As of today (1 August 2022), the Overseas Entities Register (the ‘Register’) has gone live following a commencement order bringing the relevant provisions of the Economic Crime (Transparency and Enforcement) Act 2022 (the 'Act’) into force.
The Register has been brought in to combat money-laundering (including tax evasion) and provide greater transparency around the ownership of UK property by overseas entities.
In summary, from 1 August 2022 unless overseas entities comply with their reporting obligations on the Register (which is now live for reporting) they will be unable to do certain things in relation to the land they own (i.e. transfer title, grant leases (of over 7 years in England & Wales or over 21 years in Scotland and Northern Ireland) (‘Relevant Leases’) or grant mortgages over the land).
Who does this impact?
Our earlier article from March sets out more detail as to what entities are within scope of the Register (see ‘The Overseas Entities Register for UK Property: What you should know’). However, it is important to note that as of today overseas entities which need to comply can broadly be grouped into three categories:
1. Overseas entities that acquire or take a Relevant Lease of UK land from 1 August 2022 will need to comply with their reporting obligations straightaway as a condition of being able to acquire the land. Failing which the transaction will not be registered and will not take effect at law. It is understood that there will be a brief grace period until 5 September when the relevant UK land registry will accept applications made to register transactions completed on or after 1 August, despite the overseas entity not having had time to report on the Register.
2. Entities that already own land in England, Wales and Scotland need to report on the Register by 1 February 2023 (6 months from the date of the commencement order). They also need to provide details of any disposals which they make of land between 28 February 2022 and the date they comply with their reporting requirement on the Register. Either the Land Registry or Companies House is contacting overseas entities with land in England & Wales that they believe are within scope. However, we would not advise entities to wait for these letters as the obligation to report comes from the Act and not from the letter.
3. Entities that are within scope as they held interests in UK property on 28 February 2022 but do not own any UK property interests as at 1 February 2023. These entities also need to provide beneficial ownership information and this will be available for inspection for a minimum of two years. These entities must also comply by 1 February 2023.
The consequences of non-compliance
Failure to comply with the reporting and updating obligations under the Register is a criminal offence committed by the overseas entity and every officer of the entity, as is selling, charging or granting a Relevant Lease without being compliant, is punishable by daily fines and potentially imprisonment. In addition, from 1 February 2023 failure to comply will result in non-compliant overseas entities being unable to sell, mortgage or grant Relevant Leases of the property as a result of a restriction put in place at UK land registries. Counterparties may refuse to contract with non-compliant overseas entities and will wish to negotiate terms to protect themselves from the consequence of any failure by the overseas entity to perform its duties in relation to the Register.
What information is required?
Overseas entities will need to provide information about the entity themselves and their registrable beneficial owners. They also need to provide information in relation to their managing officers if there are no registrable beneficial owners, and information about trusts where the trustee of a trust is a registrable beneficial owner in relation to the entity. More detail as to what information needs to reported can be found here.
Importantly, a recent statutory instrument has confirmed that an overseas corporate trustee which is regulated in the territory where it provides trust services is a registrable beneficial owner for these purposes. This means that it is not necessary to provide information about the beneficial owners of the corporate trustee and instead information is provided about the corporate trustee itself along with information about the trust. However, trust information provided is not publicly available.
Verification
A further statutory instrument providing more detail on how the provisions of the Act will operate has clarified that a UK-supervised ‘relevant person’ (under the Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017) will need to verify the information being reported on the Register (including trust information).
As a result of this requirement, Companies House advises that it may be more time efficient for the relevant person to complete the registration process for overseas entities. It is possible for a relevant person to undertake the verification process only (without also doing the reporting), but the process for this appears quite cumbersome. The information also needs to be verified when it is confirmed or updated annually or an application is made for information to be removed.
We are in the process of reviewing the relevant guidance in relation to the verification process (as this has been a last-minute change to how the Register will operate). However, please do contact us if you would like us to assist with your or your clients' reporting obligations under the Register.
How can we help?
We have extensive experience assisting overseas entities with their UK tax position and reporting obligations in the UK.
If you or your client would like any further guidance on complying with the new registration process, then please contact Emma Heelis-Adams or Ronnie Myers for further information.
This article was written by Ronnie Myers.