The Economic Crime (Transparency and Enforcement) Act (“the Act”) received Royal Assent on 15 March 2022. This legislation was contemplated many years ago, however, it was Russia’s invasion of Ukraine which resulted in this legislation being fast-tracked through Parliament. This legislation introduced the Register of Overseas Entities (“the Register”), which was launched on 1 August 2022. The Register, held by Companies House, requires overseas entities which own UK land or property to register their beneficial owners or managing officers. The Act is in response to concerns over a lack of transparency on the ultimate owners of UK land where the land is registered to an overseas entity. The Act seeks to prevent and combat the use of UK land for money laundering purposes by creating a publicly available register of beneficial owners.
Requirements under the Act
Overseas entities that already have an interest in UK land or property are required to register. The Act covers such interests that were purchased or leased in England and Wales on or after 1 January 1999. Additionally, interests in Scottish land or property acquired on or after 8 December 2014 will also require registration. Leases for more than seven years in England & Wales, or 20 years in Scotland, are included within these rules.
Entities will also need to register if they wish to buy, sell, or transfer property or land in the UK. No such transactions can be registered with HM Land Registry without first completing this step.
The legislation also requires registration even where the interest was sold on or after 28 February 2022.
Transitional provisions are in place until 31 January 2023 that allow entities which already hold property to register. The overseas entity cannot transact with its UK property on or after 1 February 2023 until it is registered.
New property transactions will not benefit from these transitional provisions.
Once registered, the overseas entity will receive a unique Overseas Entity ID (OE ID) to give to HM Land Registry when it buys, sells, transfers, leases or charges UK property or land. Without the OE ID, newly acquired UK land cannot be registered with HM Land Registry.
Overseas entity
Overseas entities are legal entities that are governed by the laws of a non-UK country. A legal entity is a body corporate, such as LLPs, partnerships or other entity under its governing law. ‘Overseas’ means governed by the law of a country or territory outside of the United Kingdom. Tax residence is ignored when considering these rules.
Whether a Trust needs to register needs to be considered on an individual basis as each arrangement will differ.Whilst the Act does make provisions for exemptions, none have yet been introduced.
Beneficial ownership
Beneficial ownership refers to the true owner of an asset. This concept exists as the direct legal owner may not always be the person who genuinely controls and benefits from the asset.
Ultimate beneficial owner then refers to the beneficial owner at the top of the organisation’s ownership structure.
Prior to an overseas entity being able to register a legal title, a lease or a charge against UK land, information on the beneficial ownership of the overseas entity will be required.
Beneficial ownership is defined in the same way as for People with Significant Control (PSC). As such, a PSC will be an individual or legal entity that:
- directly or indirectly own more than 25% of the shares in the overseas entity; or
- directly or indirectly owns more than 25% of the voting rights in the overseas entity; or
- hold the right to directly or indirectly, to appoint or remove the majority of the board; or
- they have the right to exercise, or actually exercise, significant influence or control over the overseas entity.
Legal entities are not registrable beneficial owners if they are subject to their own disclosure requirements. This includes companies that must register on the PSC register. Exemptions can also apply where individuals or legal entities own their beneficial interests through one or more legal entities if at least one legal entity in the chain is subject to its own disclosure requirements.
Where shares are held by nominees, it is the person on whose behalf the nominee legally owns their interest in the overseas entity who will need to be named.
Where the entity has reason to believe there are no registerable beneficial owners, the entity would instead provide information on its managing officers i.e. directors or company secretary.
Where there is a beneficial owner, but they are unknown or where insufficient information is held, as much information as possible should be provided on both the beneficial owner and the managing officers.
Information to be provided
Beneficial owners can be individuals, legal entities, or government/public authorities. The information to be provided in each case is outlined below:
| Overseas Entity | Individuals | Other Legal Entities | Managing Officers |
|
|
|
|
Ongoing compliance
Once an entity is registered, the information must be updated annually from their registration date, with updates required within 14 days of the anniversary date. Updates would either confirm no-one has obtained or ceased to hold a beneficial ownership in the entity during the period or provide details and relevant dates of those who have become or ceased to be beneficial owners.
Consequences of non-compliance
The Act outlines various criminal offences for non-compliance including fines of up to £2,500 per day or up to 5 years in prison. Failure to comply will also affect the entity’s ability to buy and sell UK land or to create a charge over UK land.
Whilst transitional provisions are in place, as the Register is now live, if you are an overseas entity which already owns or intends to purchase property, we advise that you start planning for these requirements now.
Please note: This article is compliance guidance from our experts for registering overseas entities.
