BY MATTHEW SMITH, GENERAL COUNSEL
In March 2022, the UK Government enacted the Economic Crime (Transparency and Enforcement) Act 2022 (the ‘Act’). While many provisions in the Act had been under development for several years, the Russian invasion of Ukraine provided Parliament with an additional incentive to get the legislation on the statute book. The UK, and London in particular, is renowned for having significant amounts of real estate under the direct or indirect ownership of Russian nationals, including some who had become sanctioned in the wake of the invasion.
Part 1 of the Act was brought into force on 1 August 2022 and provides for the establishment of a Register of Overseas Entities (the ‘Register’), which is administered by UK Companies House. Details of the beneficial owners of all Overseas Entities which own qualifying real estate in the UK are now required to be submitted to Companies House for inclusion in the Register. Much, but not all, of the information contained in the Register is accessible to the public via a Companies House online search.
This information sheet addresses some key questions about the Register, the new obligations faced by Overseas Entities and what is required to satisfy them.
What is Classified as an ‘Overseas Entity’?
Any entity with its own legal personality which is established, incorporated or registered in any country other than the UK or governed by non-UK law is classed as an Overseas Entity under the Act. This would include most companies (whether LLCs or IBCs), foundations and partnerships. While trusts are not specifically identified as Overseas Entities (because they do not have a separate legal personality), any foreign trust administered by a non-UK corporate trustee will fall within the scope of the legislation on the basis that the foreign corporate trustee will qualify as an Overseas Entity.
Which Overseas Entities are Required to Register?
The obligation to register applies to any Overseas Entity which acquires UK real estate either via freehold ownership, or via leasehold ownership where the duration of the lease is more than 7 years from the date on which it was granted. The Act also applies to existing Overseas Entity owners of real estate in England, Wales and Scotland provided the property was acquired by the Overseas Entity on or after 1 January 1999 (for England and Wales) or 8 December 2014 (for Scotland).
Where UK real estate is owned directly by a foreign trust (and was acquired by the trust on or after 6 October 2020) this triggers a separate obligation to register the trust and its beneficial owners with HM Revenue and Customs via the UK Trust Registration Service.
What Information do Overseas Entities Need to Provide?
The information which needs to be provided varies depending on the nature of the Overseas Entity that owns the real estate in question and whether there are other Overseas Entities in the ownership structure.
Where the real estate is owned directly by an Overseas Entity then information on the Overseas Entity (including name, date and place of registration, registered office address and contact details) will need to be provided along with details of all of the Overseas Entity’s beneficial owners.
Where a foreign trust with a corporate trustee is recorded as the owner of the real estate, the Overseas Entity information referred to in the previous paragraph will need to be provided on the corporate trustee and its beneficial owners.
Where the real estate is owned by an Overseas Entity which is in turn owned by a trust, then the same information will need to be provided on the Overseas Entity and its beneficial owners, but additional information on the trust is also required, including the name and date of the trust and the identity of each settlor, trustee, beneficiary (or class of beneficiaries) and any other person who exercises control over the trust, such as a protector.
Who is Classed as a Beneficial Owner?
The Act defines the beneficial owner of an Overseas Entity as a person who (1) directly or indirectly, holds more than 25% of the shares or voting rights in the Overseas Entity; (2) holds the right, directly or indirectly, to appoint or remove a majority of the directors or managers of the Overseas Entity; or (3) exercises, or has the right to exercise, significant influence or control over the Overseas Entity or over any trust which owns it.
What Information do Beneficial Owners Need to Provide?
Beneficial owners of Overseas Entities must provide their name, date of birth, nationality, residential and service addresses, together with confirmation of when they became a beneficial owner of the Overseas Entity and on what basis.
What Information will be Accessible to the Public?
Confirmation is still awaited on this point at the time of writing. It is anticipated that names, incorporation details and registered office details for all Overseas Entities will be available to the public through an online Register search together with the names and service addresses of the beneficial owners of those Overseas Entities, but not the dates of birth or residential addresses of those beneficial owners. The name of any foreign trust which owns UK real estate directly or through an Overseas Entity is likely to be available, but Companies House has undertaken not to make available any information about the settlors, trustees, beneficiaries or other controlling persons of any trust which owns and Overseas Entity.
Provision has been made to enable beneficial owners to apply for their information to be withheld from disclosure to the public if they believe that disclosure will put them or other persons at serious risk of violence or intimidation.
How is this Information Submitted?
Overseas Entities can provide information to enable its registration directly via this UK Government website, which also contains additional guidance. However, the Act also requires verification checks to be completed on all beneficial owners by a regulated UK agent prior to information being submitted, so in many cases that agent will be best-placed to submit registration information on behalf of the Overseas Entity.
What is the Deadline for Compliance?
All registrable Overseas Entities must provide information to Companies House by no later than 31 January 2023 to avoid penalties (see below). Overseas Entities are also required to provide an annual information update to ensure that the information held by Companies House is reasonably current.
What Fees are Payable?
A fee of GBP100 is payable to Companies House upon submission of information for the Register, and upon each annual review. Additional fees will be charged by UK agents for the beneficial owner verification work involved (and, where applicable, for submitting information). These are not prescribed by law and will vary from one agent to another. Where Southpac is involved in the provision of information to a UK agent or directly to Companies House, this will incur additional charges.
What Happens to Foreign Entities which do not Register?
The Act provides for severe penalties for non-compliance. Any Overseas Entity (and the officers of any such entity) which fails to provide the relevant information before 1 February 2023 may be subject to a fine of GBP2,500 for each day of non-compliance, with fines chargeable against the real estate in question, potentially resulting in its seizure. The same fine applies to any Overseas Entity which fails to provide an annual update.
Officers of Overseas Entities which fail to provide the necessary information may face a prison sentence of up to five years. Submitting false or misleading information may result in a fine and/or prison sentence of up to two years.
Real estate which is owned by an Overseas Entity which has not provided information for inclusion in the Register cannot be sold or otherwise disposed of until that information has been provided. Overseas Entities looking to acquire UK real estate cannot be registered as the owners of that real estate without providing the requisite information.
What does this mean for Southpac Clients?
We are currently reviewing our records to identify all trusts, companies and foundations for which a Southpac company provides trustee or registered agent services in the Cook Islands, Nevis or New Zealand and which are known to hold UK real estate. We will reach out directly to clients known to be affected to let them know what is required. However, there will be situations in which we do not have records of an entity’s UK real estate ownership: for example, an LLC owned by a trust may have acquired this without notice to the trustee or registered agent; or real estate is owned by a trust which has lapsed or deregistered more than six years ago and in respect of which records are no longer retained by Southpac. All current and previous clients are therefore encouraged to review their asset records and notify Southpac as soon as possible via their regular contact or via our Client Services team if they identify any UK real estate assets that are still recorded as being owned by a foreign trust or Overseas Entity which is or was previously registered through Southpac.