How Does the Register of Overseas Entities Affect Your Firm?

The Register of Overseas Entities (the “Register”) has been introduced by the UK government as a strategic way to fight economic crime, with the additional goal of ensuring that legitimate businesses continue to consider the UK as an ideal jurisdiction in which to invest. Although the introduction of the Register has been on the radar for some time, it seemingly gained importance earlier this year and was fast-tracked through UK Parliament.

In this article, Iryna Vale of TMF UK explains what the Register is and what overseas entities need to do if they are in scope.

The Register came into force in the UK on 1 August 2022 through the new Economic Crime (Transparency and Enforcement) Act 2022 (the “Act”). The Act requires any overseas entity (defined below) which currently owns or in the future acquires freehold or long leasehold land in the UK to register its ownership with Companies House. This must include a declaration of the beneficial owners or managing officers and needs to be completed by 31 January 2023.

The UK government defines an overseas entity as “a legal entity, such as a company or other organisation, that has legal personality and is governed by the law of a country or territory outside of the UK.” According to this definition, the Republic of Ireland is considered an overseas jurisdiction.

An individual or entity is described as a beneficial owner if they meet one or more of the following conditions:

  • They hold, directly or indirectly, more than 25% of the shares in an overseas entity
  • They hold, directly or indirectly, more than 25% of the voting rights in an overseas entity
  • They hold the right, directly or indirectly, to appoint or remove a majority of the board of directors of an overseas entity
  • They have the right to exercise, or actually exercise, significant influence or control over an overseas entity
  • Are trustees of a trust, members of a partnership, unincorporated association or other entity that fulfil one or more of the conditions above
  • Where a person has the right to exercise, or actually exercises, significant influence or control over the activities of that trust or entity

Until the introduction of the Act earlier this year, only UK entities were required to disclose their owners on a public register. However, under the new rules, anonymous foreign owners will have to reveal their identity and records will be required to be updated on an annual basis. Once implemented, it will be simpler for the authorities to establish an organisation’s beneficiaries or controlling parties and thus to monitor and prevent fraudulent activity.

Under the new rules, anonymous foreign owners will have to reveal their identity and records will be required to be updated on an annual basis.

The stringent data protection laws in place in the UK mean that, although cited as a public record, Companies House will not display any personal data of the beneficial owners. It is mandatory to provide information such as a complete date of birth, residential address and email address, but these are for the purpose of data collection only.

The Act is applicable to all overseas entities who have purchased property or land on or after 1 January 1999 in England and Wales or 8 December 2014 in Scotland.

To prevent non-disclosure by way of a sale, the Act also applies retrospectively to property or land sold in the UK on or after the 28 February 2022.

While you may not currently fall into the categories above, for any future sale you will be required to demonstrate your compliance with the Act and supply your registration to the new buyer.

The penalties imposed on those who are not compliant with the Act can include fines of up to £2,500 a day or up to five years’ imprisonment. Restrictions will also be imposed when buying, selling, transferring, leasing or charging property or land.

All overseas entities that fall within the defined parameters must provide the required information on both the entity itself and its ultimate beneficial owners. Information on an entity’s managing director must be provided in cases where a beneficial owner cannot be determined. Where a foreign trust holds UK real estate, the trustee(s) of that trust is considered a registrable beneficial owner and details about the trust must be shared as well. For further clarity of the necessary requirements, please refer to the UK government guidance.

A UK-regulated agent must complete verification checks on all beneficial owners and managing officers of an overseas entity before it can be registered.

Completion of Register filings with Companies House have demonstrated that this process is rarely straightforward. In certain cases, registration can be even more challenging, especially when it is a condition of sale. This increase in complexity requires keeping to a tight deadline, given that completion must be submitted by 31 January.

Another example of a complex scenario is where the trustees of a trust are registrable beneficial owners. Information on that trust will need to be provided, including:

  • Current or past beneficial owners
  • Beneficiaries
  • Settlors
  • Grantors
  • Interested persons

With no monetary threshold conditions, it is surprising that at the time of writing there have been just 2,299 registrations, which according to some estimations is fewer than 10% of the entities which are in scope. A necessary consideration for those in scope is to register now to avoid both non-compliance and any further restrictions during any future sale process.

 

Iryna Vale, Head of Corporate Secretarial Services

TMF UK

E: comms@tmf-group.com

 

Iryna Vale is Head of Corporate Secretarial Services at TMF UK. A chartered company secretary with over 15 years’ work experience in the company secretarial field, her previous experience includes independently managing portfolios of up to 600 clients.

TMF Group is an international provider of administrative services. Its 9,100 experts provide legal, financial and employee administration through the Group’s 120 offices worldwide.

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