Alongside the shine and sparkle of the festive season – with its flurry of activity spilling beyond crowded shopping malls and into living rooms (and offices) warmly lit by the glow of Christmas decorations – there is another kind of season, albeit less often spoken of in the same tone of excitement and anticipation. It is the Register of Overseas Entities (“ROE“) update season. And it is not the greater drive for transparency itself that is necessarily causing the ROE update season to be mentioned in such subdued tones; rather it is the realisation that an overseas entity’s updating duty this year may not be confined to changes in its own beneficial ownership, but will most likely be driven by recently-enacted changes to the ROE regime itself. Unfortunately, this is the case for most overseas entities within the scope of ROE which have connected trusts.
What is changing
The ROE regime was first introduced by the Economic Crime (Transparency and Enforcement) Act 2022 (“ECTEA“) with effect from 1 August 2022. On 26 October 2023, the Economic Crime and Corporate Transparency Act 2023 (“the Act“), which includes amendments to ECTEA, received royal assent. The overall aim of the Act is to clamp-down on economic crime by preventing the abuse of UK corporate structures and enhancing corporate transparency, the latter including by bolstering the existing reporting requirements under ROE to plug perceived gaps. While no specific date has been announced for the publication of implementing regulations to bring into force the new ROE measures, the expectation is that they will follow in early 2024.
The Act introduces wide-ranging reforms which will significantly impact overseas entities that hold or wish to acquire “qualifying estates”[1] in UK land and whose beneficial ownership structure involves any form of trust. This will affect entities currently undergoing initial registration under the ROE, or those already registered, both in terms of their annual updates or in any applications for removal.
How is the ROE reporting regime changing?
The six key changes in respect of the ROE reporting requirements applicable to overseas entities with connected trusts are as follows.
- Nominees – a person will qualify as a registrable beneficial owner for ROE purposes if an overseas entity holds one or more qualifying estates in UK land as a nominee for that person or for another entity of which that person is a beneficial owner. This will apply irrespective of how small the nominee’s interest in the land is.
- Corporate trustees – a corporate trustee who has a sufficient direct or indirect interest in an overseas entity will qualify as a registrable beneficial owner. Unlike under the existing rules, this will be the case whether or not the corporate trustee is “subject to its own disclosure requirements” or its interest is held through an entity that is “subject to its own disclosure requirements”. Private Trust Companies are an obvious example where the corporate trustee will be newly within the scope of ROE. Where the registrable beneficial owner is a corporate trustee, relevant information will need to be reported concerning the trustee, as well as the underlying trust for which the trustee holds the interest.
- Shareholders of corporate trustees – following the removal of the requirement for a corporate trustee to be “subject to its own disclosure requirements” in order to qualify as a registrable beneficial owner, any individual or corporate entity who holds an interest in an overseas entity within the scope of ROE through a (direct or indirect) shareholding in the corporate trustee, will also qualify as a registerable beneficial owner in their own right alongside the corporate trustee.
- Ceasing to be a trustee – in addition to filing its annual update statement, an overseas entity must lodge supplementary details in the event that any trustee has ceased to be a registrable beneficial owner during the relevant period (most commonly on that trustee’s retirement). This is not limited to information in relation to the trustee but also requires the entity to provide details of any person who became or ceased to be a beneficiary during the trustee’s period in office.
- Historic beneficial ownership information – overseas entities within the scope of ROE as at 31 January 2023 were generally not required to reveal any changes in their beneficial ownership which had occurred prior to their application for ROE registration. However, under the Act, affected entities will be required to, retrospectively, divulge details of any changes of their beneficial ownership (including regarding trusts) which occurred between 28 February 2022 and 31 January 2023.
- Public disclosure – lastly, members of the public will be able to apply to Companies House and request disclosure of trust information. Under the existing rules, such information is required to be provided to Companies House but not available to the public. Although the details of the application process remain to be announced, it is anticipated that members of the public will have to demonstrate a “legitimate interest”, as is the case under the Trust Registration Service rules.
Overseas entities complying with their annual updating duties will be granted a three months’ extension to be able to fulfil the enhanced reporting requirements imposed by the Act (when in force).
Conclusion
Whereas the majority of in-scope overseas entities will have achieved ROE registration, and thus compliance, on or around 31 January 2023, such entities will now be facing the prospect of re-engaging with the ROE register pursuant to their updating duty.
An annual update statement is required to be submitted within fourteen days of the anniversary of the entity’s initial registration, including where there have been no changes in its beneficial ownership. Any changes to an affected entity’s beneficial ownership require verification by a UK-regulated agent, as does relevant information on initial registration under the ROE. For overseas entities whose beneficial ownership involves any form of trust or nominee arrangement, enactment of the new ROE measures under the Act will inevitably mean a second round of the cost and burden of verification that they endured when they first registered.
If you have any queries about how the above changes may affect overseas entities that you are involved with, please do get in touch with us.
[1] A “qualifying estate” in UK land means a freehold or leasehold granted for a term of more than seven years which was acquired on or after 1 January 1999 for land in England and Wales or on or after 8 December 2014 for land in Scotland, and which was held on or acquired after 28 February 2022.