Saudi Arabia has taken a significant step toward enhancing corporate transparency and aligning with international standards by issuing the Minister of Commerce Decision No. 235 of 1446 (“UBO Rules”). This decision introduces new requirements for disclosing Ultimate Beneficial Owner (“UBO”), replacing the previous ministerial decision No. 10708 of 1439. The UBO Rules aim to strengthen oversight of corporate ownership structures, combat financial crimes, and ensure compliance with global anti-money laundering frameworks.

The UBO Rules apply to all companies governed by Saudi Arabia’s Companies Law, except for publicly listed joint-stock companies.

UBO Definition:

Under the UBO Rules, a UBO is defined as a natural person who meets one or more of the following criteria:

• Owns 25% or more of the company’s share capital, directly or indirectly;
• Controls 25% or more of the company’s voting rights, directly or indirectly;
• Has the authority to appoint or dismiss its director, the majority of its board members or its chairman, directly or indirectly;
• having direct or indirect influence over the company’s operations or decisions;
• being the legal representative of any legal person that meets any of the above criteria.

If no individual meets these thresholds, the company’s senior management (e.g., CEO, board chairman) will be considered as the company’s UBO.

Exemption:

The UBO Rules apply to most companies in Saudi Arabia, with exemptions granted to:

• Publicly listed companies.
• Companies wholly owned by the state.
• Entities under insolvency or bankruptcy proceedings.
• Any company granted exemption by the Minister of Commerce on a case-by-case basis.

Disclosure Requirements:

Companies must now submit UBO information at incorporation and update it annually or within 15 days of any change.

Analysis of Implications:

The UBO Rules significantly impact corporate governance and compliance operations across various sectors. For multinational corporations and local businesses alike, these rules demand a clear understanding of ownership structures, especially where shares are held through multiple layers or offshore entities.

Legal practitioners must now advise clients not only on how to identify UBOs but also on how to maintain a local register and comply with periodic reporting obligations. Companies that fail to comply may face fines of up to SAR 500,000, making this not only a regulatory issue but a financial one.

This development also reflects Saudi Arabia’s growing alignment with Financial Action Task Force (FATF) recommendations, which require transparency in corporate ownership as a key tool against financial crime.

Practical Advice:

For clients navigating these UBO ules, several practical steps are advisable:

• Conduct a thorough review of corporate ownership structures to identify any individuals who meet the UBO criteria.
• Create and maintain a UBO register that is regularly updated and kept within Saudi Arabia.
• Establish internal controls to ensure changes in ownership or control are promptly reported to the Ministry.
• Seek legal counsel if ownership structures are complex or involve foreign jurisdictions to avoid misreporting.
• Educate internal stakeholders about the implications of non-compliance and build compliance checks into corporate governance routines.

Companies should also stay alert for future guidelines or updates from the Ministry of Commerce, as these rules continue to evolve.

Conclusion:

The new UBO notification rules mark a crucial milestone in Saudi Arabia’s efforts to create a more transparent and compliant business environment. For clients, these changes present both a challenge and an opportunity—those who adapt swiftly and strategically will not only avoid penalties but also position themselves as trustworthy and regulation-aligned partners in the Saudi market.

At GLA & Company, we are ready to assist clients in understanding and meeting their obligations under these new rules. For tailored guidance and compliance strategies, feel free to contact our legal team.

Authors: Hegui Taha, Partner, Shahad Alhumaidani Associates and Njoud Almarshad, Trainee Lawyer.