The Register of Overseas Entities

Niall Hearty of Rahman Ravelli details the main points of the Economic Crime (Transparency and Enforcement) Act 2022’s ongoing attempt to increase transparency relating to foreign ownership of UK land.

Section 3 of the Economic Crime (Transparency and Enforcement) Act 2022 created the requirement for Companies House, the registrar of companies, to maintain a Register of Overseas Entities (the ROE).

Yet by the time the 31 January 2023 deadline for overseas entities to place themselves on the ROE had passed, only 19,510 out of a total 32,440 overseas entities had met their obligation to declare their beneficial owners. This failure to register can lead to a prison sentence and a fine of up to £2,500 a day. The UK government has made it clear that it will use all the means at its disposal to target the foreign companies that have not met their ROE obligations.

Companies House had written in August 2022 to overseas entities which already owned or leased land (for a term of more than seven years on or after 1st January 1999) in the UK, highlighting the need to register. It followed this up with a second letter three weeks before the deadline, emphasising the need to comply with the obligations. Now, letters are being sent out to those who have not placed themselves on the ROE.

The ROE went live on 1 August 2022. It requires any overseas entity that owns or buys UK land to take reasonable steps to identify its “registrable beneficial owners” and submit those details to Companies House to be put on the ROE. The ROE is public, although not all information will be available for inspection.

The process involves registered overseas entities being given an overseas entity ID from Companies House and having to meet annual updating requirements. An overseas entity that fails to meet its updating obligations will not be treated as being a “registered overseas entity” for the purposes of the Land Registration Act 2002; which the Economic Crime (Transparency and Enforcement) Act 2022 amended.

An “overseas entity” in the Economic Crime (Transparency and Enforcement) Act 2022 is a legal entity that is governed by the law of a country or territory outside the UK. A “legal entity” is defined as a body corporate, partnership or other entity that is a legal person under the law by which it is governed. 

Obligations

The ROE’s introduction places a number of obligations on overseas entities.

They must:

• Take reasonable steps to identify their “registrable beneficial owners” and obtain the categories of information about them that are specified in the Act.
• Serve an “information notice” on any person that it knows, or has reasonable cause to believe, is a registrable beneficial owner in relation to the entity or on any person who they believe will enable them to identify a beneficial owner.

A person served with an information notice has one month to respond to it. It is an offence for a person, without reasonable excuse, to fail to comply with the notice, make a statement knowing it to be false or recklessly make a statement that is false. Anyone found guilty of such an offence could face up to two years in prison, a fine or both.

The application to Companies House for registration must be verified by “relevant person”. The legislation state that this term covers credit institutions, financial institutions, auditors, insolvency practitioners, external accountants, tax advisers, independent legal professionals and trust or service company providers. 

Registrable beneficial owners

A “beneficial owner” can be an individual, a legal entity or a government or public authority. A person is a beneficial owner of an overseas entity or other legal entity if one or more of the following conditions are met:

• They hold directly or indirectly, more than 25% of the shares in an entity.
• They hold, directly or indirectly, more than 25% of the voting rights in an entity.
• They the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity.
• They have the right to exercise, or actually exercise, significant influence or control over the entity.
• The trustees of a trust or members of a partnership, unincorporated association or other entity that is not a legal person under the law by which it is governed meet any of the above conditions and a person has the right to exercise (or exercises), significant influence or control over the activities of that trust or entity.

Registrar of Companies powers

The Economic Crime and Corporate Transparency Bill, which is currently at the report stage in the House of Lords, focuses on registry reform – specifically the need to give the Registrar of Companies the powers it needs to ensure the accuracy of information provided to it, in order to prevent economic crime.

It is possible that, should it become law, the Bill will affect the ROE. One clause within the Bill is set to amend the definition of “registered overseas entity” contained in Schedule 4A of the Land Registration Act 2002. This would mean that an overseas entity would not be treated as a registered overseas entity for the purposes of Schedule 4A if it failed to respond to a notice from the Registrar of Companies under the power it has to require information, under the Companies Act 2006. As a result, that overseas entity would not be able to make any transfer of the land that was the subject of interest from the Registrar of Companies.

While a Joint Working Party of the Company Law Committees of the City of London Law Society and the Law Society of England and Wales recommended removing the clause from the Bill, it has not yet been taken out.

Conclusion

It is clear that if your property is owned or leased by an overseas entity, and you have not registered information about the overseas entity and its beneficial owners, you will be contacted by Companies House - asking you to make contact with them. 

Failure to comply with the new regime will leave you, the entity and every officer of the entity at risk of committing criminal offences. The maximum sentence is an initial fine, with the daily default fine being £2,500, and a custodial term. It should be noted that even after registration has taken place there will remain a duty to update the registry every 12 months thereafter. 

The consequences of not engaging with the ROE are severe - including a Land Registry restriction which prohibits any disposition of the qualifying estate unless the ROE regime has been complied with. Dispositions include transfers, the granting of a lease, the creation of easements and the granting of a charge over the property.

It is a regime that is in its early days. Yet the government has made it clear its determination to enforce it. Any non-compliance, therefore, could prove costly.