December 13, 2022 The Register of Overseas Entities – The end of the transition deadline explained
According to publicly available data, many overseas companies that own property in the UK may not be registered by 31 January 2023. If you find yourself at risk of being in this position, you are not in the minority. In fact, approximately a third of entities have not yet registered for a variety of reasons.
We have had many enquiries from potential clients who are understandably concerned considering the conclusion of the transitional period on 31 January 2023. Below, our experts share the latest information they have on the likely consequences.
Background
From 1st August 2022, overseas entities that were affected by the Economic Crime (Transparency and Enforcement) Act 2022 (‘ECTEA’) had six months to register with Companies House. 31 January 2023 marks the end of this transitional period.
Overseas entities are required to provide details of beneficial owners or managing officers and the information needs to be verified by a UK Regulated Agent, such as Elemental.
Due to several factors, including a shortage of suitable UK-regulated agents, many overseas entities remain unregistered.
Overseas entities need to be aware of three consequences:
1. Restrictions on Land Registration
2. Criminal Penalties
3. Civil Penalties
1. Restrictions on Land Registration
A restriction has been entered on the relevant land registry of all qualifying estates where the registrar is satisfied that an overseas entity is registered as proprietor of the estate.
The restriction means that after the end of the transitional period the overseas entity will not be able to dispose of the land without an overseas entity ID (‘OE ID’). This is the most immediate impact of failing to register by 31 January 2023.
HM Land Registry wrote to affected overseas entities, and we issued further guidance for our clients in a previous blog article.
2. Criminal Penalties
If an overseas entity which is required to register fails to do so and cannot demonstrate a pending application for registration, the entity and every officer of the entity commits an offence.
A person found guilty of an offence may be liable to a fine, imprisonment or both.
Elemental has spoken with Companies House and the Department for Business, Energy and Industrial Strategy (‘BEIS’) on behalf of our clients.
We do not expect criminal action to be brought immediately after 31 January 2023, against overseas entities that have not registered by then, particularly where the client can show that it has made an effort to do so. For example, by initiating the verification and application process with us.
It appears that these offences will initially be treated in much the same way as the technical offences that exist for the late filing of accounts or other corporate details. In other words, criminal proceedings could technically be brought, but in practice should not be.
3. Civil Penalties
ECTEA provides for regulations to be made to enable Companies House to impose financial penalties for breaches of the requirements. However, the legislation required to impose civil penalties has not yet been passed and civil fines cannot be issued without this legislation.
So, there’s no risk then?
It’s tempting to draw from the above that there is no time pressure to register. However, there are no guarantees as to how BEIS or Companies House will bring enforcement action. It is also clear that, those overseas entities that have taken no steps to register are the ones most at risk.
Elemental’s view
Our first-hand experience is that Companies House and BEIS are adopting a pragmatic attitude to this process given the speed at which the regime has been implemented.
Elemental expects the primary consequence of not registering by 31 January 2023 to be the restrictions imposed by the respective land registries of the UK.
However, it is clearly important to commence the registration and verification process as soon as possible if you believe that the new regime applies to you. Civil and criminal penalties will likely follow if the regime is ignored or wilfully avoided. Visit our register of overseas entities service page to find out more about how we can help.
This article is a general guide only and it is not legal advice. No liability is accepted in respect of this article. If you are in any doubt as to your legal obligations, you should obtain independent legal advice. It is believed to be correct at the time of last review (30 January 2023) but may not be updated to reflect any future changes that occur.
