At the end of July 2018, a draft law on the registration of foreign companies was published in the UK (hereinafter – the Law). The purpose of this Law is to maintain a register of foreign companies since 2021 that own real estate in the UK.
This Law is a “continuation” of the legislation on “persons with significant control”, which was introduced for UK companies in 2016.
New requirements for foreign companies are aimed at combating the use of property located in the UK, for the purpose of laundering money obtained by criminal means. It is planned that the requirement for foreign companies to enter data on their final beneficiaries into a special register will allow to control the use of property for illegal purposes.
It should be noted that the obligation to register will be entrusted not only to companies, but also to partnerships, governments and any other types of legal entities that are legally competent under their domestic law. So, companies can have privileges under certain circumstances, in particular, regarding how “transparent” they are already (here it concerns the companies which shares are quoted on stock exchanges).
In the event that it is impossible to determine the final beneficiary of a foreign company, the information must be submitted to the register, at the same time it will be indicated of their absence in the column on the owners of the company.
The British government plans to launch the register in 2021.
Foreign companies will have to submit certain information to the registration service of England and Wales. In the event that the application is filed properly, the company registrar enters the necessary information in the register of foreign companies, assigning a unique identification number to the company. This number will be necessary for the company to have the opportunity to conduct business with the land in the future.
Transitional provisions are provided for the companies that already own real estate in the UK. However, what actions the companies will have to perform will depend on where the land owned by the foreign company is located – in England, Wales, Scotland or Northern Ireland.
So there is a grace period of 18 months for non-resident companies owning real estate in England and Wales, during which it will be necessary to declare the real estate in the ownership of the company or about the rental property for more than seven years, for which the right of ownership or use was registered starting from January 1, 1999.
In Scotland, before the end of the grace period of 18 months, foreign companies are required to submit information about the real estate in ownership or rent that was registered as of December 8, 2014.
In Northern Ireland, the obligation of foreign companies to register will apply only to newly acquired real estate, that is, it will be not necessary to register property that is already in ownership at the time the law comes into force.
After registration, foreign companies will be obliged to update their information on an annual basis.
Failure to fulfill the obligation to register in the register of foreign companies will be a violation for which a fine is imposed. In addition, the fine will be provided for violation of the obligation to update the information annually.
In addition, if information about a foreign company is not entered in the register, such a company will not be able to register property in its name or sell it to a third party.
Land registration systems of each of the UK jurisdictions will monitor the fulfilment of the requirements of legislation. For example, there will be a restriction on the ownership in England and Wales on a specific real estate.
In the event that the alienation is carried out by a company that has not fulfilled the obligation to enter information into the register, such alienation can not be entered in the Land Register. That is, a foreign company will lose its right to real estate, which will entail problems for both the seller and the potential buyer.
The alienation of property in relation to which there is a restriction or alienation by a company that must be entered in the register is a violation of the law. The penalty for such a violation will be imprisonment for up to 5 years or a fine, or both penalties at the same time.
As for the persons who purchase property from foreign companies, it will be important to conduct a qualitative legal check before the transaction in order to make sure that the foreign company has complied with all the legal requirements for registration in a new registry. It is not difficult to check – if the alienation of property is banned – it means the owner has not complied with the requirements of the law.
At the same time, under certain circumstances, alienation of immovable property can still be conducted by a foreign company that has not submitted data about itself to the register. It concerns the case when alienation is carried out in fulfillment of a contract or contracts concluded before the moment when a foreign company has obligations to register with a register of foreign companies.
The provisions of legislation in Northern Ireland are similar to those in England and Wales. The prohibition on the alienation of property of foreign companies that have not entered data about themselves in the register will be registered when the Law enters into force. The law provides that the fee will not be charged in the case of the registration of the Prohibition on alienation.
When a prohibition on the alienation of immovable property of a foreign company will be registered, it will not be possible to conduct any actions with the property, including sale, lease, or any other actions.
There is no analogous to the prohibition of alienation in Scotland like in England, Wales and Northern Ireland; however, the administrator of the Land Registry is required to keep records of applications submitted to the registry regarding the registration of ownership and reject them if one of the parties of the transaction is a foreign company that is not registered in the register of foreign companies. This will apply to real estate, which is registered in the register as of December 8, 2014, as indicated earlier.
We should note that the Law is still a project, and it will probably undergo certain changes. At the same time, it is already possible to track in what direction the government of Great Britain is trying to work in order to protect the interests of its subjects and Crown property in the future.