British Virgin Islands: British Virgin Islands (BVI) | Economic Substance Requirements

Under the Economic Substance Act ("ESA"), legal entities formed or registered in the BVI are required to have economic substance in the BVI.

The ESA also amends the BVI's Beneficial Ownership Secure Search System Act, 2017 ("BOSS Act") to add to the existing requirements such that a legal entity and its Registered Agent have obligations in respect of reporting prescribed information in relation to a legal entity's economic substance.

Which entities will be affected?

The ESA applies to certain BVI companies, BVI limited partnerships with legal personality, and foreign companies and foreign limited partnerships with legal personality registered in the BVI carrying on "relevant activities".
Entities that are tax resident in a jurisdiction outside of the BVI (other than in a jurisdiction included on the EU non-cooperative jurisdictions list) do not need to comply with the economic substance requirements but will need to provide satisfactory evidence of their tax residency.

What activities are covered?

Legal entities carrying on any "relevant activities" will be required to satisfy an economic substance test. Relevant activities include the following types of business/business activity:

  • Banking Business
  • Fund management Business
  • Insurance Business
  • Intellectual property Business
  • Shipping Business
  • Finance and leasing Business
  • Headquarters Business
  • Holding Business
  • Distribution and service center Business

*For more details of the "relevant activities" please contact us.

Test for Relevant Activity:

An entity which carries on more than one relevant activity must comply with the economic substance requirements and must satisfy the economic substance test which is:

  1. Is the entity of a type which falls within the economic substance legislation? I.e. is it a BVI company, BVI limited partnership with legal personality, or a foreign entity (company or limited partnership with legal personality registered in the BVI)?
  2. Is it carrying on a relevant activity?
  3. If it is carrying on a relevant activity, is it resident for tax purposes in a jurisdiction outside the BVI (and which is not on the EU list of non-cooperative jurisdictions for tax purposes).

Only if the answers to (1) and (2) are affirmative and the answer to (3) is negative will the economic substance requirements apply to the entity.

  • for relevant entities in existence prior to 1 January 2019 –> economic substance is required from 30 June 2019;
  • for relevant entities established on or after 1 January 2019 –> economic substance is required from the date on which the relevant entity commences the relevant activity.

Legal entities that fall within the scope of the BVI Law must notify their registered agent in the BVI of any relevant activities they carry on as well as certain other prescribed information.
The draft Economic Substance Code states that this information must be provided within 6 months of the end of the relevant financial period (such financial period will normally be the one year period beginning on the date that the Economic Substance Test needs to be satisfied as set out above). The registered agent is also required to take reasonable steps to collect the prescribed information with respect to each such legal entity for which it acts as registered agent. This information is then made available to the ITA by means of a database whose contents is made accessible to designated persons.

Economic Substance Test

Subject to below, in order to meet the Economic Substance Test, a legal entity carrying on a relevant activity must:

  • conduct core income generating activities ("CIGA")* in the BVI;
  • be directed and managed in the BVI; and
  • taking into account the nature and scale of the relevant activity, have:
  • an adequate number of suitably qualified employees physically present in the BVI;
  • an adequate amount of expenditure incurred in the BVI; and
  • appropriate physical offices for conducting core income generating activities (CIGA).

* For a list of core income generating activities (CIGA) please contact us.

The Economic Substance Code does not seek to provide specific definitions of "adequate", "suitable" or "appropriate" for the Economic Substance Test, instead noting that such terms should be given their ordinary English meaning and that the size of the particular business should be taken into consideration.

It is possible to outsource some or all of the BVI CIGA provided the legal entity is able to demonstrate that it is able to monitor and control the outsourced activities and that those activities are undertaken in the BVI.

Note that if a company is a "pure equity holding entity" which carries on no relevant activity other than holding equity participations in other entities and earning dividends and capital gains, the ESA Act provides that it satisfies the Economic Substance Test if it (A) complies with its statutory obligations under the BVI Business Companies Act; and (B) has in the British Virgin Islands adequate employees and premises for holding equity participations and, where it manages those equity participations, has in the British Virgin Islands adequate employees and premises for carrying out that management. A pure equity holding entity for these purposes means a legal entity that only holds equity participations in other entities and only earns dividends and capital gains.

On the other hand, high risk intellectual property ("IP") businesses face more stringent requirements.

Enforcement and Penalties

The ESA contains penalties for failure to satisfy the Economic Substance Test, including:

  • for the first determination of non-compliance, a minimum penalty of $5,000 and a maximum penalty of $20,000 ($50,000 for high risk IP entities) may be imposed by the ITA;
  • for the second determination of non-compliance, a minimum penalty of $10,000 and a maximum penalty of $200,000 ($400,000 for high risk IP entities) may be imposed by the ITA;

The ITA may also serve notice on the Financial Services Commission requiring that the legal entity be struck off the Register of Companies or Register of Limited Partnerships as applicable.

What to do now?

Where a legal entity is subject to the economic substance regime, it will need to demonstrate that it adheres to the BVI Law. Full details on the requirements for compliance will follow once further clarification has been provided by the final Economic Substance Code. In the interim, the first step is to consider whether a legal entity is carrying on a "relevant activity". If it is, the next step is to consider whether it has sufficient substance or is tax resident in another jurisdiction. If not, appropriate action, which will depend on the particular facts and circumstances, needs to be taken.

How can AGP & CO help?

In order to assist you in complying with this law, please contact us for the required ESA Declaration Form to be sent to you, in order for the same to be completed and be returned to our offices. If and when applicable, we will ask you to provide further information or evidence showing the legal entity is non-resident for tax purposes in the BVI (fees may apply).

For complex situations where legal advice is necessary to confirm if a legal entity must establish and demonstrate Economic Substance in the BVI, AGP & CO can assist you by obtaining a bespoke legal opinion from our local BVI associate law firm.

Compliance and Filing Fees

Any relevant compliance and filing fees will be advised under private and separate correspondence.

British Virgin Islands (BVI) | Economic Substance Requirements

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
Collas Crill Guernsey
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Collas Crill Guernsey
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions