Register of Overseas Entities: moving forward

Summary

• The Register of Overseas Entities (ROE) came into force on 1 August 2022.
• Overseas entities that acquire a freehold or leasehold interest of over 7 years in land or other property in the UK (a "qualifying estate") must register with Companies House and provide information in relation to their registrable beneficial owners or managing officers in order to obtain an overseas entity ID.
• Since 5 September, the Land Registry has required an overseas entity ID in order to register an overseas entity as proprietor of a qualifying estate.
• Overseas entities that already own a qualifying estate registered on or after 1 January 1999, were also required to register with Companies House and provide the same relevant information by 31 January 2023, the end of the transitional period.
• Overseas entities that disposed of a qualifying estate on or after 28 February 2022 (and did not continue to retain another such estate) were not required to register, but should have provided a statement and information to Companies House by the same deadline.
• Criminal sanctions may apply for non-compliance.
• Any overseas entity that should have registered or provided statements and information by the end of the transitional period, but has not yet done so, should take urgent steps to comply now to hopefully avoid or minimise any penalties that may be imposed.

Background

The long-awaited Register of Overseas Entities (ROE) was introduced in the Economic Crime (Transparency and Enforcement) Act 2022 (the Act), enacted on 15 March 2022. The Act also includes provisions relating to Unexplained Wealth Orders and financial sanctions. Information about Unexplained Wealth Orders may be found here.

About the Register of Overseas Entities (ROE) 

What is the aim of the ROE?

The aim of the ROE is to prevent individuals from obscuring their ownership of an interest in UK property and land by acquiring it through an overseas entity.

The Act applies to property situated anywhere in the UK, but this note looks at the provisions as they relate to property in England and Wales.

What is an overseas entity? 

An overseas entity is a legal entity that is governed by the law of a country or territory outside the UK. In this context, a legal entity is a body corporate or other such legal person (such as a limited partnership or foundation).

How does the ROE work? 

The ROE is held by the Registrar of Companies at Companies House (the registrar), and records specified information about an overseas entity, including details of its "registrable beneficial owners" and of its managing officers (directors, managers or secretary).

Once an overseas entity has registered, the registrar issues an overseas entity ID.

What is a registrable beneficial owner for the purposes of the ROE? 

A "registrable beneficial owner" is a beneficial owner that is not exempt from being registered under the terms of the Act.

A beneficial owner includes a person that holds more than 25% of the shares or more than 25% of the voting rights in the entity. It also includes anyone who has the right (directly or indirectly) to appoint or remove a majority of the board of directors of the overseas entity, or to exercise significant influence or control over that entity.

Where a trustee meets the requirements to be a registrable beneficial owner in relation to an overseas entity, required information must also be provided about the trust, the trustees and, in addition, about beneficiaries, the settlor and any "interested person" in relation to the settlement. An "interested person" is one who, under the terms of the trust, has rights in respect of the appointment or removal of trustees or the exercise by the trustees of their functions. Accordingly, this would potentially include a Protector.

In addition, any person who has the right to exercise, or actually exercises, significant influence or control over the activities of such a trust or another entity that is not a legal person, such as a partnership or unincorporated association, would also be a beneficial owner for the purposes of the Act.

How is the requirement to provide information enforced? 

An overseas entity is obliged to identify registrable beneficial owners. Having done so, it must give the relevant person an information notice, requiring the recipient to provide certain specified information.

A recipient of an information notice must comply with it within one month. Failure to do so without reasonable excuse, or knowingly or recklessly providing false information, is an offence punishable with a maximum of 2 years' imprisonment or a fine (or both).

To what extent is information on the ROE publicly available? 

The ROE is publicly accessible. However, some information is "protected information" and will not be publicly available. For individuals, protected information includes their residential address and the day of the month of their birth.

In contrast, information about beneficiaries, settlors and other interested persons in relation to trusts where the trustee is a registrable beneficial owner will generally be restricted to HMRC and other persons with functions of a public nature that may be designated by the Secretary of State.

The Act provides for the Secretary of State to be able to make provision for information regarding a specified individual to be unavailable for public inspection. However, the grounds for such an application are limited.

The role of the Land Registry 

A restriction was to be placed on the register of any qualifying estate of which an overseas entity is the registered owner and has become so at any time on or after 1 January 1999. The Land Registry was required to do this by 31 January 2023 (i.e. 6 months from 1 August 2022, the date on which the ROE came into force) where the overseas entity applied to become the registered proprietor of the qualifying estate after 1 January 1999 and before 1 August 2022.

Subject to certain exceptions, no disposition of a qualifying estate owned by an overseas entity (such as a sale or grant of a lease for over 7 years) may be registered at the Land Registry unless the overseas entity is either registered on the ROE and is able to show its Overseas Entity ID provided by the Registrar of Companies, or is an exempt overseas entity, as defined in the Act. This requirement took effect from 5 September 2022.

Also with effect from 5 September 2022, where an overseas entity acquires a qualifying estate, the Land Registry requires an overseas entity ID in order to register the overseas entity as its proprietor.

What are the potential consequences of failing to comply with the requirements of the ROE?

It is an offence (carrying a maximum prison term of 5 years, or a fine, or both) for an overseas entity to make a registrable disposition of a qualifying estate if there is a restriction on the register. 

It is also an offence (carrying a maximum prison term of 2 years, or a fine, or both) for an overseas entity to be the registered proprietor of a qualifying estate as a result of an application made on or after 1 January 1999, but not to be registered as an overseas entity, or not to have made an application to be so registered (unless exempt) by the end of the transitional period.

However, if an overseas entity disposed of a qualifying estate between 28 February 2022 and 31 January 2023, the overseas entity was not obliged to apply for registration by the end of the transitional period.  Instead, it was required to provide certain statements and information about the disposition and the beneficial ownership of the overseas entity to Companies House by that date. The information required was essentially the same as that required to make an application for registration.

What to do if you, or a trust with which you are connected, owned property through an overseas entity prior to 1 August 2022 and the overseas entity has not yet made an application to be registered? 

Any overseas entity that should have complied with the requirement to register or to provide statements and information prior to the end of the transitional period, but has not yet done so, should take urgent steps to comply now to hopefully avoid or minimise any penalties that may be imposed. 

Such penalties may involve criminal prosecution.  It is possible that the Government may take a "light touch approach" in relation to penalties for overseas entities that apply for registration (or submit statements and information, where relevant) shortly after the end of the transitional period.  However, there are no guarantees and no indication yet that this will be the case, and in any event, every effort should be made to start the application process as soon as possible.

From a practical perspective, the Land Registry will be unable to register any transaction involving land owned by an overseas entity, if the relevant ID cannot be provided. 

Verification and registration 

In common with most UK law firms, we are unable to carry out the verification and registration process, as we are not in a position to verify the accuracy of the information required. However, for those for whom it would be helpful, we are able to suggest a number of third-party providers who are registered to carry out this work.

And finally… 

We are able to analyse structures, and advise whether an overseas entity is registrable or otherwise. Accordingly, if you have any questions in relation to the new legislation, please get in touch with your usual contact at Howard Kennedy.

Please also do so if you are considering acquiring a property in the UK and would like advice on different structuring options, particularly with a view to protecting your and your family's privacy from full public access.