In general, the Act applies to all BVI companies or BVI limited partnerships carrying on any of the relevant activities unless they can demonstrate that they are tax-resident in another jurisdiction outside the BVI.
A BVI tax resident legal entity is subject to the economic substance requirements if it conducts any of the following relevant activities:
New entities which are incorporated after 1 January 2019 must comply with the economic substance requirements immediately and meet the reporting obligations within one year of the date of incorporation.
Pre-existing entities which are in existence on 1 January 2019 will need to demonstrate economic substance requirements no later than 30 June 2019 and meet reporting obligations within one year of that date.
Many trust companies and fiduciaries are seeking answers however BVI has yet to release guidelines and interpretation of The Economic Substance (Companies and Limited Partnership) Act 2018. The fact that pure equity holding companies are included in the list of relevant activities, indicates the breadth of the potential impact of the rapidly rising EU economic substance tide. Most offshore trusts, for a variety of reasons, have underlying companies. Though the exact definition of a “holding company” and a “pure equity holding company” varies slightly from one offshore jurisdiction to the next and guidance on certain matters of interpretation is still awaited, perhaps a trust underlying company could qualify as a “holding company” or “pure equity holding company”, thereby triggering the required reduced substance requirements. In light of the Economic Substance requirements, OECD Common Reporting standards and other compliance requirements professional trustee companies may find it easier to establish trusts without an underlying company.
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, has adequate substance if it:
For the other entities subject to the economic substance requirements (other than pure equity holding entities) must conduct the following core-income generating activity in the BVI:
The Act also amends the Beneficial Ownership Secure Search System Act 2017 (BOSS Act) by imposing additional annual reporting requirements on legal entities with respect to their status and relevant activities.
All entities now must provide information regarding any relevant activities performed; details of the parent entity (if any) and the jurisdiction in which the parent is formed.
Legal entities which carry on a relevant activity and are considered resident must provide the following information in relation to each such relevant activity, on an annual basis:
The following actions should be considered:
We expect further guidance and interpretation will be issued by the BVI in due course.