Compliance Updates for Overseas Entities in the UK

The UK government has introduced new regulations, meaning that Overseas Entities (OEs) holding UK property come under far greater annual compliance requirements. Both the Economic Crime (Transparency and Enforcement) Act 2022 (ECTEA) and the more recent Economic Crime and Corporate Transparency Act 2023 (ECCTA) have raised the compliance burden on companies involved in UK property transactions.

ECTEA: Key Requirements for Overseas Entities

The ECTEA came into force in 2022 and ensures that all Overseas Entities with qualifying property - including freeholds or leaseholds longer than seven years - in England and Wales are required to be registered on the ROE. Such registration will also be updated annually, the first update being required 12 months from its initial registration. Overseas Entities would have 14 days after the update period to provide their details. Failure to update the ROE renders any OE ID invalid, making all current property transactions much more difficult to manage.

In cases where a party has to deal with Overseas Entities, verification of compliance through the ROE becomes imperative. In particular, this must be done when transactions happen to fall within the period when the annual update is due. If the due date gets missed, it delays or messes up any deal.

ECCTA: New Compliance Layers Added

The 2023 ECCTA brings into play further filing needs, complicating the system even more. Under this act, Overseas Entities will not be considered fully registered unless they have discharged their updating duties and responded to new information notices, namely Section 1092A notices, issued by Companies House. Such notices require an Overseas Entities to provide further information, which should ensure that they will have complied with all filing requirements.

To date, third parties cannot be sure how to verify such Section 1092A notices, as no such notices have been issued by Companies House as of yet. Businesses will have to be vigilant but also include this new requirement in their due diligence.

Conclusion: Ongoing Changes and Future Updates

The geopolitical events that took place lately, such as the invasion of Ukraine, necessitated increased transparency in the property market and hastily rushed ECTEA through to passage. The follow-on legislation, ECCTA, tries to plug the loopholes, with strengthened actions against economic crime. The legislative changes go on, with up to 50 more statutory instruments expected to back the full implementation of the ECCTA.

To these will be added new requirements, like the one requiring Overseas Entities to list the title numbers of all properties that they own in the UK. The constantly changing regulatory landscape will make compliance with ECTEA and ECCTA difficult for businesses that are dealing in UK property transactions.