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BVI economic substance requirements.

Under the Economic Substance (Companies and Limited Partnerships) Act, 2018 (“the Act”), which was gazetted on 19 December 2018 and came into force on 1 January 2019, all legal entities carrying on a Relevant Activity during a Financial Period are required to establish economic substance in the BVI. Depending on the relevant activities that a legal entity is engaged with, the economic substance requirements may vary.

Relevant activitiesSubstance requirements
  • Banking business
  • Insurance business
  • Shipping business
  • Fund management business
  • Finance and leasing business
  • Headquarters business
  • Distribution and service center business
  • Direction and management in the BVI
  • Adequate expenditure and employees
  • Appropriate premises in the BVI
  • Core income generating activities carried out in the BVI
Holding businessLess rigorous than the above (please see below further details)
Intellectual property businessMore rigorous than the above

Pure equity holding business

“Holding business” means the business of being a “pure equity holding entities” under the Act.  A legal entity will fall within the definition of a “holding business” if it holds nothing but equity participations, yielding dividends or capital gains. Legal entities which own other forms of investment (irrespective of whether or not it holds equity participations) will fall outside of the definition of “holding business” as a relevant activity by virtue of not being pure equity holding entities.

A pure equity holding equity will likely fulfil the economic substance requirements with their BVI registered agent and their BVI registered office. In other words, the impact is minimal.

Reporting deadline

Economic substance is assessed over a period of time, generally one year. The Act refers to this period as a Financial Period, although the period is unrelated to a legal entity’s accounting period.

For an entity incorporated before 1 January 2019, the first Financial Period starts on 30 June 2019. For all other entities, the first Financial Period starts on the date of incorporation or formation. 

All BVI entities will be required to submit information to the BOSS system through its registered agent within six months after the end of each financial period.

What to report?

For an entity that has not carried on a Relevant Activity at any time during the Financial Period, the report will simply be a statement to this effect.

For an entity that has carried on a Relevant Activity at some point during the Financial Period but does not satisfy the definition of legal entity because it was tax resident in another jurisdiction during the Financial Period, the report will need to include evidence of the entity being a tax resident in the other jurisdiction.

Otherwise, a legal entity carrying on a Relevant Activity at any time during a Financial Period will be required to report the following information:

  • Total turnover generated by the relevant activity
  • The amount of expenditure incurred on the relevant activity within the BVI
  • The total number of employees engaged in the relevant activity
  • The number of employees engaged in the relevant activity within the BVI
  • The address of any premises within the BVI which is used in connection with the relevant activity
  • The nature of any equipment located within the BVI which is used in connection with the relevant activity
  • The names of the persons responsible for the direction and management of the relevant activity, together with their relationship to the company and whether they are resident in the BVI

Penalties

A fine not exceeding US$75,000 or imprisonment for a term not exceeding five years. 

Actions

The next step is to determine whether your BVI company is engaged in any Relevant Activity. 

Options for legal entities that are not prepared to meet the substance requirements may include building substance elsewhere, changing business nature, discontinuing and setting up a new entity in unaffected jurisdiction.

For assistance or more information, please contact Alan Ang a.ang@acclime.com or your usual Acclime client manager.

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