ROE: All you need to know now the registration deadline has passed

Overseas entities that own land in the United Kingdom are required to register as overseas entities at Companies House. The deadline of the 31^st January 2023 has been and gone.

The requirements to register are set out in the Economic Crime (Transparency and Enforcement) Act 2022, which (for the purposes of registration) came into force on 1st August 2022.

Overseas entities are defined by the Act as legal entities governed by the law of a country or territory outside the UK. The Act applies to entities incorporated in the Channel Islands and the Isle of Man. However, an overseas entity does not include foreign individuals.

Scope of the registration requirements

The Land Registry published data earlier this year estimated that 38,000 overseas entities owned land in the United Kingdom and were required to register under the Act. As of 3rd January 2023, there were just over 10,000 overseas entity registrations at Companies House. With more than 25,000 overseas entity registrations still awaited it seems that many overseas entities will miss the registration deadline.

To register, an overseas entity has to provide information about its status, country of formation, and details of its main beneficial owners and managing officers. Beneficial owners include trustees of a trust, partners in a partnership, and unincorporated associations or other entities which meet any of these requirements. Where a registrable beneficial owner is a trustee, additional information about the trust and its beneficiaries must also be provided.

The information provided by the overseas entity must be verified by an agent authorised by Companies House. Most law firms have decided not to undertake verifications, and this is in line with caution advised by the Law Society of England and Wales, but there are a number of third-party verification agents which are assisting overseas entities with the registration process.

The process takes time to complete and overseas entities which have not yet registered need to act immediately to ensure that they comply with the requirements of the Act. Remember: overseas entities which have disposed of land since 28^th February 2022 have to provide details of the land that they have sold.

There are ongoing requirements for registered overseas entities – the registration details need to be updated on an annual basis. While overseas entities can elect to adopt a shorter period for providing updates, it is thought unlikely many will do so. It is important not to overlook the updating requirement as many of the sanctions in the Act apply equally to overseas entities which do not update their registration details as they do to overseas entities which do not register in the first place. An overseas entity is treated as unregistered if it fails to update its registration details.

What are the consequences for failing to register?

The registration requirements are not simply a form-filling exercise. There are important legal and practical consequences for overseas entities that are not registered at Companies House. Furthermore, the requirements of the Act are enforced by the land registration systems in the United Kingdom. The requirements differ depending on whether the land is in England and Wales, Scotland, or Northern Ireland.

In England and Wales:

• An overseas entity that acquires a freehold interest in land or a leasehold interest for a term of more than seven years cannot make an application to the Land Registry to be registered as the owner of the property, unless and until it has been registered as an overseas entity at Companies House. Any delay in the registration process could thus challenge the security of the investment made;
• The Land Registry has added restrictions on the title to land already owned by overseas entities (unless they acquired the land before 1^st January 1999). The restrictions prevent certain dealings with the land being registered by the Land Registry unless the owner of the land is registered as an overseas entity
  at Companies House or one of a limited number of exceptions apply.

The dealings affected are transferring the whole or part of the land, granting legal charges over the land, or granting leases for a term of more than seven years. In most cases, the restrictions did not take effect until 1^st February 2023. However, after this date, overseas entities that have not registered at Companies House will be severely limited in how they can deal with their land, and it is a criminal offence to dispose of land in breach of a restriction.

What is an overseas entity?

This is a legal entity, such as a company or other organisation, that has legal personality and is governed by the law of a country or territory outside the UK. The Republic of Ireland is an overseas jurisdiction for the Register of Overseas Entities.

Read the Register of Overseas Entities: guidance on registration and verification.

What is a beneficial owner?

A beneficial owner is any individual or entity that has significant influence or control over the overseas entity. It can be any of the following:

• An individual person
• Another legal entity, such as a company
• A government or public authority
• A trustee of a trust
• A member of a firm that is not a legal person under its governing law

You must register any beneficial owner that meets one or more of the following conditions known as the “natures of control”. A beneficial owner is an individual person, other legal entity, government, or public authority and:

• holds, directly or indirectly, more than 25% of the shares in the entity
• Holds, directly or indirectly, more than 25% of the voting rights in the entity
• Holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity
• Has the right to exercise, or actually exercises, significant influence or control over the entity

The beneficial owner is a trustee of a trust and:

• The trustees of that trust (in their capacity as such) hold, directly or indirectly, more than 25% of the shares in the entity
• The trustees of that trust (in their capacity as such) hold, directly or indirectly, more than 25% of the voting rights in the entity
• The trustees of that trust (in their capacity as such) hold the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company
• The trustees of that trust (in their capacity as such) have the right to exercise, or actually exercise, significant influence or control over the company

The beneficial owner is a member of a firm that is not a legal person under its governing law and:

• The members of that firm (in their capacity as such) hold, directly or indirectly, more than 25% of the shares in the entity
• The members of that firm (in their capacity as such) hold, directly or indirectly, more than 25% of the voting rights in the entity
• The members of that firm (in their capacity as such) hold the right, directly or indirectly, to appoint or remove a majority of the board of directors of the company
• The members of that firm (in their capacity as such) have the right to exercise, or actually exercise, significant influence or control over the company

Practice points

• Are any of your current clients overseas entities? If so, are they registered?
• If acting for a buyer, what is the status of the seller? If an overseas entity, has it been registered?