Lewis Silkin – Online Important Update on Foreign Entity Registry

As we closely monitor the Government’s swift passage of new legislation through Parliament – the Economic Crimes (Transparency and Enforcement) Act 2022 (“the Act”), which aims to combat money laundering money and to address concerns about the lack of transparency in UK property ownership – we expected the relevant requirements to come into force much later this year.

The impact of the law on foreign entities wishing to own or deal with affected property in the UK is significant and those who may be affected are advised to take steps now to identify what they need to do to comply with the law.

Summary of the law

Broadly, the law requires any overseas entity (essentially a company or other non-UK body) that:

  • already owned a freehold or leasehold estate for more than seven years (acquired at any time since January 1, 1999);
  • wishes to acquire a property in full ownership or on a lease for more than seven years; Where
  • wishes to transfer (or has, since February 28, 2022, transferred) a property in full ownership or emphyteusis of more than seven years (for example by selling, transferring, assigning, granting a lease of more than seven years or granting a charge)

to register the details of its ‘beneficial owners’ on the new register of foreign entities to be maintained by Companies House (and to keep this register up to date thereafter).

Time scale

The law introduces a transitional period of six months from the date of entry into force of the relevant provisions (thus probably from August 1, 2022 to January 31, 2023) (“the transitional period”) to provide overseas entities with the ability to comply with registration requirements with respect to existing real estate ownership. However, certain elements of the Act will have an impact more quickly after the implementation of the relevant provisions and should be considered carefully and without delay. It has now been confirmed that the land registration provisions of the legislation will come into force on September 5, 2022 (subject only to the coming into force order) and therefore:

  • from the date of entry into force of the cadastral elements of the law (probably September 5, 2022), it will not be possible for an Overseas Entity to become the legal owner of a full property or a leasehold rights for more than seven years, unless at the time of applying for land registration he registered with Companies House and provided it with relevant information;
  • the ability of a foreign entity to sell a freehold interest; to grant, transfer or assign a right to lease for more than seven years or to encumber real estate may be impacted (and the transactional calendar affected); from the end of the Transitional Period, these provisions may only be entered in the Land Register if the Overseas Entity is at the time of disposal registered with Companies House.

Registration conditions

Any overseas entity to which the legislation applies shall:

  • take within reason steps to identify any recordable beneficial owner. First, it will give a information notice (which requires the recipient to disclose whether or not it is a recordable beneficial owner) to any person whom it knows, or has reasonable grounds to believe, is a recordable beneficial owner in relation to the foreign entity.
  • register with Companies House and provide the required information about itself and its recordable beneficial owners (or confirm that it does not, in which case the foreign entity is required to provide information about its directors); and
  • update the register on an annual basis (or confirm that the information in the register is up to date).

Penalties

If the Overseas Entity fails to comply with the provisions of the law (by not registering on time, not updating when necessary, or providing false information), the Overseas Entity -mer itself and its leaders may face criminal liability heightened by severe penalties.

Some definitions

First, a few clarifications on terminology can help you determine whether you will be directly affected by these new requirements and, if so, what steps you may need to take:

For the purposes of the legislation, a “Overseas entity » includes any company, partnership (including LLP) or other body with separate legal personality governed by the law of a non-UK country or territory. Unless they fall under exemptions (yet to be published), companies and limited liability companies incorporated in offshore jurisdictions such as Jersey, Guernsey and the Isle of Man, as well as other overseas jurisdictions, may be covered by law.

The law does not apply to foreign persons owning property in the UK directly or through a UK entity.

  • beneficial ownershipThe information that a foreign entity must provide to Companies House and the identity of the relevant ‘beneficial owner’ are closely modeled on the Persons with Significant Control (PSC) regime for companies registered in the UK.

    “Beneficial owners” are defined to include individuals, entities and government agencies. It should be noted, however, that not all beneficial owners of foreign entities will need to be identified; the obligation of identification is limited, broadly, to those:

    who hold, directly or indirectly, more than 25% of the entity’s shares or voting rights;
    who have the right, directly or indirectly, to appoint or remove the majority of the members of the entity’s board of directors; Where
    who have the right to exercise (or in fact exercise) significant influence or control over the entity.

    Where a beneficial owner is itself a foreign legal entity, it will be necessary to go through the ownership structure and determine whether each potential beneficial owner is registrable. The legislation provides that a legal person can only be registered as the beneficial owner of a foreign entity if it is itself already “subject to its own disclosure requirements” (i.e. it is already required to disclose information about its beneficial owner via one of the in law (including UK companies and LLPs and those listed on other specific markets). If none of the legal persons in the chain of ownership of a foreign entity is registrable, information about the persons at the top of the chain of ownership will need to be disclosed in the registry if they meet the applicable requirements. In this way, the Act aims to ensure that the registry captures the identity of the ultimate beneficial owner of the Overseas Entity.

    Where the criteria are met by trustees of a trust, members of a partnership or other non-corporate entity, there are additional provisions that bring within the scope of the definition of “beneficial owner” means any person who has the right to exercise (or in fact exercises) significant control over the activities of that trust or entity.

  • Eligible propertyThe Overseas Entity will have a “relevant interest in the landand will therefore fall within the scope of the legislation if he is, or wishes to be, the registered owner of a freehold domain or a leasehold domain over seven years old.

Some additional details

  • Existing propertyUnusually, the law has a significant retrospective scope, encompassing relevant property acquired since January 1, 1999.

    Any foreign entity that owns qualifying property will need to register with Companies House and obtain an identification number.

    As mentioned above, once these rules come into effect, there will be a transitional period of six months for the overseas entity to apply for registration (which is now likely to be from August 1, 2022 to January 31, 2023). Any foreign entity which owns relevant property (or which has owned relevant property but disposed of it at any time after February 28, 2022) and which has not been registered with the Companies Registry during the transitional period will commit a criminal offence; the entity may be subject to a fine and its officers may be fined or imprisoned.

    As an added incentive to register, HM Land Registry will impose title restrictions on all relevant properties prohibiting the transfer of freehold, granting a lease for more than seven years; the assignment or abandonment of a lease of more than seven years or the granting of a charge unless the Overseas Entity is registered with Companies House or is exempt (details of exempt entities are expected).

  • Future purchases

    Once the provisions of the Land Registration Act come into force (likely on September 5), it will no longer be possible for a foreign entity to be registered as the owner of land in the UK Land Registry. United unless it is listed on the Foreign Entity Register with Companies House or is exempt.

Information to be provided

The law requires the foreign entity to provide, with its application for registration, information about itself (including its name, country of incorporation, and service address), as well as specific information about each registrable beneficial owner. , notably :

  • their name, date of birth and nationality;
  • his usual home address; and
  • an address for the service.

While much of the information in the register will be publicly available, specific items – including the date of birth and residential addresses of individuals – will not be made public.

Conclusion

The law is likely to have wide implications on the real estate market and the implications will not only be felt by overseas entities themselves. Any party seeking to buy, sell or lease property to or from a foreign entity may also find that the transaction is delayed or even aborted if the foreign entity with which it is dealing has not complied with the requirements of registration of the law.

At this stage, uncertainties remain on several important points related to the implementation of the law, in particular with regard to exemptions from the obligation to register; advice from the Law Society, Companies House and Land Registry is still awaited.

We are aware that the information which must be submitted to Companies House before a foreign entity can be registered must be verified by a UK officer who is supervised under the Money Laundering Regulations 2017. The discrete list of supervised agents includes external accountants, fiduciary or corporate service providers and independent legal professionals.

In addition, guidance provided by Companies House indicates that it will be quicker and easier for the supervised agent to register on behalf of the overseas entity – as well as verify the required information – and that processing take longer if the overseas entity seeks to complete the registration itself.

While the guidance and clarity of the verification process is exceptional, we liaise with other professionals to ensure registration can be completed as quickly and easily as possible once the register goes live. We would be happy to help you with the registration process or any other aspect of this new legislation.

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