On 15 March 2022, the UK government enacted legislation (the Economic Crime (Transparency and Enforcement) Act 2022) (“the Act”) to require the registration of overseas entities that own land in the UK. The register will be publicly available and importantly will contain details of the beneficial ownership of the foreign entity. The Act also contains provisions to enhance the existing Unexplained Wealth Orders regime and the UK’s financial sanctions regime. As we noted in our briefing of 28 February 2022 pressure for such a measure has been building over the past few years, but Russia’s invasion of Ukraine has catapulted the issue to the top of the government’s agenda. The Act was fast-tracked through the Houses of Parliament, with only 7 days elapsing between the first reading of the bill and the passing of the Act. Whilst the Act is not yet in force, it is expected to do so imminently.
In this update we address the Companies House register of overseas entities created by the Act in relation to property and land held in England and Wales.
The register of overseas entities
The register will apply to any legal entity governed by non-UK law, with “legal entity” meaning an entity which is recognised as a legal person under its governing law. From the date on which the Act comes into force:
• no overseas entity will be able to register as the proprietor either of a freehold estate in land or of a leasehold estate for a term exceeding seven years (“qualifying estates”) unless it is registered.
• for overseas entities which are already the registered proprietors of a qualifying estate pursuant to an application made on or after 1 January 1999:
- a restriction will be entered by HM Land Registry prohibiting the transfer of qualifying estates, or the grant of a legal charge; and
- any registrable dispositions made by the entity will not be registered, unless at the relevant time it is either registered or exempt, or the disposition is made pursuant to a contract made prior to the restriction having been entered by the Land Registry, or the disposition is made pursuant to a power conferred on the proprietor of a registered legal charge, or by its appointed receiver. There are also provisions enabling dispositions pursuant to statutory obligation, court order or by operation of law, and the legislation also anticipates further exceptions being made for transfers or dispositions by insolvency practitioners in specified circumstances.
Overseas entities which already own a qualifying estate granted on or after 1 January 1999 have six months from the date on which the legislation comes into force (“the transitional period”) in which to register and provide the beneficial ownership information required by the Act. Whilst HM Land Registry must enter a restriction against affected qualified estates as soon as possible after the Act comes into force, such restrictions will not take effect until the end of the transitional period.
When making an application for registration during the transitional period, an overseas entity must declare whether it has made any relevant dispositions within the period 28 February 2022 to the date of its application for registration. ‘Relevant dispositions’ means any of the following in relation to registered land: a transfer, a grant of a lease for a term of more than seven years or the grant of a legal charge. If it has made a relevant disposition, the overseas entity is required to disclose the details of the transaction.
If an overseas entity fails to register before the end of the transition period, the Secretary of State may serve on it a notice requiring it to do so within six months of the date of the notice.
Beneficial ownership information
When registering, overseas entities will be required to state whether they have registrable beneficial owners, identify those owners and provide the requisite information in relation to each. “Beneficial owners” are persons who, directly or indirectly, hold more than 25% of the shares or voting rights in that entity, or who have the right to appoint or remove a majority of the entity’s board of directors, or who otherwise have the right to, or actually do, exercise significant influence or control over the entity. If any such right is held by a partnership, trust or any other entity without legal personality, then the beneficial owner will be the individual who as the right to exercise, or actually does exercise, significant influence or control over that trust etc.
Where the beneficial owner of the overseas entity is a natural person, that is sufficient to trigger the requirement to register. The information that the overseas entity must provide to the register are that person’s:
• full name, date of birth and nationality;
• usual residential address;
• address for service;
• the date on which that person became a registrable beneficial owner in relation to the overseas entity; and
• confirmation as to how that person fulfils the beneficial ownership requirement.
This information will be publicly-available, save for the day of birth and usual residential address (or information that the service address is the beneficial owner’s usual residential address).
Companies and other legal entities will qualify as a registrable beneficial owner of an overseas entity if it is also subject to its own disclosure requirements, for example, either because it is subject to the UK’s People with Significant Control (PSC) regime, or because it is a company which has voting shares admitted to trading on a UK or EU regulated market. In such instances, the ultimate beneficial ownership will be publicly available in other registers, such as the Companies House PSC Register.
Once registered, overseas entities are under a duty to update their beneficial ownership information every twelve months from the date of registration.
Before applying for registration or providing updating information, overseas entities are obliged to take reasonable steps to identify any registrable beneficial owners and to obtain from them the information required for the purposes of the register. The obligation extends to giving an information notice to any person that it knows, or has reason to believe, to be a registrable beneficial owner, requiring it to provide the requisite information. It may also give an information notice to a third party if it knows or has reason to believe that that third party knows the identity of a registrable beneficial owner.
The requirement to register under the Act does not apply to overseas trustees who hold land or properties directly, rather than through underlying companies, by virtue of the fact that these are legal relationships rather than legal persons.
However, pursuant to new rules introduced in October 2020 as part of the UK’s implementation of the Fifth Money Laundering Directive (5AMLD), all non-UK express trusts which acquire an interest in UK land will be obliged to register using the Trust Registration Service. Trustees will have twelve months in which to register from the date on which the new service is ready to accept registrations. Whilst beneficial ownership information will need to be provided, unlike the envisaged register of foreign entities, at present the UK trust register will only be accessible by a specified group of persons, for specified purposes, and will not be able to be accessed by the general public.
If an overseas entity is owned by a trust, the overseas entity will be obliged to identify the trustees as beneficial owners, and provide the name of the trust or a description, the date on which it was created and identify the trustees, beneficiaries, settlor and any person who under the terms of the trust has rights in respect of the appointment or removal of trustees, or the exercise of the trustees’ functions. Importantly however, in line with the UK’s policy that beneficial ownership information provided about trusts will not be available to the public, the Act prohibits the registrar of Companies House from disclosing the information provided to it by overseas entities concerning trusts, although there is express provision for that information to provided to HMRC.
The Act creates a comprehensive regime of offenses for enforcing compliance. Failure on the part of an overseas entity to comply with the requirements of the Act will constitute an offence on the part of the entity and its officers, punishable in most instances by a fine. If however a person delivers a document or statement to Companies House any document or statement which, when delivered, the person knows to be misleading, false or deceptive in a material particular, that will constitute an aggravated offence, punishable by imprisonment for a term of between six or twelve months or up to two years.
In relation to offences committed by the officers of overseas entities, it is also worth noting that the Act also incorporates sections 1121 to 1123 of the Companies Act 2006, so that ‘officer’ is defined to mean any director, manager or secretary and any person treated as an officer. The Act further expands the definition so that the definition also applies to “a person in accordance with whose directions or instructions the board of directors or equivalent management body of a legal entity are accustomed to act.”
In addition to overseas entities and their officers, the Act also makes it an offence for registrable beneficial owners, or third parties which the overseas entity knows or has reason to believe know the identity of its beneficial owners, on whom the overseas entity has served an information notice, to fail to comply with that notice or to knowingly or recklessly provide false information. Where such an offence is committed by a legal entity in receipt of an information notice, it will be committed by every officer of that entity.
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