Beneficial Ownership Rules: How Global Investors Face Different Disclosure Tests

For an international investor, incorporation in a foreign jurisdiction may be relatively straightforward. Establishing the identity of the individual who owns or controls it can prove far more challenging.

 

A company may possess a local subsidiary, an offshore holding company, multiple tiers of investment vehicles, nominee arrangements or a trust somewhere in its ownership chain. Regulators are increasingly seeking to pierce such structures to reach the natural person behind them.

 

The terminology differs, with some jurisdictions using the term “ultimate beneficial owner”, or UBO, while others utilise “beneficial owner”, “registrable controller” or “significant beneficial owner”, but the principle is similar. The existence of corporate structures should not conceal the identity of the person or persons who own or control an entity.

 

The rules differ in important ways, however. Thresholds of ownership and control which trigger disclosure obligations can vary. Control may be decisive even in the absence of substantial equity. The information may be confidential or publicly available, depending on the jurisdiction. For investors seeking to operate across borders, such inconsistencies can have critical implications.

 

A Global Standard With Local Variations

 

The global push to improve the transparency of ownership falls under the auspices of the Financial Action Task Force (FATF). Its updated Recommendation 24 seeks to ensure that competent authorities have access to information enabling them to carry out their duties in relation to money laundering, terrorism financing and other predicate offences.

 

While the FATF does not specify a minimum threshold, it recognises that jurisdictions need to be able to identify persons who own or control legal persons and arrangements, based on a risk-based approach to different categories of entities and instruments. This reflects the fact that beneficial ownership can take many forms, including indirect ownership.

 

For investors, the implication is that, when assessing ultimate ownership, attention needs to be paid not only to direct ownership but also to indirect ownership and control. Ownership of shares in another entity may be a factor, as might voting rights or other contractual arrangements. Put differently, the question should not only be, “who owns the shares?” but also, “who owns the company?”

 

UAE Puts The Focus On The Ultimate Owner

 

The UAE has a national beneficial ownership regime which is set out in Cabinet Decision No.109 of 2023, which concerns procedures for determining beneficial ownership. The UAE’s emphasis on transparency extends to the prevention of money laundering and financial crime. As such, entities which fall under the purview of the UAE’s anti-money laundering framework must maintain beneficial ownership information.

 

For corporate groups which operate in the UAE, beneficial ownership is not simply a matter for banks which seek to undertake customer due diligence. Businesses which incorporate in the UAE or which are target companies for acquisition by local entities must consider the disclosure obligations attaching to beneficial ownership.

 

The UAE’s beneficial ownership regime is critical for international corporate groups which incorporate a company or foundation in the UAE, establish a free zone entity or a holding company structure and/or which acquire local entities. A foreign corporate shareholder should not necessarily be considered the ultimate beneficial owner. Particular care should be taken where there are complex ownership structures involving multiple entities or where control is exercised indirectly.

 

For investors seeking to incorporate in the UAE, the beneficial ownership disclosure should be considered at the structuring stage rather than after incorporation, when a bank or regulator requests the information.

 

Singapore Tracks Ownership And Control

 

Unlike the UAE, Singapore does not have a unified beneficial ownership disclosure regime for companies, foreign companies and limited liability partnerships. Entities are generally required to maintain a Register of Registrable Controllers, or RORC, pursuant to certain exemptions, and to file information with the Accounting and Corporate Regulatory Authority’s (ACRA) central register.

 

The focus in Singapore is on “significant interest” and “significant control”. The definitions are critical in understanding the disclosure requirements because they enable authorities to access information pertaining to controllers even in cases where a traditional analysis of shareholding would stop short of identifying them.

 

The central register is not a publicly accessible database; rather, the information is for the purposes of law enforcement and regulatory oversight.

 

For international investors, the importance of understanding the nuances of Singapore’s beneficial ownership rules lies in the fact that not all information is subject to disclosure to the public. A jurisdiction may impose significant disclosure obligations on businesses while limiting the availability of such information to regulators, and not making it publicly accessible.

 

Hong Kong Uses A Significant Control Test

 

In Hong Kong, the Significant Controllers Register (SCR) is the main vehicle for determining beneficial ownership. Except for companies (exempt companies), local companies are required to identify their significant controllers and to maintain the register in accordance with the rules.

 

A significant controller can be a natural person or a registrable legal entity, including a subsidiary. Significant control encompasses situations where a person or entity has more than 25% of the issued share capital or voting power, or where a person or entity has the right to appoint or remove a majority of the directors of the company. The definition also extends to situations where a person exercises significant influence or control over the company through any other means.

 

The Hong Kong rules highlight the importance for international investors to look beyond the question of share ownership to understand whether and how a person exercises control over a company. It is not enough to consider whether a person owns more than 25% of the issued share capital. Even indirect ownership can be sufficient to trigger beneficial ownership disclosure obligations.

 

At the same time, a person who has fewer than 25% of the issued shares may need to be considered a significant controller if they possess decision-making rights over the company. In addition, it is important to understand who holds significant control where control is decentralised, i.e., where there is more than one significant controller. The register must be maintained by the registrant and be available for inspection by law enforcement officials. It is typically kept at the registered office or another address within Hong Kong.

 

Luxembourg Places Ownership Information In A Formal Register

 

Luxembourg has a centralised beneficial ownership regime which involves the Register of Beneficial Owners (RBE). Entities which fall under the scope of the regime are required to provide information concerning beneficial ownership to the registry.

 

The RBE covers a wide range of entities. The beneficial owner is generally the natural person who owns or controls the entity. Where no beneficial owner can be identified, the senior executive is entered in the register pursuant to the applicable rules.

 

Luxembourg highlights the need for international investors to understand the tension between transparency and confidentiality in relation to beneficial ownership. On the one hand, the beneficial ownership information is available to the public. On the other hand, personal data can be restricted under certain conditions, including where disclosure would expose an individual to serious risks.

 

For multinational investors, the distinction between the identity of an owner and sensitive personal information concerning that owner is critical.

Mauritius Adds Another Layer For International Structures

 

Mauritius is a popular jurisdiction for investment holding structures, particularly in relation to Africa, Asia and other emerging markets. Its regulatory framework requires identifying beneficial ownership information for inclusion in relevant processes, including documentation, and there are additional requirements in the financial services sector, including in relation to ultimate owners, controlling shareholders and persons connected with trusts.

 

For investors, the Mauritian rules serve as a reminder that a seemingly simple structure, such as an onshore Mauritian company between an investor and an operating company, may require disclosure of beneficial ownership information. This is particularly the case where nominee arrangements, trusts, investment funds, several holding companies and/or private equity structures are involved. The relevant questions concern not only who nominally owns the shares but also who ultimately benefits from the arrangement and who controls the Mauritius company.

 

India Uses A Lower Significant Ownership Threshold

 

India, in turn, has a significant beneficial ownership regime which touches on many aspects of the Companies Act. Thresholds for significant beneficial ownership are generally based on the level of direct or indirect ownership or control by an individual, including indirect ownership by way of nominees.

 

The relevant tests are based on a 10% beneficial interest threshold, but the application of the test is not necessarily limited to situations where an individual possesses more than 10% of the shares in an entity. Where an individual exercises significant influence or control, even indirect influence or control, they may also need to be captured by the significant beneficial ownership regime.

 

The implications for multinational investors are twofold. First, they need to be aware that even small, indirect shares can give rise to significant beneficial ownership disclosure obligations. Second, there is a risk that the same person might simultaneously fall under the significant beneficial ownership regimes of different jurisdictions.

 

The rules in India require companies to take reasonable steps to determine whether there are significant beneficial owners, including obtaining certain declarations and providing the necessary information. This highlights the importance for multinational investors not only to comply with their disclosure obligations but also to bear in mind that they may have responsibilities in relation to significant beneficial ownership.

 

The Real Challenge Is The Ownership Chain

 

For multinational investors, the real-world challenge in relation to beneficial ownership rarely concerns situations where an individual owns a company outright. More common are scenarios which involve multiple layers of ownership, from holding companies to nominee arrangements, trusts or private equity funds, particularly where different investors possess differing voting rights and economic interests.

 

A proper analysis of beneficial ownership should consider direct and indirect ownership, voting rights, appointment of directors, contractual control, economic benefits and the relevant tax position, while also considering the implications for governance, succession planning and banking. Trusts, in particular, should be analysed with care, with due consideration given to the settlor, trustee, beneficiaries and any other persons who may possess significant influence or control, depending on the exact terms of the trust and the relevant jurisdiction.

 

Nominee arrangements can also present challenges for multinational investors. A nominee shareholder may hold shares on behalf of another person but possess neither the economic interest nor the voting rights in relation to the shares. As such, they may not be the beneficial owner. At the same time, regulators are keen to pierce such arrangements to identify the person who possesses the economic and voting interests in the shares. Investors should accordingly review nominee arrangements to ensure that they fully understand their beneficial ownership position and the implications for disclosure.

 

Disclosure Is Becoming A Structuring Issue

 

The single most common error which international investors make in relation to beneficial ownership concerns their approach to disclosure in relation to their structures. Investors frequently fail to appreciate that the jurisdiction, vehicle and intermediate holding structures which they select can have critical implications for their disclosure obligations. Those obligations, in turn, can affect not only the documentation required by banks, auditors, corporate service providers and regulators, but also their ability to meet those requirements.

 

The differences between the beneficial ownership rules which apply in the UAE, Singapore, Hong Kong, Mauritius, Luxembourg and India illustrate the fact that there is no universal solution which multinational investors can apply across their different structures and jurisdictions of incorporation. A single investor may encounter different requirements in different jurisdictions because each applies a combination of disclosure tests in relation to ownership thresholds and control.

 

As such, investors should consider beneficial ownership in tandem with tax, governance, succession, banking and other considerations when designing their structures. The trend in many jurisdictions is that while corporate groups and holding company structures can offer legitimate advantages, they are no longer viewed as an effective way to conceal the individuals who possess significant ownership or control.

 

In that sense, international investors have two responsibilities: to design their structures so that they possess the commercial and tax advantages which they seek, and to ensure that those structures are capable of withstanding scrutiny in relation to beneficial ownership in every jurisdiction in which they operate.

 

Dr. Sunil Ambalavelil is the Global Executive Chairman of Kaden Boriss, an international law firm specialising in franchise and business agreements. A seasoned legal adviser, he has advised and supported the international growth of numerous global brands, helping them navigate the legal complexities of cross-border expansion.
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