On August 1, a new register of foreign entities under the Economic Crimes (Transparency and Enforcement) Act 2022 came into force, requiring foreign entities that currently own land in the UK to register verified information relating to their beneficial owners or directors with the Chamber companies by 31 January 2023. Although the law affects the UK, this memo sets out the position in England and Wales.
Once registered, Companies House will issue the foreign entity a “Foreign Entity Identification Number”, which will be used to register with the Land Registry. Foreign entities seeking to buy, sell, transfer or lease land, or create a charge against land in the UK will need to register with Companies House. Otherwise, the provision cannot be registered in the Land Registry. Anyone seeking to acquire property from a foreign entity will need to verify that the foreign entity has been registered and listed.
After registration, the name of the foreign entity and its beneficial owners will be publicly available. The Amendment Provisions of the Land Registration Act 2002 (which effectively prevent the Land Registry from registering a foreign entity as the owner unless it has a foreign entity identifier) come into force on September 5. From 5 September 2022 overseas entities will not be able to register their property with HM Land Registry unless they have gone through the verification process with Companies House. Failure to comply could result in a criminal sanction for the entity and its directors (subject to certain exemptions), punishable by a fine of £2,500 per day or a five-year prison sentence. If there are no beneficial owners or if no beneficial owners have been identified, information on the directors of the foreign entity must be provided. Managers include any director, manager or general secretary of the foreign entity.
When must a foreign entity register with Companies House?
All legal forms of foreign entities holding land in full ownership and leases over 7 years:
- in England and Wales from 1 January 1999;
- in Scotland on or after December 8, 2014;
will have until January 31, 2023 to submit the required details to Companies House. This does not include trusts as they do not have a separate legal identity, but details of the trustee should always be included if the trust is the beneficial owner of the asset. Information relating to beneficial owners (if any) and/or directors, similar to the information provided for the register of persons exercising significant control (PSC), will have to be disclosed as part of the registration process and updated every year.
The foreign entity will have to serve an information notice to each beneficial owner asking him to declare whether or not he is a beneficial owner and to confirm, correct or complete the information concerning him in the notification. The foreign entity must do this before applying to register with Companies House. Beneficial owners will have one month to respond upon receipt of the notification from the foreign company. Failure to comply with this requirement is punishable by a fine of up to £2,500 a day or up to five years in prison.
Who can verify the information of beneficial owners or managers?
A “relevant person” (referred to as a “supervised agent” because they are supervised under money laundering regulations) such as an independent (i.e. not in-house) lawyer or accountant should verify the information before the foreign entity can register with Maison des Entreprises. This data subject will first need to register with Companies House for an agency code before they can verify the relevant beneficial owner or manager information. Certain exceptions apply which prohibit the relevant person from being a known family member or close associate of an individual beneficial owner. Foreign entities should keep in mind that the verification process could be complicated and time-consuming under this new requirement. It is therefore advisable to start the process as soon as possible.
Who is classified as beneficial owner?
A person is a “registerable beneficial owner” if they are a beneficial owner and are not exempt from registering, which is similar to the PSC scheme. A person is considered a “beneficial owner” of a foreign entity if they:
- hold, directly or indirectly, more than 25% of the voting rights in a foreign entity;
- have the right to appoint or remove the majority of directors; Where
- have the right to exercise, or do exercise, significant influence or control over a foreign entity.
Legal persons that are beneficial owners, non-exempt, and “subject to their own disclosure obligations” are registrable beneficial owners, which is the case, for example, when they:
- have shares with voting rights admitted to trading on a regulated market;
- are registered in the register; Where
- are governed by the law of a country other than the United Kingdom and provide trust services if the provision of trust services is regulated in that country by a supervisory authority.