Register of Overseas Entities (ROE) – Do you need to panic?
This post is a quick look at some questions you will want to ask yourself to be able to immediately establish whether you need to worry about the Register of Overseas Entities. You will want to consider these questions as soon as possible as one key deadline is coming up on 31st January 2023.
Mary has advised on the Register of Overseas Entities and if you are concerned about whether it may apply to you or you are unsure of who you should include on the register, you can instruct her here, and she can advise you of your position.
Who has to register by 31st January 2023?
You will need to consider the Register of Overseas Entities if you are an:
Overseas Entity which currently owns or leases UK land
Retrospectively, the Register of Overseas Entities applies to overseas entities who bought property or land on or after 1st January 1999 in England and Wales or 8th December 2014 in Scotland. Your date for registration of the beneficial owners or the managing officers is by 31st January 2023.
Overseas Entity which recently disposed of UK land
Retrospectively, the Register of Overseas Entities also applies to overseas entities that disposed property or land in the UK after 28th February 2022.
Who has to worry about registering otherwise?
If you do not fall into the urgent deadline for registration by 31st January 2023, you will still need to register if you have an overseas entity which wants to buy, sell or transfer property or land in the UK.
In order to be able to register the title of the land, it will be necessary for the overseas entity to have an Overseas Entity ID number. For this reason, it would be prudent to get the overseas entity registered early on in the purchasing process to prevent delays from occurring at the point of registering title.
Whose information needs to be included?
This is the key question to ask and for which people will potentially need advice.
The purpose of the register is to provide details of the underlying beneficial owners of the overseas entity. In many circumstances, however, a person may have purchased the property through an overseas entity to maintain an element of privacy so they will want to ensure that their details only need to be revealed if absolutely required.
There are also potentially dire consequences if the overseas entity does not comply with Register of Overseas Entities. this can include a fine, imprisonment or both.
In the most straightforward set of circumstances, you will have a UK property owned by an overseas entity which is then owned by one individual who has sole control over the overseas entity. In this case, the individual’s details will be entered on the register as they are the “registrable beneficial owner” (as defined in Schedule 2 of the Economic Crime (Transparency and Enforcement) Act 2022).
It will be rare the circumstances will be this straightforward. For this reason, I think it is helpful to go through a few terms to help assist those deciding who to register where there are more complex circumstances or if it would be appropriate to take advice.
A beneficial owner is not the same as a registrable beneficial owner. This distinction is key to establishing who to register.
A beneficial owner may be an individual, a different legal entity if they are subject to their own disclosure arrangements, or a government or public authority.
To be a beneficial owner for the purposes of the act, they must meet one of the conditions listed at paragraph 6 schedule 2:
- They must hold directly or indirectly more than 25% of the shares in the overseas entity (condition 1);
- They must hold directly or indirectly more than 25% of the voting rights in the overseas entity (condition 2);
- They must hold the right directly or indirectly to appoint or remove a majority of the directors of the overseas entity (condition 3);
- they must have the right to exercise, or actual exercise, significant influence or control over the overseas entity (condition 4); or
- In the case of a trust or partnership which meets any of the above conditions, there must be a person (the beneficial owner) who has the right to exercise, or actually exercises, significant influence or control over the activities of the trust or entity (condition 5).
Whether or not conditions 1, 2 or 3 are met directly is a relatively straightforward question to assess and so advice will not usually be needed if all the beneficial owners can fall into this. An example would be where there is an overseas entity owning UK property which is owned by three individuals equally. Each will own more than 25% of the shares and so their details will need to be entered onto the register.
The question becomes harder if you have certain individual who can exercise control over the overseas entity. This could happen if a parent gifted a property to his children by giving them an equal number of shares in an overseas entity but the father still exercises significant control over that entity despite having no shares ownership. Advice should likely be taken if there is an outside person exercising control to confirm whether or not they will need to enter their details on the register over overseas entities.
Registrable Beneficial Owners
Simply because a person is a beneficial owner does not mean that they are necessarily registrable.
Usually if an individual meets the requirement of a beneficial owner directly, they will be registrable. There are exemptions which are worth considering but when there is a direct ownership of the overseas entity, it is unlikely that the exemptions would apply.
Everything is complicated when the beneficial owner being considered is itself a legal entity with its own beneficial owners. Where it is subject to its own disclosure requirements, then it is a registrable beneficial owner and the enquiry stops there. A legal entity is subject to its own disclosure requirements if:
- it is subject to the persons with significant control regime (see Part 21A of the Companies Act 2006)
- It has voting shares admitted to trading on a regulated market in the UK, EU, EEA or on a market in Israel, Japan, Switzerland or the USA
- it is registered as an overseas entity under the Register of Overseas Entities
- it is a legal entity governed by the law of a country or territory outside the UK providing trust services which are regulated.
Usually, however, the company will not be subject to its own disclosure requirements so the question of whether there is indirect ownership becomes important.
There are two types of ownership: direct and indirect. In the conditions listed above, a person may be a beneficial owner if they have direct or indirect ownership. Indirect ownership adds a layer of complication which may lead you to considering taking advice (see paragraph 18 schedule 2).
An example would be if there is an overseas entity which owns a property. The overseas entity is owned by a holding company 100% which is in turn held by 3 companies (each owning 33% of the shares in the holding company). Each of those 3 companies is owned by an individual 100%. There is no one exercising influence or control and the rights to appoint or remove directors of the company lie solely with the directors in the articles of association of the various legal entities involved.
The test for indirect ownership is different from that for direct ownership. A key difference is that in order to be an indirect owner, if a person owns shares in the company which holds the overseas entity, they must be a majority stakeholder in that company (not simply have at least 25% of it). There are similar tests regarding significant influence or control and the right to appoint or remove directors. These are questions of fact.
Looking at the example, then, the holding company would be a direct owner of the overseas entity as it owns 100% of the overseas entity. Assuming it is not subject to its own disclosure requirements, it is necessary to see who its owners are to establish if they are indirect owners of the overseas entity. The holding company is owned by three companies who each have a 33% share in the holding company.
As none of these companies have a majority stake in the holding company, they are not indirect owners of the overseas entity.
There are therefore no registrable beneficial owners who need to be included on the register. In these circumstances, the details of the managing officers of the overseas entity are included in the register.
What steps to take?
In the relatively straightforward examples outlined above, it is easy to see how the question can become immediately complicated where there are chains of companies. The question is even more difficult when there are trusts involved.
For this reason, if there are any concerns about ensuring the correct persons are included on the register, then advice should be taken. Questions may not arise in the majority of circumstances, but given the potential for criminal punishment if the register is not completed correctly, it is worth taking advice if there is any doubt over what to include in the register.
Mary would be able to assist and she can be contacted here.