112: Register of Overseas Entities
The Economic Crime (Transparency and Enforcement) Act became law on 15 March 2022. The expectation had been that the elements of the Act introducing the register of overseas entities would be brought into force imminently but until 23 June 2022 things had gone very quiet.
On 23 June the draft Register of Overseas Entities (Delivery, Protection and Trust Services) Regulations 2022 was published and on 30 June the draft Register of Overseas Entities (Verification and Provision of Information) Regulations 2022 and The Land Registration (Amendment) Rules 2022 were published. Companies House has indicated the commencement order confirming the start date of the new register will be published soon.
As such, a recap on the requirements and impact of the Register, as we currently know them, seems appropriate.
All overseas entities that own land (including a lease over land for longer than seven years in the UK) or purchase land will be required to:
- identify its beneficial owner(s); and
- provide information about itself, its beneficial owners and managing officers to Companies House.
Companies House will establish and maintain the Register and provide registered entities with an overseas entity ID, which will be required in order to deal with the land.
The Register will apply retrospectively to property bought since 1 January 1999 in England and Wales and December 2014 in Scotland. Overseas entities owning such properties will have six months from the commencement date of the Act to make an application to register (the transitional period).
An overseas entity is:
- a body corporate;
- a partnership; or
- other legal person
governed by the law of a country or territory outside the UK (even if it is UK tax resident).
Trusts and foundations do not have legal personality and so do not fall within the definition of an overseas entity. However, if they own an overseas entity and meet the beneficial ownership conditions in relation to that entity, it will be necessary to consider if there is someone who exercises, or has the right to exercise, significant influence or control over that trust or foundation. Of course, non-UK trusts which acquire UK land directly or indirectly on or after 6 October 2020 already have to register and report to HMRC using the Trust Registration Service.
A beneficial owner may be an individual, legal entity, government or public authority which meets one or more of the following conditions:
- holds, directly or indirectly, more than 25% of the shares in the overseas entity;
- holds, directly or indirectly, more than 25% of the voting rights in the overseas entity;
- has the right to appoint or remove a majority of the board of directors;
- exercises, or has the right to exercise, significant influence or control.
What is disclosed?
The overseas entity must provide information about itself and its beneficial owners including:
- the name and registered office of the overseas entity;
- details of the beneficial owner; and
- the basis on which the named entity / individual is considered a registrable beneficial owner.
Once registered, an overseas entity will be required to update the information annually. Within 14 days after each update period the registered overseas entity must provide a statement confirming that it has no reasonable cause to believe that anyone has become or ceased to be a registrable beneficial owner during the update period or provide details of any changes. Overseas entities will need to monitor their position to ensure deadlines are not missed and may wish to consider implementing appropriate systems to assist in this regard.
The Register will be accessible to the public (there are some exceptions, see further below). Therefore, the new regime means that individuals who own UK property through an overseas entity will now see their personal information on a public register.
What are the penalties for non-compliance?
There will be severe sanctions for those who do not comply, including:
- restrictions on buying, selling, transferring, leasing or charging their land in the UK;
- daily fines of up to £500;
- prison sentences of up to five years for the most serious breaches.
The draft regulations published on 23 and 30 June provide for the implementation of elements of the new register and will come into force on the day the new register starts.
Importantly, the regulations published on 23 June provide for a protection regime (similar to the Register of People with Significant Control), allowing individuals who are, or used to be, registrable beneficial owners or managing officers of overseas entities to apply to have their information made unavailable for public inspection and not subject to disclosure by the registrar (subject to limited exceptions) where they can show that this will put them or someone living with them at serious risk of violence or intimidation. The regulations also deal with practical issues requiring certain documents to be delivered to the registrar by electronic means.
The draft verification regulations published on 30 June are particularly interesting. Before an overseas entity can register its beneficial owners or managing officers on the new Register, a UK-supervised ‘relevant person’ will need to verify the required information about them.
These verification checks need to be carried out by a UK-based agent that’s supervised under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (the MLRs), that is:
- credit institutions
- financial institutions
- auditors, insolvency practitioners, external accountants and tax advisers
- independent legal professionals
- trust or company service providers; and
- estate agents and letting agents.
We are told it will be quicker and easier for a supervised agent to register on the overseas entity’s behalf; the agent will be required to verify the required information about the beneficial owners or managing officers. In order to fulfil this role, the supervised agent must contact Companies House to get an assurance code (the equivalent of a signature) before they can verify or file on the entity’s behalf. Details about the person who verified the required information will also appear on the public register; this information will include their name, the name of their company and supervisory authority.
We are also told the registration may take longer to process if the overseas entity completes the registration themselves.
The second item published on 30 June relates to HM Land Registry forms, it makes a number of amendments to the current 2003 rules to enable the new requirements for applications to register an overseas entity as proprietor of an estate in land, or where an application includes some types of disposition made by an overseas entity. HM Land Registry will be issuing separate practice guidance in due course.
The Register will have a significant impact for overseas investors in UK property and lenders that take security over the property.
If you have not already started preparing and collating the information needed to comply with the registration requirements you really should do so now. It seems that progress on implementing the register is gathering pace. Six months will disappear very quickly.