Nominal service in the UAE: what it is, purpose, and types

Nominee service (nominee service) is one of the popular tools for conducting business in the UAE. The demand for services of nominal directors, who are appointed to represent the interests of the actual owners of the company, is growing because international relations are actively developing, the global economy is globalizing, and tax-free zones are becoming popular.

Definition of Nominee Service

Nominee service is a set of services provided to business owners by formally appointed individuals. Nominees are employees endowed with specific powers. Typically, these are shareholders, executive and functional directors, top managers, or administrators. The functions of such officers include:

• Ownership of securities on behalf of the ultimate beneficiary;
• Remote signing of documents;
• Management of bank accounts.

The use of nominee services in Dubai does not imply criminal intentions on the part of the business owner. Nominee services are utilized not only by offshore companies but also by major players in the global market to reduce tax burdens and expand opportunities.

Company owners hire nominee officers for various purposes:

• Establishing a local company. To register a company and obtain certain types of licenses outside free economic zones, it is necessary to resort to nominee services. Qualified personnel with UAE residency, work experience, and relevant education are required to obtain licenses.
• Confirmation of economic presence. Some types of international activities require compliance with Economic Substance Regulation. To confirm economic presence and management from the UAE, it is necessary to lease real estate (a physical office), connect a local phone, actually send and receive correspondence, and obtain a tax residency certificate. The residency of employees holding key positions confirms that all management decisions originate from within the country.
• Streamlining document flow. A nominee director has the right to enter into contracts and conduct transactions as they are legally empowered to do so. The actual owner does not need to sign every document.
• Enhancing the company's reputation. By hiring a resident, they can become one of the tools for shaping a positive non-verbal impression of the company.
• Compliance with tax relief terms. The presence of a resident director is a mandatory requirement for a company to fall under a Double Taxation Agreement.
• Reducing the risks of affiliation indicators. Affiliated persons can influence important decisions. Signs of affiliation include single-person management (the company is represented solely by the CEO), personal relationships with the business founder. If the company shows signs of affiliation, any transactions may attract increased attention from regulatory authorities.
• Ensuring the confidentiality of the ultimate beneficiary. If the owner does not want their business activities to be disclosed, they can conceal the direct connection with the company. Additionally, nominee directors are often hired by individuals who, by law, cannot be business founders. However, due to legal requirements, full confidentiality cannot be guaranteed in all jurisdictions.

Nominee service solves many problems, but there are risks and complexities. For example, there may be a situation where a director refuses to sign a document if they believe it does not serve the business's interests. The simplest way to protect against risks is through a refusal letter, which gives the company owner the right to dismiss the nominee at any time.

Consulting companies offering nominee services operate under a license, ensuring security. The director cannot withdraw funds from the company's account or disappear with them in an unknown direction, and shareholders cannot sell securities at the first convenient opportunity.

However, full legalization also imposes certain restrictions. For example, nominees are obliged to comply with anti-money laundering legislation. Therefore, all information about the company owner and their actions must be transparent.

Nominee Director in a Company

Nominee directors and nominal shareholders in favor of the ultimate beneficiary are engaged to perform specific tasks. Directors manage the business according to instructions received from the real owner. Management is carried out formally, but in reality, all key decisions are made by the ultimate beneficiary.

Shareholders have a formal right to shares (their names are entered in the corporate and open state registers), but do not receive profits, cannot dispose of securities at their own discretion, and do not have other rights typically granted to shareholders by law and the company's articles of association.

The duties of a nominee director are determined by an agreement between them and the company owner. Some nominees are willing to meet with partners and interact with government agencies on matters related to the company's activities, while others do not.

Schemes of cooperation with nominee

Schemes of cooperation with nominee directors can be formal and informal.
In both cases, the officers perform the same functions. The difference lies only in the nature of the relationship:

• An informal shareholder or director may have a personal relationship with the business owner. Their relationship may be based on verbal agreements.
• A formal director works under a contract. In this case, the relationship between the parties is clearly defined from the start of the work. The employee will not interfere in the company's affairs more than necessary, and all their actions will comply with standard rules, instructions, and procedures.

No organized system can be purely formal or informal. The relationship between the ultimate beneficiary and the nominee director almost always represents a combination of both types.

Certain schemes should definitely not be used:

• Appointing a nominee without their consent (illegal schemes use dummy individuals who are not always aware of their appointment to the position);
• Hiring individuals who are not entitled to hold a director position or be a shareholder (government officials, legally incapacitated individuals, those previously convicted of crimes related to entrepreneurship).

There are many examples of such schemes in legal practice. It is not advisable to become directly involved in such schemes to avoid administrative and criminal liability.

Regardless of the scheme used (except for illegal ones, which are not considered at all), in case of legal problems, both the real owner and the person who made management decisions on their behalf will be held accountable. Therefore, directors are themselves interested in ensuring that the business operates within the legal framework.

Information Disclosure Policy

The nominee should be informed to a certain extent about the client (business owner) and their activities. This is a mandatory requirement of legislation to comply with anti-money laundering rules.

Depending on the scheme used in the work, the amount of information known to the nominee may vary significantly. In offshore companies, formal directors require only a superficial understanding of the company's activities. They request a minimum of information about the owners and individuals who sign documents based on powers of attorney.

Nominees working in large international businesses typically request more data. Often, detailed information about the business operation scheme is required, sources of funds must be described, and documents (copies of articles of association, minutes of meetings, contracts, and papers signed by authorized persons) must be provided.

It is not advisable to hire a nominee director solely to conceal information and real owners. Legislation is gradually tightening in all jurisdictions. Even if a company has closed registries, state authorities can access this information upon request.

Decisions on nominee services in the UAE

For registration on the main territory of the United Arab Emirates and confirmation of real presence (which is important for obtaining certain types of licenses and their renewal annually), nominees are required – managing director, shareholders, key resident employees.

The consulting company The Level Consulting offers nominee service in Dubai and other emirates. We formalize nominal relations through contracts, guaranteeing protection for both parties from most risks, and also offer other solutions for business support in the United Arab Emirates. Fill out the feedback form to learn more.