The Economic Crime (Transparency and Enforcement) Act 2002 (the Act) came into force on 1st August 2022. Section 3 of the Act applies retrospectively to overseas entities who bought property or land on or after 1 January 1999. It also applies to overseas entities who dispose of property or land after 28 February 2022. The Act requires that the details of the beneficial owners (or their approved and eligible agents) of any property or land owned by an overseas entity, be registered with UK’s Companies House on the Register of Overseas Entities (ROE). Any overseas entities who currently owns property in the UK that was purchased on or after 1 January 1999 must register with Companies House as a ROE.
Who qualifies as a beneficial owner?
There are 5 conditions that would qualify the legal definition of a registrable beneficial owner of an overseas entity:
1. They own more than 25% of the shares or a right to share in more than 25% of the entity’s capital or profits whether directly or indirectly.
2. They hold more than 25% of the voting rights whether directly or indirectly.
3. They have a right to appoint or remove a majority of the board of directors (whether occupying the position of director, by whatever name called) or if the entity has no directors, it applies to the equivalent management body of the entity.
4. They exercise of have a right to exercise significant control or influence over the entity.
5. Capture trusts or members of a partnership, unincorporated association or other entity that is not a legal person under its governing law and meet one of the other conditions and has the right to exercise significant influence or control over that trust or entity.
The final date for registration was 31 January 2023. Non-compliance with the registration requirements of the Act can lead to a penalty, prison sentence and restrictions placed on property transactions such as buying/selling/transferring/leasing or charging. Please be aware that fines can amount to £2500 per day for the overseas entity and its officers.
By the end of January 2023 deadline, only around 19,000 out of a total of around 32,000 overseas entities had met their obligation to declare their beneficial owners. The government has stated that it will use all means available to it to target the foreign companies that have not met their ROE obligations.
Obligations on overseas entities
Any overseas entities that acquire an interest in any land or property after the 1 January 1999 must:
• Take reasonable steps to identify their “registrable beneficial owners”; and
• Serve an “information notice” on the person it knows, or believes is a registrable beneficial owner in relation to the entity or any person who may enable them to identify the beneficial owner.
Anyone served with the notice has 1 month to respond to it. It is an offence to fail to comply and anyone found guilty of such an offence could be liable for a fine and/or face up to 2 years in prison. If their was an interest in the land or property prior to 1 January 1999 and sold prior to 28 February 2022, there would be no requirement to register. The registration application requires verification and this can be undertaken by financial institutions, auditors, external accountants, tax advisors, insolvency practitioners and independent legal professionals.
Additional enforcement powers
The Economic Crime and Corporate Transparency Bill contains a clause within to set to amend the definition of “registered overseas entities” contained in Schedule 4A of the Land Registration Act 2002. If passed as currently drafted it would mean that an overseas entity would not be treated as a registered overseas entity for the purposes of the clause if it failed to respond to a notice from the Registrar of Companies resulting in that entity not being able to make any transfer of the land.
Failure to register your entities
A failure to comply with the new registration requirement exposes you and every officer of the entity to being guilty of a criminal offence. On the civil side, restrictions could be placed on the property or land titles preventing and sale, lease or other disposition including the grant of any charges over the property or land.
There is an obligation to register the overseas entity and to update the registry details every year thereafter. The government’s intentions on enforcing the obligations have been clearly delivered.
Saracens Solicitors’ commercial team has been advising businesses on all aspects for over 18 years. We work directly with businesses in the UK and overseas to provide tailored and strategic advice that ensures that ensures legal requirements are met. We have established a market-leading reputation for delivering exceptional client services.