News / 17-10-2022 / London

The Register of Overseas Entities (ROE), operated by Companies House, came into force in the UK on 1 August 2022, and forms Part 1 of the Economic Crime (Transparency and Enforcement) Act 2022 (the Act). It requires overseas incorporated legal entities that own, or seek to acquire, land or property in the UK, to register and provide information on their beneficial owners and/or managing officers. Once registered, they must also keep the register up to date on an annual basis.  There are significant financial and criminal penalties for not complying with either the initial registration or subsequent annual update.

If you are an overseas entity (broadly a non-UK company or other non-UK corporate structure) investing in, or already owning, UK land or property, in this article we summarise what you should do following these changes. 

For more information and support with the ROE, please get in touch and we can advise you on your options. 

The Register of Overseas Entities (ROE), why - and why now?

It is understood that the introduction of the ROE was fast-tracked as a response to the Russian invasion of Ukraine, and is part of long-planned measures to help address global crime and tax evasion.

A major concern of the authorities is that, over the years, illicit funds have integrated into legitimate economies through various property and land investments in the UK. These investments may have been made through complex, corporate structures and overseas entities that safeguard the identity of the beneficial owners of such assets, thereby allowing criminals to launder their money and/or evade taxation.

The ROE will require registration and verification of the beneficial owners who own or control overseas entities, ultimately providing the relevant authorities with information to act against financial crime, tax evasion and terrorist funding. The register interacts with other recently introduced transparency regimes, such as the Trust Register and the Register of People with Significant Control, to help give the UK authorities a much clearer oversight of how assets, companies, trusts and other similar structures and entities are held beneficially and controlled.

The deadline for complying with the ROE rules is 31 January 2023, the penalties are understood to be very significant and, practically, failure to comply will make dealings with the land involved very difficult going forward.

You have an overseas incorporated legal entity – what do you need to do?

The ROE requires overseas, incorporated legal entities that own, or seek to acquire, land or property in the UK, to register and provide information on their beneficial owners and/or managing officers. The scope of the ROE is retrospective, as overseas entities who seek to buy, sell or transfer property or land in the UK, as well as those who already own or lease property or land since specified dates, are required to register.

What are the verification requirements? 

In addition to the registration requirements, the ROE seeks verification on the accuracy of the information provided. This needs to come from a reliable source, independent of the person verifying their identity.  Although the requirement to verify may seem straightforward, it is a critical element of the register.  The criteria for those providing verification is restrictive and false or mistaken verification could result in criminal liability. Therefore, it is crucial that all information provided is valid and accurate. 

What is an Overseas Entity?

The definition of an Overseas Entity, as outlined in Section 2 of the Act, is a legal entity, which is governed by the law of a country or territory outside the United Kingdom. For these purposes, a legal entity is a body corporate, partnership or other entity that is a legal person under the applicable law by which it is governed.

Who qualifies as a Beneficial Owner?

A beneficial owner may be any individual or entity that has “significant influence or control” over an overseas entity. 

In general, Part 1 of Schedule 2 of the Act outlines three types of potential beneficial owner that may be registrable: individuals, governments or public authorities and other legal entities. It is understood that a registrable beneficial owner may also include a trustee of a trust or a member of a partnership, unincorporated association or other entity, that is not a legal person under its governing law.

Are there any further conditions?

A beneficial owner needs to have a sufficient level of ownership and/or control of the Overseas Entity for the rules to apply. The criteria will typically be met when the beneficial owner under the governing law holds, directly or indirectly:

• More than 25% of the legal entity’s shares;
• More than 25% of the legal entity’s voting rights;
• The right to appoint or remove a majority of the board of directors of the legal entity; or
• The right to exercise, or actually does exercise, significant influence or control over the legal entity.

What are the exemptions?

If an individual or legal entity does not meet the conditions outlined in Part 2, Schedule 2, or has previously disclosed their identity as beneficial owners through different means, then there is no requirement to register.

Alternatively, an individual or legal entity may be exempt from registration (where it would otherwise be required to) if, for example:

• No interest is held in the overseas entity, other than through one or more legal entities;
• They are beneficial owners of every legal entity through which the person holds such an interest;
• They indirectly hold any shares or rights in the overseas entity through a beneficial owner of the overseas entity that is subject to its own disclosure requirements; or
• At least one of the legal entities through which these shares or rights are held is a beneficial owner of the overseas entity and is subject to its own disclosure requirements. Such requirements may include the legal entity:

• Being subject to the “Persons with Significant Control” regime;
• Having shares admitted to trading on certain regulated markets;
• Being registered as an overseas entity under the Act; or
• Providing trust services, whilst being governed by the law of a country or territory outside the UK and being regulated by a supervisory authority of that country or territory.

Under the Act, a person holds an interest in an overseas entity if they:

• Hold, directly or indirectly, shares in that overseas entity, voting rights in that overseas entity or the right to appoint or remove any member of the board of directors of that overseas entity;
• Have the right to exercise, or actually exercise, significant influence or control over the overseas entity; or
• Have the right to exercise, or actually exercise, significant influence or control over the activities of a trust or other legal entity which fulfil the abovementioned points.

Majority stake

Equally, under the Act, a person may hold an interest in an overseas entity by having a majority stake and an indirect holding of shares or rights in another legal entity which holds shares or rights directly in the overseas entity.  At the same time, such an interest may arise if the other legal entity is part of a chain of legal entities, such as when the person holds an interest in the overseas entity through another legal entity.

For the purposes of the Act, a “majority stake” in a legal entity may be held if:

• A majority of the voting rights are held;
• The person has the right to appoint or remove a majority of its board of directors;
• The person has sole or majority control over its voting rights; or
• The person has the right to exercise, or actually exercise, dominant influence or control over the entity.

If no exemptions are satisfied and the other criteria are met then the beneficial owner(s) must be registered.

What happens once you register?

After registering, an overseas entity will be provided with an Overseas Entity ID, which will consequently be given to the Land Registry upon the purchase, sale, transfer, lease or charge of the UK property or land. The information provided in the register will then have to be updated annually.

From what dates does the register apply?

The registration requirements for an overseas entity differ depending upon in which part of the UK the property or land is located.

The historic requirement to register applies to overseas entities who bought property or land on or after:

• 1 January 1999, in England and Wales;
• 8 December 2014, in Scotland;
• 1 August 2022, in Northern Ireland.

It is important to consider that whilst the dates give rise to the obligation to register differ in different parts of the UK, the deadline to register beneficial owners, or managing officers, is six months from 1 August 2022. This timeline applies to all overseas entities that already own land and fall within the scope of the Act. The end of the transitional period is 31 January 2023, for the whole of the UK. 

Overseas entities that have disposed of a property interest since 28 February 2022 will typically be required to register even if they have since ceased to have such interest.

What happens if you do not register?

All overseas entities must make an application to register six months after Part 1 of the Act has come into effect. Failure to register and comply with the stated deadlines may result in imprisonment of up to five years, or fines of up to £2,500 per day for the overseas entity and its officers. Therefore, if you are affected, it is very important to urgently consider seeking advice to understand the steps you need to take.

How can we help?

The new OER rules are complicated – if you are affected, you should consider taking urgent action.  It is expected that there may be a flurry of activity as the 31 January 2023 deadline approaches (with a consequential slowing of Companies House processing times). The registration and verification process may take weeks to complete.  The penalties that can apply are significant and these matters will have to be addressed promptly - as failure to comply will restrict future dealings with the land. 

There are a limited number of service providers able to undertake the actual verification and registration process required by the Act and we can also assist in introducing you to such providers.

For more information or to discuss whether you are required to register and guidance on how to go about registering please get in touch with a member of our Private Client & Tax team.