The beneficial ownership test is how you find the real person behind a company. UAE rules, set out in Cabinet Decision No. 58 of 2020 on Regulating the Beneficial Owner Procedures and in line with international standards, require companies to identify and register their ultimate beneficial owners, and the test is the method for doing it. For a simple company with one or two individual owners the answer is obvious. The difficulty arrives with layers and with control, and that is exactly what the test is built to see through. Here is how the beneficial ownership test works, applied in order.
What the test looks for
A beneficial owner is always a natural person, never a company, who ultimately owns or controls the business, directly or through intermediate entities. The test asks three questions in sequence, and you move to the next only if the previous one does not identify a beneficial owner. The aim is to reach the individuals at the end of the chain, however many layers sit above them.
The test, in order
| Test 1 · Individuals who own or control 25% or more of the shares or voting rights, directly or indirectly |
| if none, ↓ |
| Test 2 · Individuals who otherwise control the company, for example the power to appoint or remove managers |
| if none, ↓ |
| Test 3 · The senior manager, as the fallback beneficial owner |
Ownership first, then control
The first test is ownership. Under Cabinet Decision No. 58 of 2020, a natural person who owns or controls 25% or more of the shares or voting rights in the company is a beneficial owner. This can be direct or indirect: if a person owns a company that owns your company, their effective stake is followed through the chain. For many companies this settles the question on its own.
Do not stop at the share register. A person can be a beneficial owner through control, appointing managers or directing the company, even without the shareholding. Ownership and control are both routes, and the second is the one people forget.
Following the chain, and the thresholds
When ownership runs through other companies, trace each layer until you reach individuals, calculating effective stakes along the way. A person owning half of a company that owns half of yours has an effective quarter, which may cross the threshold. Structures can be arranged, deliberately or not, so that no single individual appears to cross the line at any one level while someone clearly controls the whole. The test expects you to see through this rather than stop at the first entity.
| Basis | Typical trigger | Result |
|---|---|---|
| Direct ownership | Holds the threshold stake outright | Beneficial owner |
| Indirect ownership | Effective stake through entities reaches the threshold | Beneficial owner |
| Control | Appoints or removes managers, or directs the company | Beneficial owner |
| Fallback | No owner or controller can be identified | Senior manager |
Ultimate beneficial owner versus shareholder
The two are often confused, and the difference is the whole reason the test exists. A shareholder is whoever appears on the share register. An ultimate beneficial owner is the real individual who ultimately owns or controls the company. Frequently they are the same person, but not always, and it is precisely the cases where they diverge, nominees, holding companies, control exercised without shares, that the rules are designed to expose.
| Shareholder | Ultimate beneficial owner | |
|---|---|---|
| Who | The name on the share register | The real individual behind the ownership or control |
| Can be a company | Yes, another entity can hold shares | No, always a natural person |
| Found by | Reading the register | Applying the beneficial ownership test through the chain |
| May arise from | Holding shares | Ownership or control, direct or indirect |
So a company can appear on your share register while the ultimate beneficial owner is an individual two or three layers above it. And a person with no shares at all can be a beneficial owner through control. Recording the shareholder as if it were the beneficial owner does not satisfy the rules; identifying the individual behind it does.
What to do about it
Apply the tests in order: the ownership or voting threshold first, direct and indirect; then control by other means; and only then the senior-manager fallback. Trace ownership through every intermediate entity to the individuals at the end, and document your reasoning, because being able to show how you reached your conclusion matters as much as the conclusion. Keep the shareholder and beneficial owner distinction clear, since they are not always the same person. Then record the result in your beneficial ownership register and keep it current. A methodical application of the test gives an answer you can defend.
This article is general information and is not legal advice. Thresholds and the test depend on the applicable regulations. We would be glad to help you work through a complex ownership structure.