The UK’s Register of Overseas Entities: A summary of obligations and related controversy
What is the UK’s Register of Overseas Entities?
The register is maintained by Companies House, the UK’s registrar of companies. It forms part of the Economic Crime (Transparency and Enforcement) Act 2022, which received royal assent in March.
The UK government’s launch of the new register was expedited by the Russia-Ukraine conflict. The relatively quick launch, and some onerous obligations related to the register, have left many companies based outside the UK that own, plan to acquire, or have owned UK land or property scrambling to understand the new legislation and update their processes to ensure compliance.
This is a substantial group, even when not accounting for companies that plan to or have owned UK land or property. Land registry data indicate that there are over 33,000 companies registered outside the UK that now own UK land or property.
This article provides a summary of the register’s obligations and why it’s important for affected non-UK based entities to act now to avoid getting caught in a logjam related to registration verification.
Overview of obligations, deadlines and penalties
The Economic Crime (Transparency and Enforcement) Act 2022 (the Act) establishes a register of overseas entities (ROE) and their beneficial owners. The Act defines an “overseas entity” as “a legal entity that is governed by the law of a country or territory outside the United Kingdom.” (This includes legal entities incorporated in the Channel Islands, Isle of Man or the Republic of Ireland.)
The register creates three primary areas of obligation:
- Overseas entities that acquire UK land and property after 5 September 2022 must register with UK Companies House prior to completing the acquisition.
- Overseas entities that currently hold land or property in England or Wales purchased on or after 1 January 1999 — or hold land in Scotland purchased on or after 8 December 2014 — must register the relevant information with UK Companies House. Entities have until 31 January 2023 to register.
- Overseas entities that disposed of UK property between 28 February 2022 and 31 January 2023 must give disposal details. (The Russia-Ukraine conflict commenced on 28 February, which accounts for the start date here.)
Penalties for not complying with the ROE filing obligations include fines of up to £2,500 per day or a prison sentence of up to five years, along with restrictions when buying, selling, transferring, leasing or charging property in the UK.
An important clarification about deadlines
As mentioned, the Ukraine conflict expedited the launch of the register and necessitated the inclusion of retrospective dates. It’s important to understand that the Act provides for two launch dates, a transition period and retrospective dates, as follows:
- 1 August 2022: Launch of the ROE with Companies House accepting registrations.
- 5 September 2022: Launch of land registry requirements for new owners.
- 1 August 2022 to 31 January 2023: Transition period for existing owners.
- 1 January 1999 and 28 February 2022: Retrospective dates for existing and former owners.
At first glance, it appears that initial registrations need only take place from 5 September 2022, with a six-month period for existing owners to comply. The reality is that this regulatory change has built an additional step — that of the retrospective dates for existing and former owners — into what is an already complicated land transaction process in the UK.
In addition, the above dates have prompted lenders and other stakeholders to proactively change their covenants to ensure their assets are, and remain, secure. This is placing pressure on overseas entities to, for example, expedite their registrations well in advance of the transition-period end date, or risk breaching their banking covenants.
Registration and verification processes
An overseas entity must register with Companies House and include information concerning the beneficial owners or managing officers, as appropriate. The information must be updated annually.
Here is the information that must be submitted by individual beneficial owners:
- Date of birth
- Residential address
- Service address
- Date at which the individual became beneficial owner of the entity
- Nature of control of the entity
- Whether the individual is on sanction lists
Prior to registration, the information must be verified by an independent UK-based agent who is supervised under the UK’s Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
The UK agent must have formally applied to Companies House to carry out verification checks. Once accepted, the agent will be given a unique agent assurance code to be used on all registrations they’ve verified.
All registrations require the agent’s assurance code to be submitted within 14 days of the registration or it will be rejected.
Upon successful registration, the entity will be provided with a unique overseas entity ID number, to be used on all land registry applications.
Without this registration, the UK Land Registrar has been granted powers not to register title in the name of the overseas entity.
Controversy over the verification process
Certain UK regulatory bodies have expressed concern over the Act’s registration verification process. Both the Law Society and the Institute of Chartered Accountants for England and Wales are encouraging its members not to take the position of verification agent, but to outsource the role. This is largely due to the onerous verification responsibilities, but also to the stakes involved. Failure to compliantly carry out the verification process can lead to criminal penalties.
Given the large size of the UK property market, the many land transactions that occur regularly, and those UK-based professionals who have been effectively discouraged from carrying out verification checks, there may be a services logjam for non-UK entities looking to comply.
Due to the potential penalties that can be imposed on overseas entities that don’t comply with the register — along with pressure from lenders and other stakeholders to update existing agreements — it is vital for affected entities to take swift action and secure a third-party provider that is approved by Companies House to carry out registration verification checks.
How can we help?
The contents of this article are intended for informational purposes only. The article should not be relied on as legal or other professional advice. Neither Vistra Group Holding S.A. nor any of its group companies, subsidiaries or affiliates accept responsibility for any loss occasioned by actions taken or refrained from as a result of reading or otherwise consuming this article. For details, read our Legal and Regulatory notice at: http://www.vistra.com/notices . Copyright © 2022 by Vistra Group Holdings SA. All Rights Reserved.
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