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 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.
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.
A beneficial owner in European trusts is not only a settlor, but also:
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.
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:
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.
The following can be identified as beneficiaries in UK companies:
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:
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:
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.
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.
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.
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