Corporate: The Register of Overseas Entities

The Economic Crime (Transparency and Enforcement) Act 2022 creates new implications for overseas entities that own UK property. It implements some of the longstanding proposals for reform in this area, originally discussed in 2016, that have been spurred on following Russia’s invasion of Ukraine. The aim behind the Act is to combat illegal activities such as money laundering by increasing transparency about the beneficial owners of land. Although not fully in force at the time of writing (further supporting regulation is required), the UK Government has indicated it wishes to do this quickly.

Corporate practitioners will already be familiar with the requirement on all UK companies to maintain a register of People with Significant Control (“PSCs”), which is lodged at Companies House. The Act seeks to identify any “beneficial owner” of overseas entities who own UK property, by comparable conditions to those used to identify PSCs, and creates a register of overseas entities.

Who comes under the Act?

The Act applies to “overseas entities” and their “beneficial owners” who hold, in Scotland, a “qualifying registrable deed”, or in England, Wales or Northern Ireland a “qualifying estate”. This can be broken down as follows:

An overseas entity is any legal entity that is governed by the law of a country or territory outside the UK. A legal entity is any legal person under the law by which it is governed.

A beneficial owner is a person who, in relation to the overseas entity:

• owns directly/indirectly more than 25% of the shares or voting rights;
• can appoint or remove a majority of the board of directors; or
• has the right to exercise or actually exercises significant influence or control.

In Scotland a qualifying registrable deed is a registrable deed under the Land Registration etc (Scotland) Act 2012 (i.e. a disposition, standard security, lease or assignation of a lease, including subleases bought on or after 8 December 2014). In England, Wales and Northern Ireland a qualifying estate means a freehold estate in land or a leasehold estate granted for more than seven years (bought on or after 1 January 1999).

What needs to happen?

Overseas entity owners of relevant UK land need to register at Companies House (once the register opens) and provide information about the beneficial owners. Overseas entities should start to prepare this information now, as specific information is required for the application (such as which of the conditions relating to beneficial ownership is met, does the entity meet that condition by virtue of being a trustee etc). If the overseas entity does not have this information, it is required to take reasonable steps to identify the beneficial owners and must send an “information notice” to any person it knows or reasonably believes is a beneficial owner (or knows their identity). Information notices require compliance within one month; failing to comply (or recklessly providing false statements) is a criminal offence.

Companies House then will issue an overseas entity ID, which is needed by the entity to register as the owner, together with details about the registration and the duty to keep the register updated. Existing overseas entities will be given six months from parts 1 and 2 of the Act coming into force to either register or dispose of their land (the transitional period). After this, there is an ongoing duty to update the register every 12 months.

Failure to comply

Should relevant overseas entities fail to register, provide information or comply with the updating duty in accordance with the Act, the entity and its officers will have committed a criminal offence punishable by fines (including a daily default fine of up to £2,500 for continued contravention) or prison. Another consequence is that an overseas entity purchasing UK property will not be registered as the owner with the relevant land registry until the entity is on the Register of Overseas Entities, and those entities which already own UK property will not be able to complete sales as the buyer will be unable to register the transfer. Restrictions will be placed on the titles of the relevant UK properties for failure to comply with the Act, which will affect transactions involving the property (including the creation of charges).

Other points to note

The Secretary of State may exempt someone from a registration requirement in the interests of national security or to prevent or detect serious crime. Certain beneficial owners will also benefit from exemptions where the interest is held through an entity already subject to its own disclosure requirements (such as a company which is registered on the PSC register). Practitioners may be aware that in Scotland there already exists a transparency regime via the Register of Persons Holding a Controlled Interest in Land (“RCI”). The RCI excludes owners/tenants of registered leases in Scotland who are reporting in certain other UK transparency regimes – however overseas entities are still included, given the rapid implementation of the Act. This means there is a risk of double reporting in relation to overseas entities who own/tenant land in Scotland. Hopefully further legislation will remove overseas entities from the ambit of the RCI before the Act is fully in force.

In any event practitioners should review corporate structures and identify UK land which is held by an overseas entity, together with information relating to the beneficial owners. As noted, the further regulations required to establish the overseas entities register are expected sooner rather than later.