December 11, 2023 The Economic Crime and Corporate Transparency Act 2023: ROE Transitional Provisions
The Register of Overseas Entities that came into force last year included transitional provisions that, broadly put, required an overseas entity to disclose any changes to its information, if it had disposed of land on or after 28 February 2022 but before registering as an overseas entity. This was in essence, an anti-avoidance measure, to avoid the overseas entity maintaining secrecy by disposing of land and then changing its beneficial owner.
However, a gap remained that could have been exploited by overseas entities and their beneficial owners if they wanted to avoid disclosure. If an overseas entity changed its beneficial owners before registering, but there was no disposal of land, there was no obligation to disclose those changes. ECCTA has now introduced changes to address this which we look at here.
In addition, we believe there remain other gaps in the legislation which are set out further below.
Background
The Economic Crime and Corporate Transparency Act 2023 (ECCTA) received Royal Assent in October 2023 and will insert a new Schedule 6 into the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) that contains the new transitional provisions.
As at the time of writing, the new provisions are not in force and there is not yet a timetable for when they go live.
Overview
Each overseas entity will need to deliver any statements or information relating to:
- Changes in beneficial ownership of the overseas entity;
- Information about trusts and changes in beneficiaries under trusts; and
- Information about changes in trusts in which beneficial owners are trustees.
The changes will relate to the period beginning on 28 February 2022 and ending on 31 January 2023. This period is fixed and is not impacted by the date that the overseas entity registered, so it could include a change that occurred after the overseas entity was registered.
If there are no changes, the overseas entity will need to confirm this. It will also need to confirm that it has taken reasonable steps to verify this information which includes giving an information notice in the same way as was originally done under s12 ECTEA.
Timing of Transitional Statements
Once the schedule comes into force, there is a three-month grace period. Overseas entities will then need to deliver the above statements (and any further information) at their next annual update statement that falls once the three months are up. This gives overseas entities time to understand the rules.
By way of example, if the Schedule came into force on 1 January 2024 and the overseas entity had an updating statement due on 15 February 2024 then, these statements would not be due until 15 February 2025 (unless the overseas entity filed an earlier update).
There are two exceptions to this time period being:
- where the overseas entity applies for removal from the register, it must deliver the statements then; and
- if the overseas entity was not registered on the ROE when the schedule comes into force, then the obligation to file is within 3 months of the schedule coming into force. This could apply if the overseas entity has already been removed from the register or never registered in the first place.
It is not immediately clear how this applies to an overseas entity that disposed of all its land prior to registration and therefore never obtained an overseas entity ID number. Please see further below in relation to ‘Gaps in the Legislation’.
Changes in beneficial owners
An overseas entity will have to make a statement about whether there have been any changes to its beneficial owners (if applicable) between 28 February 2022 and 31 January 2023. If there have been changes, then the relevant information on each beneficial owner will need to be disclosed along with the date that they became or ceased to be a beneficial owner.
Changes in trusts and beneficiaries
If there was a person who was a beneficial owner of the overseas entity by virtue of being a trustee as of 31 January 2023, then the overseas entity will need to confirm if there have been any changes to the beneficiaries under that trust.
If there have been any changes, then the relevant information on each beneficiary will need to be provided along with the date that they became or ceased to be a beneficiary.
This would include beneficiaries as part of a class of beneficiaries. So, for example, if the class of beneficiaries were the children and grandchildren of Mr and Mrs Smith and a grandchild was born during the relevant period, they would need to be included as a new beneficiary.
Changes in trusts of which registerable beneficial owners are trustees
If there was a beneficial owner of the overseas entity by virtue of being a trustee as of 31 January 2023, then a statement will need to be made as to whether that beneficial owner held the shares or rights on behalf of a different trust during the relevant period.
The wording around this is complex but, the most likely scenario, is where a trustee held the shares in the overseas entity on behalf of Trust A and then, during the relevant period, declared a new trust over the shares in favour of Trust B.
In this case, disclosures will need to be made about the previous trust.
Obtaining Information
As with the original registration process, the overseas entity needs to serve information notices on relevant persons to confirm the information.
If the overseas entity is confident there have been no changes during the relevant period then, in most cases, no information notice will need to be served. However, if the beneficial owner is a trustee, then an information notice needs to be served regardless to confirm whether or not there have been any changes to the beneficiaries under the trust.
Gaps in the Legislation
There are two areas that Elemental has identified as possible gaps or uncertainties in this legislation.
- Definition of ‘relevant period’: ECCTA defines the relevant period for these updates as 28 February 2022 to 31 January 2023. The principle behind this is presumably that all overseas entities should have registered by 31 January 2023. However, in practice, thousands of overseas entities had not registered by that date. Any changes after 31 January 2023 do not appear to be caught. Therefore, it would appear that overseas entities that registered after the deadline have lower disclosure obligations than those that registered on time. We will have to wait for the guidance and any secondary legislation to see if this remains the case.
- Overseas entities that disposed of all land: An overseas entity that had disposed of all land prior to registering, did not actually have to register as an overseas entity. Instead, they had to make a notification to Companies House and did not receive an overseas entity ID. In principle, these new transitional provisions should apply to these entities as well. However, they only apply if the entity was ‘registered as an ‘overseas entity’ (or was in breach of the obligation to register). Therefore, it is arguable that it does not apply to these entities. Again, we will have to wait for further guidance.
How we can help
Elemental is an integrated professional services firm offering joined-up support across corporate governance, company secretarial, and accounting. We will be informing our existing ROE clients of the relevant rules at the appropriate time. However, if you have any questions about the process please do contact us.
