On April 3, 2025, Saudi Arabia implemented new Ultimate Beneficial Ownership (UBO) Rules, marking a significant step toward enhancing corporate transparency and aligning with international standards. These regulations require most companies operating within the Kingdom to disclose their ultimate beneficial owners to the Ministry of Commerce. The primary objectives are to prevent financial crimes such as money laundering and tax evasion, and to foster a more transparent business environment.
Scope and Applicability
The UBO Rules apply to all companies registered in Saudi Arabia, excluding the publicly listed joint-stock companies. This means that limited liability companies, partnerships, and other corporate entities are obligated to comply. The Ministry of Commerce will oversee the implementation and enforcement of these rules.
Ultimate Beneficial Owner
An ultimate beneficial owner is defined as an individual who meets any of the following criteria:
- Directly or indirectly owns at least 25% of the company’s share capital.
- Controls at least 25% of the company’s voting rights.
- Has the authority to appoint or remove the majority of the company’s board of directors or managers
- Exercises major influence over the company’s operations or decisions
These criteria are designed to identify individuals who have substantial control over a company, ensuring that their identities are disclosed for mandatory regulatory purposes.
Compliance Requirements
Companies subject to the UBO Rules must undertake the following actions:
Register UBO Information: Companies are required to register detailed information about their ultimate beneficial owners with the Ministry of Commerce.
Maintain Accurate Records: It is mandatory to keep accurate and up-to-date records of UBO information within the company’s internal documentation.
Annual Confirmation: Companies must submit an annual confirmation to the Ministry, verifying the accuracy of the UBO information on file.
Timely Updates: Any alterations to the UBO information must be reported to the Ministry within a specified timeframe to guarantee records remain current.
Failure to comply with these requirements can lead to substantial financial penalties and other regulatory actions.
Objectives and Benefits
The introduction of the UBO Rules serves multiple purposes:
Enhancing Corporate Transparency: By making the disclosure of beneficial ownership indispensable, the rules aim to create a more transparent corporate environment, which can boost investor confidence and invite foreign investment.
Aligning with International Standards: These regulations bring Saudi Arabia aligned to the global practices and the recommendations of the Financial Action Task Force (FATF), demonstrating the Kingdom’s commitment to international compliance.
Preventing Financial Crimes: The identification of beneficial owners is a crucial measure in curbing money laundering, terrorist financing, and tax evasion, thereby bolstering the integrity of the financial landscape.
Implications for Businesses
Companies operating in Saudi Arabia must take proactive steps to ensure compliance with the UBO Rules
Internal Assessments: Conduct thorough reviews to identify all individuals who meet the criteria of ultimate beneficial owners.
Regular System Updates: Implement or upgrade internal systems to appropriately record and maintain UBO information.
Training and Awareness: Educate responsible personnel about the new requirements and the mandate of compliance to avoid inadvertent violations.
Legal Consultation: Seek advice from legal experts to fully absorb and understand the obligations and implications of the UBO Rules, ensuring that all aspects of compliance are met.
Enforcement and Penalties
The Ministry of Commerce has been vested with the authority to enforce the UBO Rules. Non-compliance can lead to grave financial penalties, legal sanctions, and reputational damage. Companies are encouraged to prioritize compliance to combat these risks.
The implementation of the Ultimate Beneficial Ownership Rules from April 3, 2025, puts forth a key development in Saudi Arabia’s corporate regulatory scenario. By fostering transparency and aligning with international standards, these rules are set to improve the business environment, mitigate financial crimes, and enhance economic growth. Companies must act diligently to comply with the new requirements, ensuring that they contribute to and benefit from a more transparent and stringent corporate sector.
