The Register of Overseas Entities has been introduced in the UK through the Economic Crime (Transparency and Enforcement) Act 2022. This legislation came into effect on 1 August 2022 and will affect property ownership in the UK by entities based overseas.
What is the Register of Overseas Entities Designed to do?
The purpose of the Register of Overseas Entities is to help to make it transparent who owns property in the UK. This change in the law was fast-tracked through parliament as part of the UK Government's urgent response to Russia's invasion of Ukraine.
It can be extremely difficult to uncover the ultimate ownership of properties and the controlling interests behind them at present. This is due to the prevalent use of shell companies and offshore banking to obfuscate the actual ownership structures. The Register of Overseas Entities seeks to simplify this when it comes to UK-based properties and land.
All overseas entities who wish to purchase property in the United Kingdom must now register with Companies House and declare who their managing officers or registrable beneficial owners are. The requirement to register also extends retroactively so that an entity that purchased property after 1 January 1999 in England and Wales or 8 December 2014 in Scotland will need to tell Companies House the identities of their registrable beneficial owners or their managing officers before 31 January 2023. Overseas entities only need to register property or land bought in Northern Ireland on or after 1 August 2022.
What Constitutes an Overseas Entity?
An overseas entity is described by HMRC as being “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 the UK.” A frequently asked question is whether the businesses constituted in the Channel Islands will need to register and the answer is yes. Businesses based in Northern Ireland won't have to but those in the Republic of Ireland will as it constitutes an overseas jurisdiction as set out in the legislation.
What is a Beneficial Owner?
A beneficial owner in terms of the Register is someone who holds a total of more than either 25% of the share value or 25% of the voting rights in the overseas entity. This can be either directly or indirectly through other companies that they are shareholders of. A beneficial owner can also be someone who exerts significant control over the corporate entity even though they aren't necessarily significant shareholders.
Where there are no beneficial owners or if it is not possible to identify them, managing officers are required to sign the register instead. These can include directors, company secretaries and managers.
Penalties for Non-Compliance with the Act
It should be noted that the penalties for non-compliance with this Act are particularly severe, as when dealing with entities with vast property portfolios involves large sums of money. Fines of up to £2,500 per day of non-compliance or a five-year prison sentence are the legal deterrents of non-compliance. If you are found not to have complied, you could also be restricted in your property dealings in the UK in the future.
The Registration Process
The first step in the registration process is to identify all of the beneficial owners or managing officers. The information obtained at this stage must be verified by a UK-regulated agent. These include certain accountants, tax advisers and legal professionals.
Once all of this information has been collated and verified, Companies House must be passed all of the basic company information, along with more detailed information about the beneficial owners or managing officers. The information that is required includes full names, addresses, dates of birth, nationalities and the periods of time that the individuals were involved in the running of the entity.
After this has been done, Companies House will issue an Overseas Entity Identification Number and this must be used when taking part in any UK land or property transactions in the future. This process can be completed with Companies House via an agent on behalf of the business entity concerned.
Registration Timescale
All entities who are affected by this change must register by 31 January 2023. Failing to register by this date constitutes a criminal offence under UK law and the penalties explained above will be enacted.
Contact Lawrence Grant
If you have any doubt about how to handle this process, please get in touch and we will be pleased to assist you in remaining compliant with the law and ensuring your registration is successfully completed in time. We are a UK-regulated agent, which means that we are able to provide verification for the data on beneficial owners and managing officers for you.
Proudly authored by Alan Rajah, Partner and Ajay Shah, Partner.
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