In association with anti-money laundering legislation, the Kuwait Ministry of Commerce and Industry (MOCI) recently issued Resolution No. 4 of 2023 on the Procedures for the Identification of the Actual Beneficiary (the UBO Resolution). It has come into effect on April 1, 2023.
Kuwaiti companies will now be required to identify and disclose natural person(s) who are the ultimate beneficiaries of the company. This is a significant new development. The UBO Resolution must be considered from a structuring and compliance perspective by existing companies and by parties looking to establish a new company. Aspects of the UBO Resolution include (not exhaustive):
- The “actual beneficiary” of a Kuwaiti corporate entity (“KuwaitCo.”) is a natural person who owns or controls, directly or indirectly, 25% or more of the capital of a KuwaitCo., through having voting rights of 25% or more and/or through other means of control such as the right to appoint and remove the majority of the board of directors.
- If after exhausting all possible means KuwaitCo. can not identify the actual beneficiaries applying the criteria noted above, then the natural person exercising control over KuwaitCo. through any means is to be considered the actual beneficiary. If it is still not possible to identify such person then the actual beneficiary is to be the natural person holding the senior management position.
- KuwaitCo. must identify the actual beneficiaries and include their names and data in an internal register (UBO Register) within 60 days from either: (a) the date of entry into force of the UBO Resolution (i.e. by May 30, 2023), or (b) the date on which the KuwaitCo. has been established. There is also an obligation to keep the UBO Register updated.
- KuwaitCo. must, within 60 days from the date of entry into force of the UBO Resolution (i.e. on or before May 30, 2023) or the date of licensing and registering the KuwaitCo., submit the information in the UBO Register to the relevant registration authority (i.e. the MOCI). All changes to the data must also be reported.
- Data contained in the UBO Register is to be made available by the MOCI to the public. Also, the UBO data may be shared by the MOCI with other concerned Kuwait authorities and competent foreign authorities upon request.
- KuwaitCo. may not register or enforce any documents relating to a change in its ownership unless the transferee provides a statement indicating whether the transfer will entail a change in the identity of the actual beneficiary and, if this will be the case, the transferee must provide the information relating to the new actual beneficiary.
- Managers and Board members are obliged to disclose to KuwaitCo. whether he/she acts in a nominee capacity.
- It is prohibited to grant a company a license, or renew their license, unless the requirements of the UBO Resolution are satisfied.
- Non-compliance with the UBO Resolution by “Designated Non-Financial Business and Professions” as defined under the Anti Money Laundering Law No. 106 of 2023 (the “AML Law”) may also trigger measures and administrative penalties listed under Article 15 of the AML Law (without prejudice to any more serious criminal penalties that may be applicable under the AML Law). Sanctions under Article 15 can, for example, include warnings, fines, suspension or cancellation of the KuwaitCo. license and imposition of limitations on the powers of or dismissal of directors/officers/managers.
- The UBO Resolution does not apply to companies owned by the State of Kuwait nor companies regulated by the Capital Markets Authority (the “CMA”).
Nominee considerations: With limited exceptions, foreign ownership restrictions require that Kuwaitis hold a minimum 51% interest in Kuwaiti companies. Implementation of the UBO Resolution could prompt scrutiny of nominee shareholder arrangements where the UBO Register reflected a foreigner holding a majority beneficial ownership interest in a Kuwait company.
Tax considerations: If the Kuwait tax authority became aware of a beneficial ownership interest of a foreign entity in a Kuwait company as a result of disclosure of the UBO Register, this could prompt scrutiny as to whether the foreign entity paid due taxes.
Implementation Considerations: There is a degree of uncertainty on how the UBO Resolution will be implemented in practice. Contributing to this is that certain provisions are not entirely clear. Following up with the MOCI and keeping abreast of developments will be required. There has already been one amendment to the UBO Resolution (MR No. 41 of 2023 issued on March 7, 2023) whereby companies subject to the CMA Law No. 7 of 2010 are exempted from compliance with the UBO Resolution.
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ASAR – Al Ruwayeh & Partners will continue to monitor this significant development and will be pleased to elaborate on the UBO Resolution.