On 1 March the Home Office introduced the Economic Crime (Transparency and Enforcement) Bill (the "Bill"). The most significant change, introduced in Part 1 of the Bill, is the creation of a new, public "Register of Overseas Entities" to be held by Companies House (the "ROE"). This OnPoint summarises the new ROE process and explains how it will impact overseas entities which own land interests in the UK.
Sophisticated investors will already be familiar with the concept of reporting beneficial ownership. The People with Significant Control ("PSC") Register has been publicly available since 20161 , and the UK made a commitment around the same time to establish a publish register of beneficial owners of non-UK entities that own or buy land in the UK.2 The ROE is not, therefore, a surprise.
The Explanatory Notes to the Bill state that the ROE has two primary objectives:
- To prevent and combat overseas entities using UK land to launder money; and
- To increase transparency and public trust in overseas entities who own or buy land in the UK.3
Whilst those objectives are commendable, there are many legitimate reasons for purchasing land through an overseas entity, and the impact of the Bill on law-abiding overseas entities will be significant. The Bill proposes additional administrative obligations on overseas entities to provide and update information about their beneficial owners, and it is backed by financial and criminal penalties. It also makes changes to the land registration system in the UK so that overseas entities who have purchased qualifying land in the UK since 1 January 1999 will be prevented from making disposals unless they have properly registered with the ROE, so it is important that companies get this right.
The ROE is likely to be implemented quickly. Part 1 comes into force on a date to be set by regulations. The Government has asked Parliament to expedite the passage of the Bill as part of its urgent response to the Russian invasion of Ukraine, and the Bill has already reached the committee stage in the House of Lords.4 It is therefore likely that the Treasury will publish the necessary regulations as a matter of urgency once the Bill becomes law, so overseas entities and those representing them should start preparing now to avoid falling foul of the new regime.
Registrable Beneficial Owners ("RBOs")
The Bill defines "overseas entity" simply as "a legal entity that is governed by the law of a country or territory outside the United Kingdom".5 This includes companies, partnerships and other entities which constitute a legal person under the law by which they are governed.6
The Act defines RBOs as any individual, legal entity or government or public authority which, with respect to an overseas entity:
a) Holds directly or indirectly more than 25% of the shares or voting rights;7
b) Has the right to appoint or remove a majority of the board of directors;
c) Has the right to or does exercise significant control over the company;
d) Any trustee of a trust, or member of a partnership or unincorporated association which meets any of the conditions outlined above and has the right to exercise significant influence over the activities of the trust or entity.8
"Indirect ownership" refers to beneficial owners who own land through a chain of companies or via a complex corporate structure, which means entities will have to provide information about registrable beneficial owners all the way up the ownership ladder.
The Bill will require all overseas entities to apply for registration on the ROE and:
a) Make a statement that the entity has no reasonable cause to believe that it has any RBOs; OR
b) Make a statement that:
i. The entity has identified one or more RBOs; or
ii. the entity believes that registrable beneficial owners exist that it has not identified; or
iii. the entity is not able to provide information about one or more registrable beneficial owners.9
"Relevant Information"
Overseas entities who identify RBOs will be required to provide "relevant information" about any identifiable RBOs. Schedule 1 of the Bill sets out the information that is to be provided, which is summarised in the table below.