The Register of Overseas Entities (ROE) and Corporate Beneficial Owners

1. Summary

The Register of Overseas Entities (ROE) was launched in 2022 and requires any overseas entity which is the legal owner of a UK property interest to report details of its “registrable beneficial owners” to Companies House. More detail on the specifics of the ROE can be found in our March 2022 article: The Overseas Entities Register for UK Property: What you should know. 

This is the last of three articles which look at how the ROE operates for different ownership structures. This article considers the position for corporate beneficial owners and our previous articles consider the position for nominees and trusts.

2. What is a 'registrable beneficial owner'?

The ROE legislation requires any overseas entity which is in scope (as a result of owning a relevant UK property interest) to analyse its beneficial ownership and provide information to Companies House in relation to any registrable beneficial owners.

In short, beneficial owners of the overseas entity are persons who meet any of the following tests:

1. hold directly or indirectly more than 25 per cent of the shares of the entity; or
2. hold directly or indirectly more than 25 per cent of the voting rights of the entity; or
3. hold directly or indirectly the right to appoint or remove a majority of directors of the entity; or
4. have the right to exercise or actually exercise significant influence or control over the entity; or
5. have the right to exercise or actually exercise significant influence or control over an entity which is not a legal person under the law of that jurisdiction (i.e. a trust, partnership or unincorporated association) which meets any of the tests above.

Not all beneficial owners will be registrable beneficial owners though. A registrable beneficial owner is a beneficial owner who is also either:

(i) an individual;

(ii) a legal entity which is subject to its own disclosure requirements; or

(iii) a government or public authority

A legal entity is broadly subject to its own disclosure requirements if:

(i) The entity reports details of its beneficial ownership at Companies House via the persons with significant control (PSC) register. This would apply, for instance, to UK companies;

(ii) The entity is itself caught by the ROE and so reports details of is registrable beneficial owners at Companies House;

(iii) The entity has voting shares admitted to trading on a regulated market in the UK, EU, the EEA or one of a number of other markets specified in regulations; or

(iv) The entity provides trust services and the provision of trust services is regulated in that country or territory by a supervisory authority.

The position relating to trust services is due to change and this is considered further in our ROE and Trusts article.

If there is a beneficial owner in the ownership structure which does not meet the test to be a registrable beneficial owner then broadly speaking it is necessary to continue looking up the ownership chain to consider whether anyone higher up the ownership chain meets the test.

3. The issue with foreign corporate beneficial owners

As set out above, not all legal entities (including companies) that meet the beneficial ownership test will be registrable beneficial owners.

While UK companies will meet the test, foreign companies are only likely to be reportable on the ROE in three main circumstances:

1. They do their own ROE reporting so already have a record of registrable beneficial ownership reported at Companies House;
2. They are a listed company on a regulated market^[1]; or
3. They are acting as trustee of a Trust. Currently they also have to be based in a jurisdiction where trust services are regulated, but this requirement is changing as mentioned in our ROE and Trusts article.

As a result, there are only very limited circumstances where a foreign corporate beneficial owner should be reported on the ROE. However, compliance in this area has been poor. 

The current ROE reporting process does not require the overseas entity to confirm the basis on which its corporate beneficial owner is subject to its own disclosure requirements. However, an analysis of the publicly available information at Companies House and HM Land Registry has found that for 8,000 properties there appears to be no valid basis for reporting the corporate beneficial owner on the ROE^[2].

The scale of this inaccurate reporting is surprising given the requirement for all reported information to be verified by a UK professional who is required to comply with the UK’s Money Laundering Regulations. In addition, there are criminal and civil penalties for false reporting on the ROE.

4. What is changing and how can we help?

In light of this suspected non-compliance the government have confirmed that “[w]here an overseas entity has a beneficial owner that is another legal entity subject to its own disclosure requirements, the government intends to make regulations during 2024 to require more information about where the ownership and control particulars of the legal entity can be found.”^[3]

While the precise date from which this change will apply is unknown, it is clear that this change is expected to take place this year. 

Importantly, this change is likely to result in a number of overseas entities realising that they have been incorrectly reporting their registrable beneficial ownership as they are unable to select a valid basis on which their corporate beneficial owner is “subject to its own disclosure requirements”. Given the criminal and civil penalties at the disposal of Companies House, any such entities should carefully consider how to deal with this issue.

If you or your client would like further guidance on the impact of the ROE or this proposed change then please contact your usual contact at Burges Salmon.

^{[1] A list of the relevant markets can be found in section 5.7(b) of the government’s ROE guidance - Guidance for the registration of overseas entities on the UK register of overseas entities (publishing.service.gov.uk)}

^{[2] See numbered paragraph 5 of page 2: CAGE working paper no.680, Catch me if you can: Gaps in the Register of Overseas Entities}

^{[3] Paragraph 63 of the government’s transparency of land ownership involving trusts consultation document}