Economic Crime (Transparency and Enforcement) Act 2022: Register of Overseas Entities
The Economic Crime (Transparency and Enforcement) Act 2022 (the “ECA”) received Royal Assent on 15 March 2022. The ECA covers three main areas – the creation of a register of overseas entities (the “Register”), amendments to the unexplained wealth orders regime, and amendments to the sanctions regime. This note provides a brief overview of the creation of the Register and what impact this will have on overseas owners of UK property.
What is the purpose of the register?
UK entities are already obliged to disclose their beneficial ownership information pursuant to the PSC regime. However, the ECA applies to non-UK legal entities that own property in the UK, and requires such entities to register their details and the details of their beneficial owners on the Register which will be managed by Companies House.
Who will have to register?
Any overseas entity which currently owns a qualifying estate and which was acquired on or after 1 January 1999 is obliged to register (subject to certain exemptions which have yet to be set out in regulations).
Any overseas entity that intends to acquire a qualifying estate is also required to register.
Overseas entities who don’t own UK property may still register if they wish but this is not a requirement.
What information will be required for the register?
An overseas entity will be required to identify all registrable beneficial owners of the entity or provide confirmation that it does not have any.
The Register will document the overseas entity’s name, country of incorporation or formation, registered or principal office, and correspondence details, plus the name, address and start date of any person who is the beneficial owner of the overseas entity.
Where the beneficial owner is a trustee or trustees of a trust, then the overseas entity will be obliged to identify and provide details of any person (such as, for example, a protector or appointor) who has the right to exercise, or who actually exercises, significant influence or control over the activities of the trust in question.
A corporate entity which is a beneficial owner is not a registrable beneficial owner unless it is itself an overseas entity obliged to register on the Register (or in certain other circumstances). If itself on the Register, such corporate entity would have to identify and report its own registable beneficial owners.
The information on the register must be updated annually (or confirmation provided that there is no update). Failure to comply is a criminal offence.
The Register is a public document but certain information will not be made available for public inspection, such as dates of birth and residential addresses.
Upon registration the overseas entity will be allocated an ID number and provided with evidence from Companies House confirming their registration. Companies House has not yet given details as to how this will work in practice.
What is the deadline for registration?
All overseas entities holding a qualifying estate need to apply for registration on the Register within the transitional period. Failure to comply with the registration requirements by the end of this period is a criminal offence.
What does this mean for UK land transactions?
During the Transitional Period the Land Registry must place a restriction on the title to any qualifying estate owned by an overseas entity and acquired on or after 1 January 1999. This restriction will take effect after the Transitional Period and will prevent the registration of any relevant disposition of land unless the Land Registry has seen evidence that entry to the Register has been made, or that an exemption applies. This means that legal title will not pass unless the restriction on title has been complied with.
When an overseas entity applies for registration on the Register during the Transitional Period it must include details of any relevant dispositions of land that it has made between 22 February 2022 and the date of its application (or confirm that there have not been any).
There are certain limited exceptions to compliance with the restriction, such as where the disposal is made in the exercise of a power of sale by the owner of a legal charge, or by an insolvency practitioner in specified circumstances (to be set out in future regulations).
What steps need to be taken?
Overseas entities who currently own property in the UK (since 1 January 1999) will need to identify all beneficial owners and apply for registration on the Register.
Anyone looking to enter into a relevant disposition of land with an overseas entity after the Transitional Period will need to see evidence that the entity is on the Register and should seek contractual obligations from that entity to assist with Land Registry requisitions to ensure that title can be registered at the Land Registry.
Contracts exchanged prior to the restriction being entered on the property register will not be caught by the restriction on title.
Some of the terminology used in this article explained:
Overseas Entity: any body corporate, partnership or other legal entity which is governed by the laws of a country outside of the UK. This therefore catches entities based in the Channel Islands and the Isle of Man. Our understanding is that this includes non-UK.
Beneficial Owner: anyone who:
- Holds, directly or indirectly, more than 25% of the shares or voting rights in the overseas entity.
- Holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the overseas entity.
- Has the right to exercise, or actually exercises, significant influence or control over the overseas entity.
- Has the right to exercise, or actually exercises, significant influence or control over the activities of a trust, and the trustees of such trust meet any of the conditions specified above in relation to the overseas entity.
Qualifying Estate: a freehold estate in land, or a leasehold estate in land granted for a term of more than seven years.
Relevant Disposition of Land: a transfer, grant or assignment of a lease for a term of seven years or more, and the grant of a legal charge.
Transitional Period: six months from the date of the registration requirements coming into force (a commencement date for these provisions under the ECA has not yet been stipulated).
This note reflects the law as at March 2022. The circumstances of each case vary and this note should not be relied upon in place of specific legal advice.