In late 2018, the British Virgin Islands (“BVI”) passed the Economic Substance (Companies and Limited Partnerships) Act (“Act”), which imposes substantive requirements for certain BVI legal entities conducting relevant activities. The Act came into effect on January 1, 2019 and was amended on January 30, 2019. The Act was established based on concerns rising from the EU (European Union) Code of Conduct Group for Business Taxation and OECD (Organization for Economic Co-operation and Development) guidance around the economic substance of entities in jurisdictions a very low to zero percent corporate tax.
What is a Legal Entity?
Legal entities, for this purpose, is any company or partnership (as defined by the Act) that is considered BVI tax resident and is conducting a “relevant activity” during a financial period in which it receives income from that activity. Certain circumstances where an entity concludes that they are not a BVI tax resident does not exclude that entity from reporting certain information.
What is Relevant Activity?
Relevant activity under the Act establish is described with reference to nine different types of categories (see below):
- Distribution and service centers
- Fund management
- Finance and leasing business
- Headquarters business
- Holding business
- Intellectual property
- Shipping business
However, even if you believe an entity does not conduct a “relevant activity,” the entity may still have to report certain information to avoid any penalties or possible removal from the BVI company registrar.