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Regulatory Update: BVI Economic Substance Act 2018

December 13, 2018

In 2016, the Council of the EU pledged to start advocating tax transparency and fairer taxation within Europe and consequently worldwide. After the EUs Code of Conduct Group (COCG) on taxation investigated BVI practices, they found a number of concerns regarding legitimate substance requirements for companies and limited partnerships doing business in and through BVI.

The EU Economic & Financial Affairs Council placed BVI in a list of countries with concerns however were actively working to resolve them. Appropriately, the BVI Government honored this and made a commitment to implement reforms by the end of 2018 to ensure that BVI businesses have adequate economic substance.

The BVI Economic Substance (Companies & Limited Partnerships) Bill

The Economic Substance (Companies & Limited Partnerships) Bill shows the EU that BVI is willing to do its part in the global fight against base erosion and profit shifting and is hoped to bring the legislation into force by December 31st 2018.

Going forward, all entities registered in the BVI must provide the following information:

  • Beneficial Owner details as previously agreed per section 10 (3) of the Beneficial Ownership Secure Search Act.
  • Company status regulated by section 11 of the International Tax Authority Act.
  • General activities of the business as regulated by section 11 of the International Tax Authority Act.
  • Audited financial statements as per section 11 of the International Tax Authority Act.

The new information to be provided will be combined using the BVI’s existing Beneficial Ownership Secure Search (or BOSS) arrangement. The BOSS Act effectively obligates all BVI-registered agents to submit their current contact information which is searchable for BVI officials anonymously.

Non-compliance: Section 11 ITA & Section 16 BOSS

As per section 11 of the ITA and section 16 of the BOSS Act; both failure to provide required information and providing false or misleading information is punishable under the economic substance requirements warrants a fine of up to USD $70,000 and up to five years jail time.

Automatic exchange of information with the EU

An additional Schedule 3 in the BOSS Act lays out a new set of situations that if occur, trigger automatic disclosure of the company details to EU member state tax authorities. The notification will occur regarding a BVI company which has a beneficial owner and is registered as tax resident in an EU member state.

The prompts for information disclosure can be any of the following:

  • The entity has been found to be breaking the required economic substance rules.
  • The entity carries out activities relating to intellectual property and either accepts that it does not have substance in the BVI, or claims to have the required substance, however is classed as a high-risk entity.
  • The entity is also tax resident in an EU member state.

The BVI Government have announced that they will be giving additional resources to ensure thorough enforcement of the legislation.

For further information on any changes to BVI legislation, contact us, we have tax specialists who can help with restructuring requirements.

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