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Who is a beneficiary or a beneficial owner in the EU and the United Kingdom?

PUBLISHED: 16 February 2021
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When we hear or use the word ‘beneficiary’, do we always understand fully what it means? The thing is, this word has more than one meaning depending on where it is used.

A beneficiary and a beneficial owner are often used interchangeably. However, there are differences of which we are going to talk in this article.

A beneficial owner is an individual that ultimately owns, directly or indirectly, more than 25% in the share capital of a legal entity or exercises significant control over that entity. Such person has influence on the decision-making process in that company.

Бенефициар или бенефициарный владелец

A beneficiary and a beneficial owner: Where are they used?

  1. In laws of some jurisdictions and anti-money laundering and counter-terrorist financing directives of international organisations that regulate banking activities. We will further use an abbreviation of AML/CFT for anti-money laundering and counter-terrorist financing regimes.
  2. In the UK legislation regulating the operation of companies and trusts.
  3. In international double taxation agreements signed by various countries.
  4. As a synonym of a person with significant control used in some jurisdictions.

A beneficial owner in the AML/CFT Directive of the European Union

A beneficial owner in all EU states is defined in the Fourth Money Laundering Directive of 20 May 2015. It is a natural person that owns or controls the customer and/or the natural person on whose behalf a transaction is being conducted.

What is ownership and control?

A beneficial owner of a legal entity is a natural person that owns or controls it through direct or indirect ownership of a certain number of shares, including bearer shares, and voting rights, or exercises control in any other way. Let us break it down for you.

Two types of ownership

Direct ownership – when a person (persons) owns 25% and one share in a company or more than 25% of its assets.

Indirect ownership – when 25%+1 shares or more than 25% assets are owned by a legal entity which is controlled by an individual.

The level of ownership can also be lower as it was left to each of the EU states to decide.

Who is a beneficial owner in European trusts and funds?

A beneficial owner in European trusts is not only a settlor, but also:

  • If they are not determined in a trust deed, then it will be persons in whose interests a trust was created.
  • Trustees – persons managing a trust in favour of beneficiaries.
  • Protector – a person appointed by the settlor with certain powers to make decisions related to the trust.
  • Other individuals that one way or another exercise legal control over the trust.

A beneficiary in an EU trust for the AML/CFT purposes is not only a recipient of income of a trust but also other parties in the dealings of the trust.

Beneficial owners of funds set up as legal entities are natural persons with positions and powers similar to those in a trust.

beneficial owner in European trusts

How does the EU monitor and keep track of beneficiaries?

The Fourth Directive requires from all legal entities including companies and trusts to register, store and duly report to regulatory bodies information on all ultimate beneficial owners.

All EU countries must keep a central register of all beneficial owners of companies, funds and trusts registered on their territory with the following details:

  • Full name.
  • Date of birth.
  • Nationality.
  • Country of tax residency.
  • Nature and level of ownership.

Another thing that the EU member states must do is to provide free access to that information for all persons that have a legal interest in it.

Besides, European financial institutions must identify beneficiaries of their potential customers before they can sign a service agreement and start any dealings with them.

AML/CFT regime in the UK

All UK-registered companies must file an annual confirmation statement to the Companies House with full details about their persons with significant control. Please bear in mind that most of that information will be in the public domain.

Persons with significant control in UK companies

The following can be identified as beneficiaries in UK companies:

  1. A shareholder whose name is on the share certificate and who exercises significant control over the company.
  2. An actual owner who controls the company indirectly through a nominee shareholder.

Nominee services are not a common thing and are available in a few countries, including the UK; in this case an ultimate beneficial owner does not own any shares in the company but instructs a nominee to act on their behalf and distribute profits.

An UBO and a nominee shareholder sign a Declaration of Trust in which a nominee confirms that:

  • They will not perform any actions with the shares without a beneficiary’s consent.
  • The beneficial owner will retain the right to receive dividends or other profit distributions, to vote on business-related matters and to dispose of shares.
Nominee shareholding has been practiced for a long time; therefore, to open a business bank account, UK banks will ask you to provide details both of a nominee and beneficial owner. Legal responsibility, if it arises in the course of the company’s operation, lies with the actual owner and not a nominee.

Бенефициарный владелец – бизнес-понятие, широко распространённое

Persons with significant control in UK trusts

British trusts are a unique legal concept going back to the time of the crusades. A trust is a legal arrangement whereby one party, a trustee, holds and manages property for the good of one or more beneficiaries.

A UK trust has the following structure:

  • A settlor that engages and entrusts the property to a trustee through a trust deed (not to confuse with a declaration of trust between a nominee and a beneficial owner).
  • A trustee that deals with the assets entrusted to them in the interest of beneficiaries.
  • Beneficiaries that benefit from the income of the trust as set out in a trust deed.

Depending on a type of trust, beneficiaries either can fully control its operations or have no rights at all to control the assets or tell trustees what to do.

Beneficial owner in double taxation treaties

Terms ‘beneficiary’ and ‘beneficial owner’ are also used in international tax laws to describe efforts against tax evasion.

A beneficiary in a double taxation treaty is a legal or natural person that receives income that they are entitled to. Therefore, nominees holding foreign assets or persons that are not full owners thereof will not be considered beneficiaries and will not be able to reduce their tax burden.

Summary

As you can see the word ‘beneficiary’ is used in various meaning depending on the field. We have touched on how beneficial owners of companies and trusts are kept track of to prevent money laundering in the EU and Great Britain. We have also given definitions of a beneficiary in various international double taxation agreements.

If you have questions about operating in offshores, financial planning and tax optimisation contact our experts at Imperial & Legal. Our experienced specialists will assist in all matters related to opening and running your business in the UK and EU and will offer you a customised solution that suits your needs.

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