The UK's Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) came into force on 1 August 2022 and has important implications for beneficial owners and operators of overseas companies registered proprietors of land in the UK.
The purpose of this post is to summarise the implications and remind interested persons to seek appropriate advice on what they should be doing to ensure compliance.
The Overseas Entities Register
Companies House in the United Kingdom has been tasked with creating and maintaining a new publicly accessible register of overseas entities (the ROE), which captures certain information about the beneficial ownership and, in some cases, managing officers, of those entities which own land in the UK.
It is only land registered with the UK Land Registry, which is relevant for the ROE. It refers to freehold land or leasehold land in England and Wales, where the lease runs for longer than seven years (in Scotland, the lease must run for longer than 20 years and in Northern Ireland, the period is 21 years).
An overseas entity will be required to register if it owns land purchased in:
England and Wales: On or after 1 January 1999;
Scotland: On or after 8 December 2014; or
Northern Island: On or after 1 August 2022.
As part of the registration process, the overseas entity must disclose information about itself, its registrable beneficial owners and, in some cases, its managing officers. Notably, an appropriately authorised person must independently verify this information before an application for registration on the ROE can be made.
The rules surrounding beneficial ownership and who is registrable are complex, and the entity itself is required to take reasonable steps to identify any registrable beneficial owners and to obtain the necessary information about each registrable beneficial owner and in respect of any registrable beneficial owner who is a trustee, the required information about the trust.
How does an overseas entity comply with these obligations?
The overseas entity is required to give an "information notice" to any person it knows or has reasonable cause to believe is a registrable beneficial owner concerning the entity and which requires that person to comply with the notice by confirming or supplying the necessary information about themselves to the overseas entity within one month of the date of the notice.
The overseas entity can also give an information notice to anyone likely to know the identity of its registrable beneficial owners. It could be a beneficial owner concerning the overseas entity (e.g. a minority shareholder) or the registered agent of the overseas entity who, in many cases, will already have an obligation to disclose information about beneficial owners to its regulatory authority in the relevant jurisdiction.
In broad terms, according to Companies House, subject to any applicable exemptions, the persons who need to be identified and reported on are Any beneficial owner that is a person, other legal entity, government or public authority who:
holds, directly or indirectly, more than 25 per cent of the shares in the entity;
holds, directly or indirectly, more than 25 per cent of the voting rights in the entity;
holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity or
has the right to exercise, or exercises, significant influence or control over the entity.
Specific disclosure rules apply to registrable beneficial owners who hold their interest via trusts, and there are limited exemptions from registration (for example, if the individual or legal entity doesn't meet one of the conditions above or they have already disclosed their identity as a beneficial owner to Companies House because of a holding in another entity).
The overseas entity will then need to provide information about itself and its registrable beneficial owners to a relevant person in the UK who has been authorised and can verify the information disclosed to it by the entity and make the application for registration on the ROE.
Once an overseas entity has registered, it will receive an overseas entity number (an OEN). The OEN will be needed in connection with any future registrations at the Land Registry involving the land (including where the land is being mortgaged).
What is the deadline for registration?
All relevant overseas entities had until 31 January 2023 to register on the Register of Overseas Entities – ROE.
What happens if the overseas entity has recently disposed of/transferred its property?
Specific transitional arrangements applied if a "relevant disposition of land" (as defined in the ECTEA) occurred after 28 February 2022.
If, due to the disposition, the relevant entity no longer holds land in the UK, it had until 31 January 2023 to notify Companies House of the transaction using Form OE1. The entity does not need to apply to be on the register and obtain an OE, but it must disclose details of the trade and the land in question.
What if there are plans to sell or mortgage the property?
If the transaction is due to be completed after 31 January 2023 or the overseas entity will continue to hold land following completion of the transaction, it will need to have registered on the ROE and obtained an OEN, which will be submitted to the Land Registry at the time the relevant transaction is submitted for registration.
What steps should be taken now if the ROE is relevant to you?
Ensure your overseas entity is in good standing in its jurisdiction of incorporation and has not been struck off or dissolved. It is particularly relevant for BVI companies as the rules relating to striking off changed with effect from 1 January 2023, and it may not be a straightforward process to reinstate your company. We strongly advise checking in with your registered agent in the BVI as soon as possible.
Identify a service provider in the UK who can provide verification and registration services for your entity in the UK (the UK Agent).
Issue your information notice(s) and start gathering KYC on anyone who is a registrable beneficial owner of your overseas entity and arrange for it to be appropriately certified as advised by your UK Agent.
Arrange for the UK Agent to apply for registration on your behalf; after 31 January 2023, daily fines and penalties might be imposed.
Are there any other requirements once the registration on the ROE is done?
Yes. There is an annual requirement to confirm or update the information on the ROE.
If you have any questions, don't hesitate to contact us at Contact@viss.com.hk.
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