Posted Tuesday 26th July 2022
The idea of a public beneficial ownership register for overseas entities has been around since 2016, first announced by David Cameron. There has been longstanding concern about illicit money in the UK originating from countries like Russia, but it was not until the pressure of invasion of Ukraine that the Economic Crime Bill was fast tracked through Parliament in March 2022. The Bill received royal assent on 15 March 2022 and the government has announced that Companies House intends to launch the Register of Overseas Entities on 1 August 2022.
An overseas entity is a legal entity that is governed by the law of a country or territory outside of the UK. The Economic Crime (Transparency and Enforcement) Act 2022 (the Act) introduces a public register of beneficial owners of overseas entities that own or buy land in the UK. The Act requires anonymous foreign owners of UK property to reveal their real identities to ensure criminals cannot hide behind secretive chains of shell companies and thereby setting a global standard for transparency. This is already a standard requirement for properties owned by UK Companies. Since 2016, there has been a public register of beneficial owners of UK companies. Overseas entities will have to disclose their beneficial (actual) ownership structure on a public register which is to be maintained by Companies House. The ROE will be publicly searchable and is comparable to the PSC register, which lists beneficial ownership of UK companies by entities or individuals who hold more than 25% of shares in a company, more than 25% voting rights in a company or the right to appoint and remove the majority of board members. Generally, beneficial owners with more than 25% of the shares of an overseas entity will need to be registered.
The requirement to register as an overseas entity will apply retrospectively, meaning that any property bought over the last 20 years by overseas buyers will be caught by the requirement to register.
The ROE will become hugely important for overseas entities wishing to register their interest in a property as before they can register their interest, they will have to demonstrate compliance with register and duty to update information. Any overseas entity who owns, sells, buys or grants security over real estate (including leases of more than 7 years) will have to comply with the requirements under the Act.
Once registered, an overseas entity ID number will be provided and the entity will be required to update its information annually, until such time as it successfully applies to be removed from the live Register of Overseas Entities. The ID provided will then need to be shared with the Land Registry whenever the overseas entity buys, sells, transfers, leases or charges land in the UK.
The consequences of non-compliance with the requirement to register are severe. Managing officers of companies will be personally responsible for ensuring compliance with the Act and criminal sanctions may be imposed, with fines of up to £2,500 per day and a potential prison sentence of up to 5 years. Such sanctions will come into force after a 6-month transitional period; overseas entities who already own land in the UK will be given 6 months to register their beneficial owners or managing officers. This 6-month period will not begin until the new register has been launched. New purchasers will need to register with Companies House from the day the register comes into effect. It should be noted that delivering false and deceptive information to Companies House is also a criminal offence.
The introduction of this Act is not without criticism and there are concerns about potential loopholes to sidestep the requirements under it. For example, if company ownership is devised so that no one entity or individual holds 25% or more of the share capital of the company, there would be no beneficial owner to register as the requirement to register kicks in once the 25% threshold has been reached.
The requirements under the Act in relation to the ROE are not to be taken lightly. The potential implications for non-compliance in relation to registering interest in land coupled with the threat of criminal and civil sanctions would have disruptive effects on property transactions involving overseas entities.
This article is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking or deciding not to take any action.
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