An overview of the new law in the British Virgin Islands: The Economic Substance (Companies and Limited Partnerships) Act, 2018 (“the ES Act”)
On 1 January 2019, a new law became effective in the British Virgin Islands (“the BVI”) : the Economic Substance (Companies and Limited Partnerships) Act, 2018 (“the ES Act”). This applies to ALL companies and partnerships registered in the BVI and not considered non resident for tax purposes as defined by the Act (“BVI Legal Entities”)
The Act demonstrates the BVI’s ongoing commitment to comply with international standards and best practice. It also specifically addresses the concerns highlighted by the EU Code of Conduct for Business Taxation, and the OECD, as this relates to the economic substance of entities registered in places with low or zero taxation.
All BVI Companies and Partnerships registered in the BVI must be aware of what the ES Act requires and determine which requirements apply to them particularly those in respect of economic substance. This depends on whether they engage in ‘relevant activities’ which the Act describes as the following categories of business activities:
(1) banking business
(2) insurance business
(3) fund management business
(4) financing and leasing business
(5) headquarters business
(6) shipping business
(7) holding business
(8) intellectual property business
(9) distribution and service centre business
ADDITIONAL KEY POINTS & KEY DATES
The ES Act also provides for additional reporting requirements as additional information must be provided to and by Registered Agents. Information must also be provided to the International Tax Authority (“ITA”) which is the regulatory body charged with enforcement and supervision under the ES Act. Information which must be reported now includes details as to relevant activities conducted by BVI Companies & Partnerships; their tax residence; their parent (if any), and other details regarding their business.
In addition to “economic substance” and “relevant activities” the ES Act also refers to other concepts such as “core income generating activities” which must be considered particularly in the context of their applicability to BVI Companies & Partnerships caught by the full scope of the ES Act.
It is also important to note that if there is non-compliance with the ES Act, the International Tax Authority of the BVI can impose both criminal and financial sanctions by way of penalties ranging from $5,000 - $50,000 on a first determination of non-compliance; and $10,000 - $400,000 on a second determination of non-compliance.
Jan-March 2019
BVI Companies and Partnerships should conduct a review as quickly as possible to know what is their position under the ES Act; and which requirements, if any, they must meet in order to comply. The sooner this is done the more time there would be to take appropriate action.
30 June 2019
BVI Companies & Partnerships in existence on 1 January 2019 must meet the requirements of the ES Act as this relates to relevant business conducted during their financial period beginning no later than 30 June 2019.
It is expected that other key dates will be highlighted in the Economic Substance Code which is expected to be released soon.
DISCLAIMER: This brief is intended to provide an overview and is for information purposes only. It is not intended to be a comprehensive study or legal advice. It is also not a substitute for specific advice concerning individual situations.
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