On 1 August 2022, a new Register of Overseas Entities (ROE) was launched at Companies House pursuant to the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA). In a nutshell, any overseas entity wishing to buy, sell, lease or charge property in the UK will be required to provide details of its beneficial owners or managing agents to Companies House for inclusion on a public register and to obtain a unique Overseas Entities ID (OE ID). The OE ID is important as, with effect from 5 September 2022, HM Land Registry will be prevented from registering any disposition made by an overseas entity that is caught by the ECTEA without a valid OE ID.
A recent McGuireWoods legal alert, “UK Real Estate Transactions With Overseas Entities: Impact of Economic Crime (Transparency and Enforcement) Act 2022,” discussed the implications of these developments, including the entities and transactions affected, the consequences of noncompliance and recommended next steps. Below are steps that must be taken to register an overseas entity and to acquire an OE ID to allow the entity to buy or sell UK property.
What entities are affected?
By way of reminder, for the purposes of the ECTEA, an overseas entity is a legal entity “governed by the law of a country or territory outside of the UK.” The definition of legal entity includes a body corporate, partnership or other entity that (in each case) is a legal person under the law by which it is governed. Although the ECTEA refers to “exempt overseas entities” that will not be subject to the registration requirements, as at the date hereof, there is no further indication as to what overseas entities will be exempt.
What information does Companies House require?
Companies House requires information about the overseas entity including the name of the entity, the country where the entity was formed and the entity’s registered office address.
An overseas entity will also need to provide Companies House with information about each of the entity’s beneficial owners or, if there are no beneficial owners, information about the director, manager or company secretary of the entity (i.e. the managing officers).
If any trustees of a trust are registrable beneficial owners, Companies House will also require information about the trust (in a prescribed Excel format), which will include details about current or past beneficial owners, beneficiaries of the trust and other interested persons.
As alluded to below, an overseas entity that has made a disposal of freehold property or leasehold property granted for a term of more than seven years since 28 February 2022 will still need to register with Companies House even if the overseas entity no longer has an interest in the property. The same applies to an overseas entity disposing of such property before 31 January 2023. In both circumstances, the overseas entity in question will need to provide much of the same information to Companies House as an overseas entity applying for an OE ID. However, it will also need to provide additional details of the land disposed of (i.e. title number, date of contract and date of disposal and details of any additional beneficial owners or managing officers at the time the property was disposed of).
Who is a beneficial owner?
Before making a registration application, overseas entities must take reasonable steps to identify any registrable beneficial owners by sending an information notice to any person it knows, or has reasonable cause to believe, is a registrable beneficial owner or is a person who knows, among other things, the identity of a registrable beneficial owner. Recipients will have one month to state whether they are registrable beneficial owners and, if they are, confirm or correct any of the required information about them that is specified in the notice.
A beneficial owner under the ECTEA includes any individual or entity that has significant influence or control over the overseas entity. This extends to an individual person, another legal entity, a government or public authority, a trustee of a trust or a member of a firm that is not a legal person under its governing law.
In each case, the beneficial owner must satisfy one or more of the following conditions:
- It holds (directly or indirectly) more than 25% of the shares in the overseas entity.
- It holds (directly or indirectly) more than 25% of the voting rights in the overseas entity.
- It holds the right (directly or indirectly) to appoint or remove a majority of the board of directors of the overseas entity.
- It has the right to exercise, or does in fact exercise, significant influence or control over the entity.
In the case of an overseas entity who holds UK freehold property or leasehold property for a term of more than seven years as nominee or bare trustee for another person, the beneficial owner who has significant influence or control over that overseas entity will be the person who appears on the register and not the person who has the beneficial interest in the land.
The UK government guidance does not address circumstances where the legal owner of a UK property is a UK nominee or bare trustee that holds the property on trust for an overseas entity. This is where the UK Trust Registration Service (TRS) would instead apply. The TRS is a register of the beneficial ownership of trusts maintained by HMRC. More information about the TRS and when to register a trust can be found on the UK government website.
What else should the entity know before applying?
No more than three months before an overseas entity is registered, verification checks must be completed by a UK-regulated agent. Such agent must be based in the UK and can be an individual or corporate entity (for example, an accountancy firm or an independent legal professional) that is regulated by the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017. The agent will need to provide an agent assurance code and a statement to confirm that it has completed the overseas entity verification checks, which will then form part of the application.
How does an entity apply?
The application to register an overseas entity and its beneficial owners should be submitted digitally. The applicant must have (or will need to create) a Companies House account. A registration fee of £100 is payable. If the application is successful, notification of registration and confirmation of the entity’s OE ID will be sent via email to the applicant.
Where will the information be published?
Details of the overseas entity’s beneficial owner and managing officers will be made publicly available on the ROE maintained by Companies House. Personal information and some information relevant to the verification checks will not be published. Trust information is also expressly excluded from public disclosure and will not be shown on the register; however, the information may be shared with HMRC.
When should an entity apply?
The best advice would be to apply as soon as possible, although the pace of making an application does depend on whether the overseas entity already owns a qualifying real estate interest or has plans to acquire or dispose of qualifying real estate in the near future.
- An application to register with Companies House should be made as a matter of urgency if an overseas entity will acquire freehold property or leasehold property granted for a term of more than seven years on or after 5 September 2022. This is because a valid OE ID is required before making an application to register the interest at HM Land Registry.
- An application to register with Companies House should be made as soon practicable if an entity acquires freehold property or leasehold property granted for a term of more than seven years on or after 1 August 2022 and 4 September 2022 (inclusive). This is because, HM Land Registry is obliged to enter a restriction on the title register of the overseas entity with immediate effect on or after 5 September 2022, preventing the overseas entity from transferring the property, granting a lease for a term of more than seven years or granting a legal charge over the property unless it is registered at Companies House with a valid OE ID, is exempt or has confirmed that one of the permitted exceptions applies.
- An application to register with Companies House should be made on or before 31 January 2023 if the overseas entity: already owns freehold property or leasehold property granted for a term of more than seven years (and was registered as the proprietor of such interest at HM Land Registry after lodging an application on or after 1 January 1999);disposed of freehold property or leasehold property granted for a term of more than seven years on or after 28 February 2022; ordisposes of freehold property or leasehold property granted for a term of more than seven years between the date hereof and 31 January 2023 (inclusive).
- already owns freehold property or leasehold property granted for a term of more than seven years (and was registered as the proprietor of such interest at HM Land Registry after lodging an application on or after 1 January 1999);
- disposed of freehold property or leasehold property granted for a term of more than seven years on or after 28 February 2022; or
- disposes of freehold property or leasehold property granted for a term of more than seven years between the date hereof and 31 January 2023 (inclusive).
Beginning 1 February 2023, for land registration purposes, the requirement to register at Companies House and to obtain a valid OE ID will apply and a restriction on dispositions will be entered on the registered title of any overseas entity that owns freehold property or leasehold property for a term of more than seven years. The overseas entity will be restricted from dealing with its property (and HM Land Registry will be prevented from registering any dealings) until the above registration requirements are met. What’s more, failure by the proprietor to make an application to register an overseas entity at Companies House on or before 31 January 2023 is an offence punishable by a fine and/or imprisonment.
Is that everything?
It is important to recognise that, once registered, an overseas entity is still required to file annual updates and confirm to Companies House whether the information held is correct or whether there have been any changes to the beneficial ownership. Failure by a registered overseas entity to comply with the annual reporting requirements may result in the entity and every officer of the entity who is in default committing an offence and being subject to a fine currently up to £2,500 for every day the default is continuing.
Going forward, more attention should be paid to transactions involving UK real estate bought or sold by overseas entities. When opposite an overseas entity, it is advisable to request details of the overseas entity’s OE ID and/or Companies House registration status as soon as possible. Likewise, overseas entities that intend to acquire or dispose of UK property soon should consider starting the process for obtaining an OE ID as soon as possible to circumvent a request for delayed completion from the other side.
Even if an overseas entity does not wish to dispose of its existing UK property, it must still pay close attention to the new requirements to avoid committing an offence.