Economic substance in the BVI. General information

The ESA introduces requirements for economic substance in the BVI (“substantive economic substance requirements”) and makes changes to the Beneficial Ownership Secure Search System Act, 2017 (No. 24 of 2017), the legislation on the BOSS system. The BOSS system itself has not been updated yet.

The ESA imposes the economic substance requirements on all BVI companies and partnerships that have legal personality (LPs) that carry on relevant activities unless they are tax resident in a jurisdiction outside the BVI (given such jurisdiction is not on the EU list of non-cooperative countries), as well as on all foreign companies and partnerships operating in the BVI.

• adopted on 19 December 2018;
• came into effect on 1 January 2019;
• companies incorporated on or after 1 January 2019 to carry on relevant activities become subject to the substance requirements immediately. These companies must submit their compliance report within one year of the date of incorporation;
• there is a transition period for companies incorporated before 1 January 2019. These companies must comply with the substance requirements by 30 June 2019 and submit a compliance report to the BVI International Tax Authority (“ITA”) by 30 June 2020.

• total income from a relevant activity;
• expenses incurred in the BVI in connection with a relevant activity;
• total number of employees engaged in a relevant activity;
• number of employees engaged in a relevant activity in the BVI;
• address of any premises in the BVI;
• nature of the equipment located in the BVI that is used in a relevant activity;
• names of the persons responsible for the direction and management of a relevant activity, indicating the nature of their relationship with the company and whether they are residents of the BVI.

• holding business;
• distribution and service centre business;
• banking business;
• insurance business;
• fund management business;
• finance and leasing business;
• headquarters business;
• shipping business;
• intellectual property business.

Companies comply with the economic substance requirements if:

1. they conduct certain core income-generating activity in connection with their relevant activities in the BVI, OR
2. they can demonstrate that they are tax residents of another jurisdiction.

BVI substance requirements focus on:

1. adequate number of suitably qualified employees (employment by the company or outsourcing), and
2. adequate operating expenses in relation to the core income-generating activity (for example, having premises).

Failure to provide information or providing false information may result in a fine of up to USD 75 000 and imprisonment for up to 5 years.

Liability for using a non-compliant company or partnership is a fine of up to USD 20 000 (USD 50 000 in the case of a high-risk IP company).

If a company does not comply after the ITA’s first determination, the potential fine increases to USD 200 000 (USD 400 000 in the case of a high-risk IP company) and the ITA may consider reporting the company to the Financial Services Commission for the purposes of striking it off the register.

*Creating minimum substance NOT for the purpose of compliance with the Economic Substance Act, 2018