OVERSEAS ENTITIES AND UK PROPERTY: NEW REQUIREMENTS
As part of a major reform plan, the Government is introducing new milestone changes to improve the transparency and the accuracy of the information published on Companies House and the registrar’s role in checking the quality of that information.
A first set of those reforms has kicked in further to the Royal assent of the Economic Crime (Transparency and Enforcement) Bill, now Economic Crime (Transparency and Enforcement) Act 2022.
Besides bringing in new sanctions against specified oligarchs and corrupt individuals as well as new rules for unexplained wealth orders, the Act has introduced a new register targeting non-UK entities that own property in the UK.
Whilst detailed guidance has yet to be provided before this new piece of legislation comes into force, its content is already available and will be briefly explained in this article.
It will apply to any legal entity governed by a jurisdiction outside the UK (overseas entity) and to their beneficial owners.
Who will be considered beneficial owner?
Similar to the definition of person with significant control, an individual or a legal entity having its own disclosure requirements or a government or public authority will be considered registrable beneficial owner (BO) if it meets any of the following conditions:
1) Holds over 25% of the shares in the overseas entity;
2) Holds more than 25% of its voting rights;
3) Holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity;
4) Has the right to exercise, or actually exercises, significant control over it;
5) The trustees of a trust or the members of a partnership meet any of the above conditions and have the right or actually exercise significant control over the overseas entity.
Whereas the shares are held indirectly through a chain of intermediate entities, BO will be considered the individual holding indirectly the majority stake in that entity.
Clearly, as per s19 of Sch2 of the Act, nominee shareholders will not be considered BOs as the true owner will have to be noted instead.
Which property will the reform apply to?
As per s41(6), will be considered “Qualifying estate”:
“(a)a freehold estate in land, or
(b)a leasehold estate in land granted for a term of more than seven years from the date of grant,of which the overseas entity became a registered proprietor in pursuance of an application made on or after 1 January 1999.”
What will the relevant overseas entities be required to do?
Overseas entities owning or intending to acquire qualifying real estate in the UK will have to register with Companies House and disclose the details of any beneficial owners, set up an overseas entity digital account, and update the information annually.
What information will have to be disclosed to Companies House?
As per Sch1 of the Act, the overseas entity will be required to disclose:
(b)country of incorporation or formation;
(c)registered or principal office;
(d)a service address;
(e)an email address;
(f)the legal form of the entity and the law by which it is governed;
(g)any public register in which it is entered and, if applicable, its registration number in that register.”
If the entity also has a registrable individual BO, the following details will have to be disclosed about the BO:
“(a)name, date of birth and nationality;
(b)usual residential address;
(c)a service address;
(d)the date on which the individual became a registrable beneficial owner in relation to the overseas entity;
(e)which of the conditions in paragraph 6 of Schedule 2 is met in relation to the registrable beneficial owner and a statement as to why that condition is met;
(f)whether the individual meets that condition by virtue of being a trustee;
(g)whether the individual is a designated person (within the meaning of section 9(2) of the Sanctions and Anti-Money Laundering Act 2018), where that information is publicly available.”
If the registrable BO is a legal entity:
(b)registered or principal office;
(c)a service address;
(d)the legal form of the entity and the law by which it is governed;
(e)any public register in which it is entered and, if applicable, its registration number in that register;
(f)the date on which the entity became a registrable beneficial owner in relation to the overseas entity;
(g)which of the conditions in paragraph 6 of Schedule 2 is met in relation to the registrable beneficial owner and a statement as to why that condition is met;
(h)whether the entity meets that condition by virtue of being a trustee;
(i)whether the entity is a designated person (within the meaning of section 9(2) of the Sanctions and Anti-Money Laundering Act 2018), where that information is publicly available.”
Will the reform apply to qualifying estate already sold?
Yes, the reform will also apply to qualifying estates disposed of on or after 28 February 2022.
What timeframe will entities have if they already own qualifying estate?
Starting from the commencement date of these provisions, the entities already owning or having owned qualifying estate will have a six-month period to comply.
What happens in case of non-compliance?
The foreign entity’s managing officials will face fines of up to £500 per day or a prison sentence of up to 5 years. There will also be civil sanctions and the overseas entity in question will face restrictions on dealing with their UK property.
It will also be a requirement for overseas entities to be duly registered with Companies House before they can apply for property to be registered with HM Land Registry.
What in case of inconsistencies?
Section 27 gives power to the registrar, whereas inconsistencies appear to it on the register, to request the entity to provide replacement or additional documents within 14 days. Should this not be followed upon, an offence will be committed by the overseas entity and its officers.
S29 also gives power to the registrar to rectify or remove, after receiving an application to do so, certain information if it appears to be inaccurate and no objection is made by the entity.
Further important reforms are in the pipeline as part of the so-called “Corporate transparency and register reform white paper” which will bring in a new digital identification system for corporate agents and company officers and change the role of Companies House from a mere repository to a body able to inspect and verify filed data.
It is clear how the above changes bring in additional compliance requirements on company secretaries and accountants but to the great benefit of all stakeholders who consult the public register for reliable information about UK companies.
As the operational details are yet to be provided, Bolasco Consulting looks forward to learning more as new updates become available so as to offer clients timely, sound support to comply correctly with the new legislation.
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Bolasco Consulting provides compliance support for companies and businesses in the UK.