The Economic Crime Act and offshore entities

About The Act

Following the Russian invasion of Ukraine this year, the UK Government introduced the Economic Crime (Transparency and Enforcement) Act 2022. The Act requires offshore entities owning property in the UK to register with Companies House before 31 January 2023. This requires the details of the beneficial owners.

These rules apply to entities governed by law in a country that is outside of the UK. It covers companies, partnerships, and foundations. Offshore trusts owning UK land directly are not required to register with Companies House. This is because they are already required to register through the Trust Registration Service. Both are anti-money laundering measures.

Why The Act has been introduced

According to Land Registry data, there are over 93,000 properties owned by offshore entities in England and Wales. 62% of which have been acquired during the last decade. The government wanted to limit the scope for money laundering and tax avoidance through concealed ownership arrangements. Offshore entities and trusts have been used to avoid liability to business rates and other taxes, and have been difficult for tax and police authorities to pursue as the ownership has been unclear.

After an offshore entity has been registered, it will be allocated an overseas entity ID number. The ID number is required for any further transactions in relation to the UK property. Under the Act, an entity must take reasonable steps to identify its registrable beneficial owners (RBO) and obtain certain required information about each RBO. An RBO may be an individual, legal entity, government, or public authority that relates to any of the following:

• holds (directly or indirectly) more than 25% of the shares in the entity; or
• holds (directly or indirectly) the ability to employ or dismiss a number of board of directors of the entity; or
• has the ability to enforce significant change, influence, or control over the entity

When an RBO has been identified, the entity must give notice to the RBO concerned. The RBO must confirm whether or not they are an RBO to the entity in question. Following this they must confirm, correct, or supply the required information within one month from the day on which the notice was given.

The entity then applies for registration with Companies House and provides an annually updated statement thereafter. This data requires verification by an agent regulated under the Money Laundering Regulations. Provision of incorrect data and failure to comply is a criminal offence. The register will be made publicly available, with additional information to be accessed by HMRC via Companies House.

What does this mean for offshore entities?

HMRC, the police, and other legal enforcement agencies are aware that foreign company ownership of a UK property is sometimes used to conceal crimes such as tax fraud and money laundering. Therefore, failure to register, or the provision of false information, is a criminal offence. Officers of the entity could receive a fine and/or be liable to imprisonment under UK law if they do not comply.

It is expected that HMRC will review Land Registry records and issue one of two letters to these overseas entities:

1. to companies etc. that are not resident to the UK but own UK property.
2. to companies etc. that are not resident to the UK but have made a disposal of UK residential property between 6 April 2015 and 5 April 2019 without filing a Non-Resident Capital Gains Tax (NRCGT) return.

Both letters will advise that the companies concerned ask the participating UK-resident individuals to seek professional advice and ensure their personal tax affairs are up to date.

How we can help

Increasingly, we are asked to assist clients in meeting their anti-money laundering obligations in respect of their overseas entities and trusts. This is work that we do on request. However, it is often time-consuming because it requires liaising with offshore agents and undertaking verification work. Whilst we may already have some of the information, and be well placed to advise, there are significant obligations on us and significant penalties for errors.

In addition to this new UK legislation, there is the existing Trust Registration Scheme (TRS) to consider, as well as the US Foreign Account Tax Compliance Act (FATCA) legislation. Banks and investment advisers require written confirmation of an individual’s compliance with the regulations. Appropriate certification is therefore part of doing business in the UK.

If you have any concerns about your compliance with anti-money laundering legislation, we are happy to discuss the position with you. Please refer to the ‘International’ tab on our website for further Global Business Resources.