The draft Registration of Overseas Entities Bill (the Bill) was published on 23 July 2018. It makes provision for the establishment of a register of the beneficial owners of overseas companies and other legal entities owning land in the UK (the Register). The Bill sets out provisions relating to the creation and the updating of such Register, which is to be held and maintained by Companies House. The stated purpose of this proposed legislation is to combat the use of land in the UK by overseas entities for the purposes of laundering money or investing illicit funds. The Bill seeks to do this by increasing transparency regarding the beneficial ownership of any overseas legal entities owning land in the UK.
The UK has historically been a major destination for foreign direct investment (FDI), and the real estate sector has been a significant beneficiary of this FDI. A substantial amount of this FDI has been in the name of overseas registered companies – the true ownership of which, for various reasons, both nefarious and legitimate, has remained clouded in mystery.
The Bill requires any overseas entity that currently owns property (see below) or wishes to own land in the UK to take steps to identify their beneficial owner(s) and to disclose the identity of such to Companies House. The information required to be delivered to Companies House (in the case of individual beneficial owner(s)) includes; (a) name, date of birth and nationality; (b) usual residential address; (c) a service address and (d) the date on which the individual became a registrable beneficial owner in relation to the overseas entity. Thereafter such registered overseas entity is required to keep such records of beneficial ownership held at Companies House updated annually, until such time as it successfully applies to be removed from the live register of overseas entities. The Bill requires any “legal entity” (other than a government or public authority) to disclose its beneficial ownership if it is a “registrable beneficial owner” of property in the UK.
The purpose of this legislation also has to be viewed in the context of UK Government proposals relating to the taxation of gains made by non-UK residents on disposals of UK property and the Bill supports the requirement of the UK Government to “know who to tax”.
To comply with the updating duty, the overseas entity will have to annually deliver updated information (or confirm that the information in relation to it on the overseas entities register is up-to-date) and provide statements as to compliance. Failure to provide an update on the information held on the register is an offence under the Bill, as is delivering (or causing to be delivered) misleading, false or deceptive information.
Enforcement – Disclose or dispose!
To enforce the provisions of the Bill, the key “stick” is that the Bill imposes a requirement on the land registrar, such that the registrar must enter a restriction preventing dealings in the title register (the effect of the required restriction will be to prohibit the registration of certain dispositions in relation to the Property unless the overseas entity is “a registered overseas entity” at the time of the disposition (or is exempt)).
The Bill affects existing overseas entities registered as proprietors of land in the UK. The requirement upon the registrar to register such a restriction applies if the registrar is satisfied that: (a) an overseas entity is registered as the proprietor of the property; and (b) the overseas entity became registered as the proprietor (in the case of property located in England or Wales) in pursuance of an application made on or after 1 January 1999.
The failure of an overseas entity to be duly registered with Companies House (as a “registered overseas entity”) will mean;
(i) the overseas entity will be unable to register itself as proprietor of land in the UK at a Land Registry in the case of any property acquired ; and
(ii) certain dispositions made by an overseas entity that is an existing proprietor will not be capable of registration at the land registries.
Any existing overseas entity that is currently the registered proprietor of property (and has been so since, on, or after 1 January 1999 but before the commencement date of the Bill) will have a period of 18 months from the commencement date of the legislation to either (1) complete its registration in the overseas entities Register, or (2) dispose of the property owned by it. Transitional provisions will ensure that any third party who inspects the title register where the proprietor is an overseas entity will see the restriction on the title register and will be able to take the restriction into account when considering whether to enter into a contract (for a disposal of or charge over the qualifying estate) with the overseas entity.
In practice, therefore, a failure to register with Companies House, or to comply with the updating duty, will in most cases result in the relevant overseas entity not being able to either sell or lease the land, or create a charge over it as any chargee/disponee would be unable to register the disposition with the relevant land registry.
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