Tick, Tock: Overseas Entities, are you ready to beat the registration clock? Economic Crime (Transparency and Enforcement) Act 2022
23 June 2022
As widely publicised in recent months, the Government has fast-tracked new legislation to “tackle corrupt elites and dirty money” and to “deliver transparency about who ultimately owns and controls overseas entities that own land in the UK”.
Economic Crime (Transparency and Enforcement) Act 2022 received Royal Assent earlier this year and, although this Act has roots going back to 2016, it was pushed to the top of the legislative agenda following events in Ukraine.
The provisions of the Act cover three principal areas:
- introduction of new register of Overseas Entities;
- amendments to legislation on Unexplained Wealth Orders; and
- amendments to legislation on sanctions.
Here, we look here at the first of these, the new Register of Overseas Entities.
In broad outline, the Act requires any Overseas Entity (essentially, a foreign company or other body) that owns, or wishes to own, relevant property in the UK to register details of its “beneficial owners” on the newly established register of Overseas Entities to be held by Companies House (and to then keep that register updated).
If the Overseas Entity fails to comply with the provisions of the Act (by failing to register within the time frame, to update as necessary or by providing false information) the Overseas Entity itself and its officers may face criminal liability reinforced with tough penalties. The Overseas Entity will also be restricted in its ability to dispose of or otherwise deal with the property.
This means that once the new legislation comes in force, Overseas Entities will not be able to buy, sell, lease or mortgage most UK property unless (i) they have first complied with the new registration requirements or (ii) an exemption applies.
We do not know yet when this legislation will come into force, or even how the registration process will work in practice. But we understand that various Government bodies are working to implement the register of Overseas Entities as soon as possible and the clock for registration is expected to start ticking imminently.
Firstly, some clarification on the terminology may help you ascertain whether you will be directly affected by these new requirements and, if so, the steps that you may need to take:
- Overseas Entity
For the purposes of the legislation, an “Overseas Entity” includes any company, partnership (including LLP) or other body with separate legal personality which is governed by the law of a non-UK country or territory. Unless falling within (yet to be published) exemptions, therefore, companies and LLPs incorporated in offshore jurisdictions such as Jersey, Guernsey and the Isle of Man, as well as other overseas jurisdictions, may be caught by the Act.
- Beneficial ownership
“Beneficial owners” are defined to include individuals, entities and government bodies. It is worth noting, though, that not all beneficial owners of Overseas Entities will need to be identified; the requirement to identify is limited, broadly, to those:
- who hold, directly or indirectly, more than 25% of the shares or voting rights in the entity;
- who have the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity; or
- who have the right to exercise (or in fact exercise) significant influence or control over the entity.
- Qualifying Property
The Overseas Entity will have a “relevant interest in land” and so will fall within the ambit of the legislation if it is, or wishes to be, the registered proprietor of either a freehold estate or a leasehold estate of more than seven years.
A little detail
- Existing ownership
Somewhat unusually, the Act has significant retrospective reach, encompassing relevant property acquired since 1 January 1999 (for property in England and Wales) and since 8 December 2014 (for property in Scotland).
Any Overseas Entity that owns qualifying property (which it acquired since 1999 or 2014 as appropriate) will need to register with Companies House and obtain an ID number.
Once these rules come into force (and it is widely anticipated that these rules will go live in the near future), there will be a transitional period of six months for the Overseas Entity to apply for registration. Any Overseas Entity which owns relevant property but which has not been registered on the Companies House register within this six month period (even if it disposes of its property within the six month period (or at any time after 28 February 2022)) will be committing a criminal offence; the entity may be subject to a fine and its officers may be fined or imprisoned.
As a further incentive to register, HM Land Registry will be placing restrictions on the titles of all relevant property prohibiting the transfer, grant of a lease of more than seven years or grant of a charge unless the Overseas Entity is registered with Companies House or is exempt (details of exempt entities are awaited).
- Future acquisitions
Once these provisions come into force, it will not be possible for an Overseas Entity to be registered as proprietor of land at HM Land Registry unless it is registered on the register of Overseas Entities with Companies House or is exempt.
The Act is likely to have broad implications across the property market and the implications will not just be felt by Overseas Entities themselves. Any parties looking to buy, sell or lease property to or from Overseas Entities may also find that their transactions are delayed, or even aborted, if the Overseas Entity they are dealing with has not complied with the registration requirements of the Act.
At this point, there remains uncertainty on several significant points relating to the implementation of the Act, including when the register will go live and who will be responsible for certifying the requisite information for it. Nevertheless, given the restricted timescales involved once the Act comes into force, as well as potentially severe consequences for anyone who fails to comply, we would recommend anyone who may be affected to consider now whether this is the case and, if so, take steps to identify action that may be required to comply with the Act.
Please do get in touch if we can help you with this or if you would like to know more.