The Government has published its response to its April 2017 call for evidence on the introduction of the new regime requiring overseas entities to publicly file details of their ultimate beneficial ownership (the “OEBO regime”).

What is the OEBO regime?

Under the proposed regime, overseas (non-UK) legal entities (“OLEs”) will need to disclose information about their ultimate beneficial owners and controllers to a public registry in the United Kingdom.

The regime will be modelled substantially on the UK’s existing regime for registering persons with significant control (PSCs) (the “PSC regime”). However, the OEBO regime will, in practice, require an OLE to provide details of its controllers only if it proposes to:

  • acquire, hold or sell real estate in the United Kingdom; or
  • participate in a public tender in the United Kingdom.

For more details on the OEBO regime, see our weekly update for the week ending 14 April 2017.

Key points

The key points coming out of the Government’s response are as follows:

  • Who will be affected. The OEBO regime will apply to all “legal forms” that can hold property. This will clearly include all non-UK companies, but it will also capture any non-UK partnerships, associations, societies and trusts that have legal personality in their local jurisdiction.OLEs will need to register their details with Companies House, which will then provide them with a registration number.
  • Property caught by the regime. OLEs will be required to disclose their beneficial owners if they wish to acquire freehold land or registrable leasehold land. (Broadly, a lease needs to be registered in the UK if it is for more than seven years from the date it is granted.) In other words, an OLE will not need to disclose its controllers merely if it intends to acquire a very short lease.The regime will operate by putting “restrictions” on the register for the land in question. The Land Registry will not register a transfer of land to an OLE unless the OLE can provide a registration number issued by Companies House. Similarly, the Land Registry will not register an attempt by an OLE to sell, lease or grant security over land without a registration number.
  • Beneficial interests in land. Interestingly, the Government has decided not to subject transfers of beneficial interests in land to the OEBO regime. It believes this mechanism would be unworkable and could adversely affect innocent third parties.This means that OLEs will be able to acquire beneficial ownership of land in the UK without needing to disclose their beneficial owners publicly under the OEBO regime. However, if the structure used to achieve this is a trust, there may still be an obligation to register the beneficiaries of that trust in the private register of trusts maintained by HM Revenue & Customs.
  • Public tenders. An OLE will not automatically be required to provide its beneficial owner information when participating in a public tender. It will need to do so only if it is selected as the preferred bidder.
  • Definition of “beneficial owner”. As expected, the test for determining whether someone is a beneficial owner of an OLE will be modelled on the conditions in the PSC regime. On this basis, a person will be a “beneficial owner” (and so the OLE will need to disclose his or her details) if he, she or it:
    • holds more than 25% of the OLE’s share capital;
    • holds more than 25% of the OLE’s voting rights;
    • can appoint and remove a majority of the OLE’s directors;
    • actually exercises, or has the right to exercise, significant influence or control over the OLE; or
    • satisfies one of the above conditions by virtue of controlling a trust or partnership.
  • Presumably, as under the PSC regime, it will be possible to register another legal entity in certain circumstances, rather than an individual. The OEBO regime will also employ the same approach as the PSC regime when looking at OLEs that do not have share capital or a board of directors.
  • Information required. Again, as expected, the information OLEs will have to provide on their beneficial owners will be the same as that which UK companies are currently required to provide on their PSCs. If an OLE cannot give information on its beneficial owners, it will instead need to provide information on its “managing officers”.
  • Protection from publication. The Government is still considering in what circumstances a beneficial owner will be able to apply to “suppress” his or her information from public view. It seems likely that the Government will allow this in the circumstances currently permitted under the PSC regime (i.e. where there is a serious risk of violence or intimidation as a result of being connected with the OLE). However, the Government has left the door open to expanding this to situations where the risk arises from being associated with the underlying property in question.
  • Grace period. There will be an initial “grace period” during which OLEs will have time to identify their beneficial owners and comply with the regime. The Government has not yet decided how long this period will be, although we now know it will be longer than one year.
  • On-going compliance. OLEs will need to update their registered beneficial ownership information at regular intervals. The Government has not yet decided how frequently this will need to be done, although it is clear it will now be more frequently than the original proposal of every two years. Failure to update the information will be a criminal offence.

Next steps

The Government will now prepare legislation to implement the OEBO regime, which it intends to put before Parliament in Summer 2018. The regime is scheduled to go live in 2021.