On January 1st, 2019, The Economic Substance (Companies and Limited Partnership) Act 2018 (“ES Act”) came into force in the British Virgin Islands to address tax system concerns by the European Union and the Organisation for Economic Co-operation and Development (OECD).
All BVI companies and limited partnerships are required to report certain information about their activities on an annual basis via their BVI Registered Agent. The information is assessed by the BVI International Taxation Authority to establish whether the entity performs a “relevant activity”.
For entities formed on or after 1st January 2019 conducting “relevant activities”, the economic substance requirements will apply from the date that the company commences the relevant activity.
The ES Act applies economic substance requirements to the following “In-Scope” activities:
Companies that deem themselves to be non-tax resident in the BVI are required to state the jurisdictions in which they are tax resident and provide sufficient evidence as proof. For companies that are not carrying out any relevant activity they should notify their Registered Agent on an annual basis to confirm this.
In terms of assessment, companies will fall under one of three categories as follows:
Category A: Companies that do not fall under the scope of the ES Act.
These companies are only required to submit their filings to confirm that they do not fall under the scope of the ES Act, supported by a resolution of the directors and independent legal assessment.
Category B: Companies that fall under the scope of the ES Act that are not tax resident in any jurisdiction.
These companies are required to become tax resident in the BVI and show substance in the BVI by proving that they are:
Filings with the International Tax Authority should be supported by a resolution of the directors and independent legal assessment, (particularly since an entity can fall under more than one relevant activity).
In order for an entity to be tax resident in the BVI it must obtain a trade licence subsequently apply for a tax ID and register with Social Security and National Health Insurance.
Category C: Companies that fall under the scope of the ES Act but are tax resident in another jurisdiction.
These companies are required to submit evidence of their tax residency, which should be in an EU approved jurisdiction, supported by a resolution of the directors and independent legal assessment.
Evidence of tax residency can be a letter or certificate from the tax authority or copies of the last tax returns filed in the foreign jurisdiction.
For new companies incorporated from January 1st, 2019 the deadline for filing Economic Substance status will be one year after incorporation with a six-month filing extension. The company will have a further six months to make their filing.
The filing period for companies incorporated prior to January 1st, 2019 begins June 30th, 2019 and ends June 2020, with a six-month extension for filing.
Once we have determined whether your entity performs a “relevant activity” we will further assist you in how to comply with economic substance laws in the BVI.
We work with you to ensure we gather the necessary reporting information required.