terms set out in the Resolution or submits incorrect Data, the MOICT 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 shall not exceed BHD 50,000.

The maximum administrative fine in relation to all cases shall not exceed BHD 100,000.

Timeline for Submission and Next Steps

While a deadline for submission has not yet been imposed by the MOICT, in the absence of clarity we advise that Registered Entities currently holding a valid CR proceed with the submission of the requisite Data (in accordance with the process outlined above) without further delay, or risk facing the imposition of sanctions.

Registered Entities undergoing the registration process with the MOICT will need to submit the relevant UBO information together with the application for commercial registration.

Conclusion

In light of the influx of key reforms in the Kingdom of Bahrain, including the introduction of the Resolution and the new Economic Substance Regulations 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 each UBO criteria as set out in the Resolution, 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.