Coming into effect on 31st January 2023, being on the Register of Overseas Entities (“ROE”) is a legal requirement for all non-UK entities who own land or property within the UK. This initiative falls under the new Economic Crime (Transparency and Enforcement) Act 2022 and seeks to establish transparency between this asset ownership, and the actual individuals behind the bodies themselves.The Register itself is kept and maintained by Companies House and requires that overseas entities declare their beneficial owners and managing officers. This is enforced by legal sanctions which prevent land and property being legally bought, sold or transferred by entities which do not comply with this process.
Who is affected by it?
Along with overseas entities themselves, this also affects UK clients who are involved in property transactions with overseas entities. As non-compliance can result in transactions being delayed or falling through altogether, it is in the best interests of all parties to ensure that appropriate verification and then registration with Companies House has occurred, either prior to or as early on in the negotiation stages as possible.For most legitimate overseas owners of real estate, it would be expected that where applicable they would willingly comply with the process, providing they are aware of the requirement.The new laws also affect solicitors, accountants and other providers of company secretarial services, who are tasked with carrying out the verification process. Where this emergent demand provides opportunities to specialise in this service, the verification process must be compliant with the law and professional negligence may lead to criminal prosecution.Money lenders may also be in breach of the law if they allow transaction periods to end prior to overseas entities becoming registered. Where facility agreements drafted prior to the new regime will not refer to it specifically, the explicit legal requirements of the regime put borrowers in breach of the “Compliance with laws” and “Authorisations” stipulations.Facility agreements based on the Loan Market Association generally contain provisions such as “Non-conflict with other obligations”, which would certainly come into play if the above undertakings were not met.
Why was the Register of Overseas Entities created?
The Economic Crime (Transparency and Enforcement) Act 2022 (“ECTEA”) was established as the result of long standing and growing concerns over the potential for foreign bodies to use UK land and property ownership, as a medium for laundering money which had been sought through illegal means. UK organisations are obliged to declare owners and significant stakeholders on the Persons of Significant Control Register (or PSC), and to keep this information up to date by reporting any changes to Companies House within 14 days. Previously there hadn’t been the equivalent regime applied to non-UK entities, so the ECTEA would not only promote this transparency and parity of information, but it would also dissuade anyone from trying to use UK land to conceal the proceeds of crime.Russia’s invasion of Ukraine (February 2022) brought further attention to these concerns and as a result the Government effectively fast tracked the ECTEA as a part of its response to the situation.An Overseas Entity ID is required for the acquisition of registrable land interests, including leases on properties which last 7 years or longer.
Why was the Economic Crime (Transparency and Enforcement) Act 2022 created?
The Act was passed as part of a wider initiative to enhance corporate transparency in the UK as a whole. The Department for Business, Energy & Industrial Strategy published a white paper in February 2022 which set out their proposal for this legislation.In the foreword Lord Callanan (Parliamentary Under-Secretary of State for Business, Energy and Corporate Responsibility) shared concerns that the corporate framework within the UK had been “manipulated, particularly in the use of anonymous or fraudulent ‘shell’ companies and partnerships” which “provide criminals with veneer of legitimacy to help commit a range of crimes”.With record keeping at Companies House being integral to this perceived legitimacy, the responsibility would fall to the agency to improve its operations with stricter measures to ensure that these criminal actions would no longer undermine “our standing as a free, open and trustworthy democracy” and “the UK’s reputation as a great place to do business”.The white paper went on to illustrate the benefits to national security, protecting businesses and individuals from fraud, boosting enterprise and enhanced data sharing.The Autumn 2021 Budget saw the Government commit £63 million into reforming the operations of Companies House in order to help it deliver upon its new responsibilities.
What is an “Entity” as per the ECTEA?
The ECTEA defines an overseas entity as a legal entity which is “governed by the law of a country or territory outside of the UK. A legal entity is a corporate body, company, organisation or legal person. Exemptions to overseas entities requiring registration have been alluded to under the wording of the act, but so far these have not been defined and therefore no overseas entity should assume that they do not need to register.What information does Companies House require for registration?
The entity name, the country in which the entity was founded and the registered office address must be submitted to the register
The names and contact information for all beneficial owners, or in the case that there aren’t any, the directors and managing officers of the entity
Verification for the Register of Overseas Entities
The registration process requires that a “relevant person” has verified the information which is submitted. This means that a qualified person such as a solicitor or accountant, must have checked and taken records of reliable documents and emails which verify the individuals as the beneficial owners. These must have also been sought independently of the person(s) being verified, to confirm their validity. This verification is needed:
During the initial registration
Before each mandatory annual update to Companies House
Before submitting changes, such as adding or removing owners from the overseas entity on the register
Before applying to remove an overseas entity from the register
What happens if an overseas entity which already owns UK property fails to register?
Overseas entities who fail to register their ownership structure with Companies House are in breach of the law, meaning that every officer of the entity is committing a criminal offence punishable by a fine or imprisonment.In addition, there are some further practical limitations put in place to reinforce the regime. Overseas entities which do not comply will be unable to register any freehold or leasehold acquisitions with the Land Registry. This in effect means that the ownership of the property is not officially recognised, making the transfer itself null and void.Non compliant overseas entities will also be unable to sell, lease or transfer the land or property owned by it.
What are the significant dates & deadlines?
March 2022 - The Economic Crime (Transparency and Enforcement) Act was passed
1st August 2022 - The Register of Overseas Entities goes live
31st January 2023 - Overseas entities who already own UK land and property will face legal sanctions if they do not register their ownership structure, along with the details of beneficial owners. For overseas entities who attempt to acquire new land or property after this date, they will need to complete the registration process before financial transactions take place. Overseas entities which dispose of properties prior to this date will also need to register.
What should you do next?
As part of our Company Secretarial Services, out team at Wisteria Accountants can support you through the verification process. Head over to our Overseas Entity Registration page to learn more. Useful links:https://www.gov.uk/government/news/the-new-register-of-overseas-entities-is-live https://www.legislation.gov.uk/ukpga/2022/10/contents/enactedhttps://www.gov.uk/government/publications/register-of-overseas-entities-guidance-on-registration-and-verificationhttps://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1060726/corporate-transparency-white-paper.pdfhttps://www.macfarlanes.com/what-we-think/in-depth/2022/corporate-law-update-24-30-september-2022/