BRITISH VIRGIN ISLANDS - ECONOMIC SUBSTANCE CLASSIFICATION

BRITISH VIRGIN ISLANDS - ECONOMIC SUBSTANCE CLASSIFICATION

Background
 

The Economic Substance (Companies and Limited Partnerships) Act, 2018 (the “ES Act”) came into force on 1 January 2019 in the British Virgin Islands (“BVI”). The Act requires certain legal entities carrying on relevant activities to demonstrate adequate economic substance in the BVI. The Act also introduces extended reporting obligations.

New Filing Requirements 
 
A BVI business company or limited partnership with legal personality which is not carrying on any relevant activity will need to file an annual return stating that it does not carry on a relevant activity.
 
A BVI business company or limited partnership with legal personality which does not satisfy the definition of “legal entity” because it is resident for tax purposes in a jurisdiction outside the BVI (and not in a jurisdiction which is on the European Union list of non-cooperative jurisdictions for tax purposes) will need to demonstrate to the BVI authorities that it is resident for tax purposes outside of the BVI.
 
A legal entity carrying on a relevant entity must provide the following information to its’ BVI registered agent for uploading onto the BVI Beneficial Ownership Secure Search (“BOSS”) system. Such information will be provided to the International Tax Authority (the “Authority”) via the BOSS system and the Authority may use the information to discharge its duty to supervise and enforce the economic substance requirements:

a. the total turnover generated by the relevant activity;

b. the amount of expenditure incurred on the relevant activity within the BVI;

c. the total number of employees engaged in the relevant activity;

d. the number of employees engaged in the relevant activity within the BVI;

e. the address of any premises within the BVI which is used in connection with the relevant activity;

f. the nature of any equipment located within the BVI which is used in connection with the relevant activity; and

g. the names of the persons responsible for the direction and management of the relevant activity, together with their relationship to the company and whether they are resident in the BVI.  

The Authority may also require a relevant entity to provide additional information (including copies of books, documents or other records, or of electronically stored information) and failure to provide requested information without lawful excuse or within the time specified by the Authority is an offence.
 
Sharing of information
 
The Authority may share information provided to it under the ES Act with competent authorities in other jurisdictions in relation to:

a. the failure of a relevant entity to satisfy the requirements under the ES Act;

b. high risk intellectual property business; and

c. an entity which claims to be tax resident in another jurisdiction. 

Important Note

While the draft Economic Substance Code is not yet finalized by the Authority, every entity is strongly encouraged to conduct assessment and classification as efficiently as possible. Since the timing of compliance with the economic substance requirements has already commenced, analysis shall be completed sooner rather than later.

If you are interested to know more or if you have any questions regarding the above, please feel free to contact us.