In the year On 1 August 2022, a new Register of Foreign Entities (ROE) was launched at Companies House under the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA). In short, any overseas entity wishing to buy, sell, lease or lease property in the UK will be required to include its beneficial owners or managing agents in the public register at Companies House and obtain a special foreign entity ID. (OE ID) From 5 September 2022, the OE ID is required to prevent the HMM Land Registry from registering any foreign entity held by ECTA without a valid OE ID.
A recent McGuireWoods legal alert, “UK Real Estate Transactions with Overseas Entities: Impact of the Economic Crime (Transparency and Enforcement) Act 2022” outlines the implications of these developments, the entities and transactions affected, the consequences of non-compliance and next steps. . Below are the steps that need to be taken to register an overseas entity and obtain an OE ID to enable the entity to buy or sell UK property.
Which organs are affected?
As a reminder, for the purposes of ECTEA, an overseas entity is a legal entity “governed by the laws of a country or territory other than England”. The definition of legal entity includes a corporation, partnership or other entity (as the case may be) governed by the laws governing it. Although ECTEA refers to “foreign entities” that are not subject to registration requirements, as of this date, there is no further indication that overseas legal exemptions exist.
What information does Companies House require?
Companies House requires information about the foreign country, including the name of the company, the country of incorporation and the address of the registered office of the company.
An overseas legal entity must provide information to Companies House about the company’s beneficial owners or, if there are no beneficial owners, the company’s director, manager or company secretary (ie managing officers).
If any trustees of a trust are registrable beneficial owners, Companies House will also require information about the trust (in the prescribed Excel format), which includes current or past beneficial owners, beneficiaries of the trust and other interested persons.
As noted below, a foreign legal entity disposing of a freehold or leasehold granted for more than seven years from 28 February 2022 will still need to be registered with Companies House even if the overseas entity is not interested. in the property. The same applies to an overseas entity that disposes of such assets before January 31, 2023. In either case, the overseas entity in question must provide companies home with much of the same information for OE ID as the overseas entity. However, it must provide further details of the alienated land (ie title number, date of deed and date of alienation and details of any additional beneficial owners or management authorities at the time of alienation).
Who is the beneficial owner?
Before filing an application for registration, foreign entities must take reasonable steps to identify registrant beneficial owners that they know, or have reasonable cause to know, about, among other things, the identity of a registrable beneficial owner. Recipients will have one month to declare that they are registered beneficial owners, who can verify or correct important information about them stated in the notice.
A beneficial owner under ECTA includes any individual or entity that has significant influence or control over an overseas entity. This may be for an individual, another legal entity, a government or public authority, a trustee of a trust or a member of an unincorporated organization under the governing law.
In each case, the beneficial owner must meet one or more of the following conditions.
- (directly or indirectly) holds more than 25% of the shares in a foreign country.
- Holds (directly or indirectly) more than 25% of the voting rights in an overseas entity.
- The overseas entity has the right to appoint or remove (directly or indirectly) a majority of its board of directors.
- Has significant influence or control over the entity.
In the case of an overseas entity that has held a UK freehold or leasehold for more than seven years as a nominee or bare trustee for another person, the beneficial owner will be a person who has significant influence or control over the overseas entity. It is not the person who has beneficial interest in the land that appears in the record.
UK Government guidance does not address situations where the legal owner of UK property is a UK nominee or bare trustee who holds the property in trust for a foreign party. Instead, the UK Trust Registration Service (TRS) is where it applies. The TRS is a trust beneficial ownership register held by HMRC. More information about TRS and when to register for trusts is available on the UK Government website.
What else should the applicant know before applying?
Verification checks must be completed by a UK controlled agent no later than three months before the overseas entity is registered. Such an agent must be based in the United Kingdom and can be an individual or a body corporate (for example, an accounting firm or an independent legal practitioner) as required by the Money Laundering, Terrorism Financing and Money Laundering Regulations 2017. The agent needs. To provide a proxy verification code and a statement confirming that the overseas entity has completed verification checks, which will form part of the application.
How does a body look?
The application to register a foreign entity and its beneficial owners must be submitted in digital form. The applicant must have (or need to create) a Companies House account. A registration fee of £100 is payable. If the application is successful, a notification of registration and confirmation of the organization’s OE ID will be sent to the applicant by email.
Where is the information published?
Details of the overseas legal beneficial owner and managing officers will be made public at Companies House on the expected ROE. Personal information and some information related to verification checks will not be published. Confidential information is expressly excluded from public disclosure and will not appear on the record. However, the information may be shared with HMRC.
When should an entity apply?
The best advice is to apply as soon as possible, although the speed of application depends on whether the overseas entity has a legitimate real estate interest or plans to acquire or dispose of qualifying real estate in the near future.
- An application must be submitted for registration at the Companies House In an emergency If the overseas entity is granted a freehold or leasehold for more than seven years by 5 September 2022. This is because a valid OE ID is required before applying to register an interest at HM Land Registry.
- An application must be submitted for registration at the Companies House as soon as possible If a party acquires a freehold or leasehold granted for more than seven years between 1 August 2022 and 4 September 2022 (inclusive). This is because HM Land Registry is obliged to enter a restriction on the overseas entity’s tenure register from 5 September 2022 immediately, preventing the overseas entity from transferring the property, allowing leases for more than seven terms. Granting a legal charge over the property for years or registered with the Companies House under a legal OE ID, unless it is exempt or proves that one of the permitted exceptions applies.
- An application must be submitted for registration at the Companies House On or before January 31, 2023 If an overseas entity:
- You already own a freehold or leasehold that has been granted for more than seven years (and have been registered as an owner-in-interest at HM Land Registry after applying on or after 1 January 1999).
- A freehold or leasehold granted for more than seven years on or after 28 February 2022 is excluded. Or
- Excludes freehold or leasehold granted for a period of more than seven years between this date and 31 January 2023 (inclusive).
From 1 February 2023, the requirements to register with Companies House and obtain a valid OE ID for land registration purposes will apply and restrictions will be placed on the registered title of any overseas entity with a freehold or leasehold. A period of more than seven years. Until the registration requirements above are met, the overseas entity will be restricted from dealing with the property (and HM Land Registry will be prevented from recording any transactions). Furthermore, failure by the owner to apply to register the overseas legal entity with Companies House from 31 January 2023 is an offense punishable by fine and/or imprisonment.
Is that all?
Once registered, it is important to note that the overseas entity is still required to submit annual updates and confirm to Companies House that the information held is correct or that there have been changes in beneficial ownership. Non-compliance with the annual reporting requirements by a foreign registered entity may result in the entity and all officers of the entity committing an offense and liable to a fine of up to £2,500 for each day.
Going forward, more attention should be paid to UK real estate transactions that are bought or sold overseas. When dealing with an overseas legal entity, it is best to ask for details of the overseas legal entity’s OE ID and/or Companies House registration status as soon as possible. Likewise, overseas entities wishing to acquire or dispose of UK property in the near future should consider starting the process of obtaining an OE ID as soon as possible to avoid a late completion claim from the other party.
Even if you don’t want to dispose of your UK assets as an offshore legal entity, you still need to pay attention to the new requirements to avoid default.