New Register of Overseas Entities Introduced to Increase Corporate Transparency in the UK

On 15 March 2022, the UK government passed legislation which lays the foundation for a Register of Overseas Entities (ROE). Accelerated by events in Ukraine, the ROE and other important reforms were marshalled in by the Economic Crime (Transparency and Enforcement) Act 2022 (2022 Act). The ROE, which has been on the UK Government's legislative agenda since 2016, represents a significant additional step in a broader effort to increase corporate transparency in the UK.

The Register of Overseas Entities

We commented on the main features of the 2022 Act while it was in the final stages of the parliamentary process and commented subsequently on its impact on the UK sanctions regime. We noted the three key reforms introduced by the 2022 Act. The key focus of this article is on the ROE which is provided for by Part 1 of the 2022 Act.

The aims of the ROE are to cut down on use by overseas entities of UK land as a means of money laundering and to increase transparency and public trust in overseas entities engaged in land ownership in the UK.

The crucial point to note is that overseas entities which hold or buy property in the UK will be required to disclose details of their beneficial ownership on the new public register.

The ROE will be kept at Companies House. Once the ROE goes live, overseas entities will have 6 months to apply for registration.

The 2022 Act imposes severe penalties for non-compliance, including civil sanctions (e.g., restrictions on registering or disposing the title of the land) and criminal penalties (unlimited fines or imprisonment for up to 5 years). The disclosure requirement will apply retrospectively to property purchased since January 1999 in England and Wales and since December 2014 in Scotland.

No firm date has been given for when the ROE will go live but it is understood that the UK Government and Companies House are working "at pace" to get the new register up and running.

Modelled on the Persons with Significant Control regime

The ROE is modelled closely on the Persons with Significant Control (PSC) regime which was also brought in with the aim of increasing corporate transparency. Broadly, the overseas entity will require to make a statement as to whether it does or does not have a registrable beneficial owner.

The ROE uses the same thresholds as for the PSC regime to determine "beneficial ownership" of overseas entities:

1. Holding (directly or indirectly) more than 25% of the entity’s share capital.
2. Holding (directly or indirectly) more than 25% of the entity’s voting rights.
3. Holding (directly or indirectly) the right to appoint or remove a majority of the entity’s directors.
4. Otherwise holding the right to exercise, or actually exercising, significant influence or control over the entity.
5. Having significant influence or control over a trust or unincorporated entity that satisfies one or more of the four conditions above.

Once an overseas entity is registered it will be allocated an ID number. The entity must update its information annually until such time as it successfully applies to be removed from the ROE. Sanctions (daily default fines of up to £2,500) for failure to comply with the updating obligation may also be imposed.

The information to be provided on beneficial ownership is very similar to that which must be provided for persons registrable under the PSC regime. If the beneficial owner is an individual, the overseas entity must supply the beneficial owner's name, date of birth, nationality, usual residential address and service address and the nature of their beneficial ownership. Some of these details, such as the individual's residential address and the “day element” of their date of birth, will be omitted from the part of the register which will be publicly accessible.

If the beneficial owner is a corporate entity, or a government or public body, the overseas entity must supply such entity or body's name, principal office, a service address, its legal form and the law by which it is governed and the nature of its beneficial ownership.

Information supplied to the register must be verified. How information is to be verified will be specified by further legislation.

Just as with the PSC regime, overseas entities will have powers to serve information notices on suspected beneficial owners or on any person who it thinks may know the identity of beneficial owners. Failure to comply with an information notice will be a criminal offence punishable by an unlimited fine or two years in prison.

Part of a broader effort to increase corporate transparency

The ROE will bring the registration requirements of overseas entities into line with those of UK companies which are already required to disclose beneficial ownership to Companies House under the PSC regime.

The introduction of the ROE forms part of the UK Government's broader agenda to increase corporate transparency which it sets out in the recently published Corporate Transparency and Register Reform White Paper.

If you are concerned that any of these changes may affect you, please speak to your usual Brodies contact immediately or get in touch with any member of the corporate team.