In a further bid to combat criminals using UK property as a means of money laundering, the Department for Business, Energy and Industrial Strategy published the draft Registration of Overseas Entities Bill (“the Bill”) in July of last year.
The introduction of a public register of overseas entities owning property in the UK, such registers described by then Prime Minister David Cameron at the Anti-Corruption Summit in May 2016 as a “world first” in tackling money laundering, follows on from the introduction of the Persons with Significant Control (PSC) regime now in force.
When will it apply?
The Bill is currently in the consultation phase and the Government anticipates that the Bill will be put before Parliament in spring or summer 2019. It is anticipated that the act will come into force from 2021.
It will apply to Overseas Entities
The definition of “overseas entities” covers all non-UK entities that are given a legal personality by the laws of any country or territory outside the UK. This will include companies, partnerships, corporations sole, governments and public authorities, but should not include trusts.
What will be required?
Overseas entities who will own a “qualifying estate”, defined as a freehold or a lease for longer than seven years, will be required to take “reasonable” steps to identify registrable beneficial owners and register them at Companies House. In this respect, the legislation is modelled on the PSC regime.
Registrable beneficial owners will, if the regime follows the PSC regime, be any person or entity that:
- holds, directly or indirectly, more than a 25% share in the entity;
- holds, directly or indirectly, more than 25% of the voting rights in the entity;
- has the power to appoint or remove a majority of the management board of the entity; or
- exercises significant influence or control over the entity.
Where an entity is unable to determine or unable to provide information on its beneficial owners, the Bill requires disclosure of details of the entity’s managing officers (directors, senior managers and secretaries or equivalent).
There is also an obligation to review and update the register on an annual basis, which carries penalties for non-compliance as set out below.
Effect of failure to register
By registering as an overseas entity, Companies House will issue a unique ID number to that entity. Without this ID number, an overseas entity will be prevented from registering as proprietor of land in the UK. Wherever an overseas entity does acquire land, even if it is exempt from registration or has a valid ID number, the Land Registry will place a restriction against its title.
The restriction is designed to prohibit the registration of a relevant disposition (a transfer, a grant or an assignment of a lease of more than seven years or a grant of a charge) of a qualifying estate unless:
- the entity is a registered overseas entity, or an exempt overseas entity, at the time of the disposition;
- the disposition is made in pursuance of a statutory obligation or court order;
- the disposition is made in pursuance of a contract made before the restriction is entered in the register; or
- the disposition is made in the exercise of a power of sale or leasing conferred to the proprietor of a registered charge or a receiver appointed by such a proprietor.
Overseas entities that are already registered proprietors of land (acquired on or after 1 January 1999) will have 18 months to either dispose of the property or apply to the Land Registry to add their valid ID number to their title, after the Bill comes into effect. There are limited circumstances where this would not apply, for example, where the sale is made in pursuance of a contract entered into before the overseas entity was required to be registered.
Clearly, if the procedure is not followed, the ability of an overseas entity to deal with any property could be severely impaired.
The severity of the proposed penalties demonstrates the importance attached to compliance. There are a number of offences and criminal penalties for non-compliance. These include:
- failure to comply with registration requirements – up to two years’ imprisonment and an unlimited fine;
- knowingly or recklessly making or delivering misleading, false or deceptive statements or documents to Companies House – up to two years’ imprisonment and an unlimited fine;
- disposing of a qualifying estate, where registration is prohibited by either a restriction or the overseas entity acquiring the land not being a registered overseas entity – up to five years’ imprisonment and an unlimited fine; and
- failure to update the register – an initial fine followed by a daily default fine (which shall not exceed the greater of £500 and one-tenth of level 4 on the standard scale).
In anticipation of the start of this new regime, we advise that overseas entities currently holding UK property or clients intending to use such overseas entities for land transactions should identify their own registrable beneficial owners and ensure compliance with registration formalities.
This will include providing the following information relating to the overseas entity:
- country of incorporation or formation;
- registered or principal office;
- a service address;
- an email address;
- the legal form of the entity and the law by which it is governed; and
- any public register in which it is entered and any registration number in that register.
It will also have to provide the following details relating to registrable beneficial owners who are individuals:
- name, date of birth and nationality;
- usual residential address;
- a service address;
- the date on which the individual became a registrable beneficial owner in relation to the overseas entity; and
- the nature and extent of its beneficial ownership (i.e. owner of more than 25% of shares in the entity).
In circumstances where a registrable beneficial owner is a legal entity then the details that will need to be provided will be the name; registered or principal office; service address; legal form of the entity and governing law; any public register and registration number; the date it became a registrable beneficial owner; and the nature and extent of its beneficial ownership.
When contracting with overseas entities, it will be vital to identify parties to the transaction early on, so that thorough due diligence can be conducted. In particular this should include confirmation that overseas entities are registered (with a valid ID number), as well as that all information is up to date at the point of disposal. It may be necessary to consider including contractual terms to ensure compliance.
For any queries in relation to the legislation please contact any member of the corporate team at Brecher LLP.