BVI Economic Substance

BVI - Economic Substance Act

As of 1 January 2019, the BVI has enacted a legislation, which demands all BVI registered companies to demonstrate economic substance.

The Act, namely “Economic Substance Companies & Limited Partnership) Act 2018” , addresses the concerns of the EU Code of Conduct Group for Business Taxation and follows OECD guidelines against tax avoidance in zero and low tax jurisdictions such as the BVI. The Act also demonstrates the BVI’s continuous efforts in adopting the OECD’s base Erosion and profit Shifting (BEPS) framework and related EU initiatives.

BVI is following the lead of other Crown Dependencies (Jersey, Guernsey, and Isle of Man) and UK territories (Cayman and Bermuda) who have already adopted such substance requirements in mid-2018.

The Act imposes a general obligation for BVI companies to demonstrate Economic substance if they perform one of the following activities:

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

Specifically the Act indicates that BVI companies engaged in the above activities need to demonstrate economic substance as below:

An adequate number of suitable qualified employee related to the activity provided
The employee has to be physically present to BVI
The company must have an adequate expenditure incurred in the BVI
The company must have physical offices appropriate to perform its activities
In case of intellectual property should any specialized equipment to be used if must be located in the BVI
A pure holding company must also show substance by having adequate number of employees and premises to hold and manage these shares

Bearing the above in mind new entities (incorporated as of 1 January 2019 onwards) will have to demonstrate economic substance for any reporting period ending on 31^st December 2019. Existing companies and Limited Partnerships formed prior to 1 January 2019 will have to demonstrate substance for any reporting period no later than 30 June of 2019.

To discuss your BVI entity’s substance requirements please contact us at info@oneworldweb.net

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BVI - Economic Substance Act

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