Overseas Entity Register – Questions & Answers

22nd February 2023 by

“Overseas Entity” Register – What You Need to Know

What change in the law has taken place and what does it do?

In February 2022 the Government passed legislation known as the Economic Crime (Transparency and Enforcement) Act. It created the concept of an “Overseas Entity” Register at Companies House – which is essentially a public list of offshore companies and entities.

This is a register to list all overseas legal entities (for example companies sometimes called SPV’s special purpose vehicles set up for a specific purpose, and limited liability partnerships and any other entities that have separate legal personalities under the laws which they are governed) that own land in the UK.

So, essentially, almost all foreign SPV’s that own land in the UK have to place themselves on a public register.

The law now makes it a legal requirement for any Overseas company or “entity” that owns land in the UK to be registered and then goes on to described and legislate how that process is to be managed.

Why was the law introduced?

For some time there has been a move towards increased transparency and accountability for land owned by overseas owners or entities.

This process began as far back as 2002 when the Land Registry started making ownership records available to the public and sharing this info with third parties. This made it much easier to identify who owned what property. So many transferred their interests into offshore companies to make it less obvious who owned what property.

Then before and immediately after the credit crunch there have been changes to the tax laws. The introduction of SDLT made it more difficult to “offshore” deals and avoid stamp duty. Then after the credit crunch there was pressure on “Non Doms” and a new tax called  ATED was introduced which specifically taxed property that was held through overseas. SPV’s. Owners of SPV’s caught by the have to pay tax on an annual basis subject to various exemptions.

Then, in 2016 the real game changer was the Panama Papers and what the public perceived as tax evasion and shielding of identity of ownership on an industrial scale. Accountability and transparency was stepped up across a number of jurisdictions. It was felt that a significant amount of investment from nefarious sources might be routed through London in particular including Oligarchs and their connected parties. But for various reasons there was inertia in implementing various measures to tackle the issue.

Roll forward to 2022 and the beginning of war in Ukraine. There was immediate pressure and support to flush out once and for all any rogue owners or investors in the UK market.

The law was passed to require overseas entities to be very transparent in their structuring. At the same time imposing heavy penalties for non-compliance.

That’s the general background –

what are some of the key specifics of the new laws?

The law does three key things:

  1. It creates a register that is available to the public to interrogate.
  2. It requires almost every overseas SPV that owns land in the UK to register.
  3. The OE has to list its beneficiaries so that its ownership structure is transparent.

Tell me a little more about the Land Ownership requirements…

First it requires that where an OE has owned land since 1 January 1999 then it must register itself with Companies House on the new register.

Secondly if the OE owned land but sold it since 28 February 2022 then it must notify itself to the Register.

Thirdly, if the OE purchases land, then it must register and obtain a registration number which it then presents to the Land Registry to allow it to register the purchase.

Is it just buying and selling Property?

No. The main thrust of it is around the transfer of property, but it also includes situations where the OE is the registered proprietor of a lease for more than seven years – then again it would trigger a registration .

What information is included on the Register?

The primary information are the details about the entity.  In the case of a company, it will be details about its name, address, place of incorporation, service address etc.

Then there are the “beneficial owners”. This includes their name, service address and date they became a beneficial owner.

If the OE is unable to deliver all required information in relation to the OE and its beneficial owners, there is also a requirement to deliver information about the officers of the Company e.g. the board.

This is all very similar to the PSC register for UK companies where you now have to list out who has a controlling interest in the Company so its clear who the ultimate controller of a Company.

What constitutes a “beneficial owner”?

Is it everyone who has shares in a company?

It’s quite complex, but essentially – No. It’s much wider than owning shares.

In simple terms, there are essentially three types of people or entities that might end up being listed. These are:

  1. Individuals
  2. Companies that are already registered in the UK with a PSC register and/or listed on public market
  3. Government or public authority

Basically, when analysing an ownership structure – especially one that is “shielded” through complex trusts and nominees – you have to hit “wood” with any of the three above.

The important thing is to identify who falls within 1 of 4 categories. These include:

  1. 25%+ Share ownership
  2. 25% + Voting rights
  3. Ability to change majority of the Board
  4. Ability to Exercise Significant Control

If they fall within one or more of those categories either directly or indirectly then they will ultimately be listed in the register.

Conversely, if an entity had five shareholders with equal shares, there would not be one beneficial owner so no one individual would be registered (unless they acted in concert, e.g. husband and wife).

The first three categories sound straight forward…

The “Significant Control” sounds a bit more subjective?

Yes, I agree it’s open to broad interpretation. Essentially, I believe it’s to flush out where someone has deliberately set up a company and not named themselves for any reason, but ultimately the board and or shareholders or trustees follow their direction or lead.  The nearest concept we have to it is a “Shadow Director” the idea of a controlling influence.

Turning then to the practicalities… How does a company or entity get itself ready to register and what do they have to do?

In one sense it’s relatively straight forward…

  1. The Board of the entity has to issue notices to those that it believes are potentially beneficial owners and gather the relevant information that the OCE registrar will require.
  2. It has to work through the various intervening entities if necessary to establish the ultimate owners as we discussed earlier e.g., individuals, registered entities or public/government authority.
  3. Then it has to have its information verified by a verification agent
  4. Finally submit its application to Companies House
  5. Once registered it receives a registration number which it can use for example when buying a property and present that to the LR.

Verification Agent – is that where you come in?

Yes, we’ve registered with Companies House as verification agent which means we are recognised by them as being able to receive in the information from a potential registered entity and make sure the information has been checked. My colleague Robert Fornalski has been pretty busy getting these all done.

That sounds quite onerous… is it?

Well at one level yes, it is a big responsibility.  While we’re not responsible for identifying all the different interests we are required to confirm that the information as far as we can tell is correct and supported by a third party source. So, for example, if we are told that X is the name of the director – we need to see a passport that confirms that is in fact their name.

If the entity says that it owns 11 High St Chipping Norton – then we need to see a Land Registry document confirming this.

It’s a process similar to “verification” when you list shares on the stock market and make sure that every statement made can be backed up and is correct.

What happens if you get it wrong?

Well, potentially it’s pretty serious. Under s.32 if someone provides false or misleading information to the registrar it’s a criminal offence either a fine and/or a custodial sentence. So, Companies House are not messing around in making sure they have accurate information on their files.

We are pretty experienced in handling Identity documents and evidencing source of funds information to comply with Anti Money Laundering Rules, so we adopt healthy scepticism to information we are given until we are satisfied that we are being given the correct information.

But certainly, it’s potentially a “trap” for the unwary if they are dragged into a scheme by a criminal intent on shielding their identity.

There is a defence of “reasonable excuse”, so if someone has taken information and taken all reasonable steps that “should” be a defence. But as yet it’s all untested. So yes – everyone involved has to tread very carefully and be sure as they can be that what information they are providing is correct. We remind our clients of that at the outset.

Any other fines or penalties that I need to be aware of?

Yes. On top of the above there is a duty on the Entity to keep their information accurate and up to date. Every 12 months they need to either confirm or amend any changes and submit a form to the Registrar.  If they don’t then potentially £2,500 fines.

Equally if an owner fails to register full stop, then that could lead to serious fines and/or custodial charges.

Well, that’s all very serious!

 To try and end on a positive – what happens next?

The deadline is fast approaching – which is 31.01.23. By that date all entities so that’s overseas companies, limited liability partnerships and other legal entities that own UK land through an offshore structure need to have at least made an application to register. (Which are currently turned round in a few days).

Anyone who is about to buy property through one of these entities needs to make note that there is a requirement to register.

And finally, anyone who sold property since 28 February 2022 will need to make a notification.

So don’t hang around. If there is anyone you know who is focussed on other things, e.g. tax returns, remind them to make sure they get in touch.

How can Healys help?

We can guide the applicant through the process and the gathering of the information. We can also act as the verification agent and make the application. We’ve now done a fair few – over 20 in the last couple of months.

That’s great! Is there anything else you can help with?

As some may already know, we provide wider corporate commercial services. We are also focused on property, especially high value property in London. We can also support our client with tax advice and property litigation should the need arise. And if we can’t help, then we’ll know someone that can.

For more information regarding Corporate & Commercial Law, please dont hesitate to contact Healys LLP at:enquiries@healys.com