New transparency rules for overseas firms operating in the UK – what do firms need to know and do by 31 January 2023?

Many partnerships and LLPs which operate in the UK are formed under the laws of an overseas jurisdiction. These often hail from Delaware, New York, Jersey, Guernsey and elsewhere.   

One advantage for professional services firms of operating in the UK through an overseas LLP is that it has more limited disclosure requirements compared to English LLPs and overseas companies operating in the UK, both of which are registered at Companies House and are obliged to file annual accounts.  Overseas LLPs, on the other hand, are not subject to the same requirements. 

However, the UK Parliament has recently enacted the Economic Crime (Transparency and Enforcement) Act 2022 which imposes obligations on a wider category of entities if they hold interests in UK land. 

From 5 September, overseas entities acquiring property in the UK must now register their “beneficial owners” on the Register of Overseas Entities before they can apply to HM Land Registry to become the registered owners. The rules are similar to those applicable to UK entities requiring the maintenance of a register of persons with significant influence or control.  

Overseas entities which already own or lease property in the UK will also need to register with Companies House, and provide details of beneficial owners or managing officers, by 31 January 2023.  

In this article we provide a briefing for professional services firms on the requirements of the Act and the steps to take now.

1. Why has the Act been passed?

The Act’s overall aims are to increase transparency and public trust in the ownership of overseas entities that hold an interest in UK land, and to prevent and combat the use of land in the UK by overseas entities as a means to launder money or invest illicit funds. 

The Act requires an overseas entity which became registered as proprietor of land in England and Wales on or after 1 January 1999 to register its details, and those of its beneficial owners, with Companies House.  This information will be held on a register and the overseas entity must update this information annually.

These requirements are therefore similar in scope and effect to the Overseas Companies Regulations 2009, which require certain companies incorporated outside the UK to register various details and file accounts with Companies House.

2. What entities are caught?

The entities which must register with Companies House under the Act are those which:

1. are a legal entity that is governed by the law of a country or territory outside the United Kingdom; and
2. are registered as the proprietor of freehold land or a lease granted for a term of more than seven years from the date of grant.

We consider these two key elements in greater detail below. 

Is your firm a “legal entity”?

A “legal entity” is defined in the Act as a body corporate, partnership or other entity that (in each case) is a legal person under the law by which it is governed.

This therefore includes both public and private companies.  The definition will also catch LLPs, but only those which are classified as legal persons under the laws of their home jurisdiction, and not partnerships and LLPs without a legal personality. 

This would mean that professional services firms which operate as non-UK partnerships and LLPs do not need to register or submit regular filings under the new Act, so long as they do not have legal personality.  

Many overseas partnerships and LLPs are similar to UK general partnerships, which means they do not have a legal personality separate from the individual partners in the firm.  As the Act only applies to ‘entities’, unincorporated bodies akin to UK general partnerships would not be caught. 

Different US states operate different models for LLPs.  For example, a Delaware LLP can make an election whether or not it should be an entity distinct from its partners, although the default option is to have one.  It is possible that the new Act may see these types of LLPs revisit their preferred option.

Perhaps because UK LLPs have separate legal personalities, there has been an assumption that non-UK LLPs will be subject to the same classification. As a result, we believe that many overseas LLPs are planning to register when they may not be required to do so, or without having fully considered the question.

If an overseas LLP receives a letter from Companies House inviting them to register under the new Act and its partners are not sure of whether they have a legal personality, they should also seek legal advice from a specialist in the law under which the LLP is formed.

Whilst there are potential advantages of registering, not least because it provides overseas firms with a verifiable presence in the UK in the form of Companies House registration, there are other consequences that require consideration. Although ‘over-compliance’ may appear to be an attractive option, it will have long-term implications. By registering, firms would be signing up to a regime that will require constant administration and the risk of potential penalties for any failures to comply (see sections 3 and 4 below for further information).

For many law firms, registering may create an inconsistency when compared to the position represented by the firm to the SRA on their application to set up practice in the UK or subsequently. Firms should be aware that the SRA routinely check Companies House records against their own whenever an application is made, and any discrepancies will be queried.

Although unlikely to be of immediate concern, there is a tension between firms holding themselves out as an entity and their tax transparent status.

Does your firm hold land within scope of the Act?

Many, but not all, overseas professional services firms practising in the UK will have interests in land which are within scope of the Act. 

An overseas entity (with legal personality) has a relevant interest in land where:

• it is registered with the Land Registry as owning either (a) freehold land or (b) a lease over land which was originally granted for a term of more than seven years; and
• its registration was applied for at any time on or after 1 January 1999. 

This means that a firm whose sole interest in land is a lease that was granted for a term of less than seven years will not be caught, and nor will those firms which have a mere licence to occupy their premises – which might be the case for users of serviced offices or those who occupy part of a larger space leased by a separate business.

Some professional services firms, particularly those without legal personality, will not hold a legal interest in land, but instead have a subset of partners as the parties to their lease.  These arrangements should also fall outside of the scope of the Act.   

The Act also contains a short “lookback” period, meaning that entities which held qualifying land at any time from 28 February 2022 still need to register under the Act, even if they disposed of the property before the Act came into force.  

3. What needs to be registered and how do we do this?

If your firm is within scope of the Act, then it will, after signing up for an account, need to register the following information with Companies House about each of its “registrable beneficial owners”:

• if an individual: their name, date of birth, nationality, usual residential address, service address, the date on which they became a registrable beneficial owner and on what basis;
• if a “managing officer” (e.g. a director or secretary): name (and any former name), date of birth, nationality, usual residential address, service address, business occupation and roles and responsibilities within the firm; and
• if a government or public authority: name, principal office, service address, legal form of entity, governing law, the date on which they became a registrable beneficial owner and on what basis, and whether it is on the sanctions list.

A “registrable beneficial owner” of an entity means a person who:

• holds more than 25% of the shares in the entity (whether directly or indirectly); or
• holds more than 25% of the voting rights in the entity (whether directly or indirectly); or
• holds the right, directly or indirectly, to appoint or remove a majority of the board of directors of the entity; or
• has the right to exercise, or actually exercises, significant influence or control over the entity; or
• has the right to exercise, or actually exercises, significant influence or control over the activities of a trust partnership or body that is not a legal person under the law by which it is governed and which meets any of the above tests in relation to the entity.

An overseas firm must take reasonable steps to identify its registrable beneficial owners and obtain the required information about each of them.  

The deadline for identifying and submitting this information to Companies House is 31 January 2023.

There are sanctions for failure to register as required under the Act, including fines and prison sentences of up to five years, as well as restrictions on dealing with property or land in the UK. 

After the application is made to Companies House, the firm will be assigned an “Overseas Entity ID”, which must be provided to the Land Registry whenever the firm makes any applications to the Land Registry (such as buying, leasing, transferring or registering any charges against the land).

4. What are the firm’s continuing obligations under the Act?

After submitting the registration, a registered overseas entity must annually deliver to Companies House a statement which confirms the various details about its beneficial owners, any changes in their composition or details, and that the requirements to take steps to identify registrable beneficial owners have been followed. 

Failure to comply with this requirement is a criminal offence by both the entity and each of its officers. 

5. When can the firm be de-registered and how is this done?

There are provisions in the Act which set out how an entity can apply to remove itself from the register of overseas entities.  The only grounds explicitly stated in these provisions are where the entity ceases to hold an interest in land which is caught by the Act. 

However, there may be other potential routes outside of scope of the Act.  For example, if the entity is formed under the laws of a US state or other jurisdiction which permits an LLP to choose not to have a legal personality, then a filing could be made to effect this.  A lengthier and more onerous route would be to transfer the relevant interest in land so that it is held in the name of individual nominees, as is often the case with unincorporated businesses without legal personality.