Economic Substance (Companies and Limited Partnerships) Act (Revised 2020)

Summary

This Act establishes the British Virgin Islands economic substance regime. It requires companies and limited partnerships that carry on specified 'relevant activities' to maintain adequate economic substance in the Virgin Islands, and sets out how compliance is assessed, what information must be provided, and the penalties and appeal rights that apply.

• Relevant activities covered: Banking business, insurance business, fund management business, finance and leasing business, headquarters business, shipping business, holding business, intellectual property business, and distribution and service centre business.
• Core requirement: A legal entity carrying on a relevant activity in a financial period must be directed and managed in the Virgin Islands, have adequate qualified employees, expenditure and physical premises there, and conduct its core income-generating activities in the Virgin Islands.
• Holding entities: Pure equity holding entities have a reduced substance test: complying with statutory obligations under the BVI Business Companies Act or Limited Partnership Act and having adequate employees/premises for holding (and, where applicable, managing) equity participations.
• Intellectual property business: Special rebuttable presumptions of non-compliance apply, particularly for 'high risk IP legal entities', unless the entity can demonstrate genuine core income-generating activity in the Virgin Islands.
• Compliance and enforcement: The competent authority (International Tax Authority) assesses compliance, can require information, and can impose penalties for non-compliance; entities have a right of appeal and a set procedure and timeframe for responding to compliance notices.
• BOSS Act amendments: The Act amends the Beneficial Ownership Secure Search System Act to impose new reporting requirements on registered agents, including supplying economic substance particulars and evidence relating to IP presumptions, and to enable disclosure of information to relevant overseas competent authorities in specified circumstances (e.g. breach findings, IP presumption elections, high risk IP status, or foreign tax residency claims).

The regime applies from 1 January 2019 for most provisions, with the registered agent reporting duty under section 16 in force from 30 June 2019. Financial periods and related notification obligations are tied to each entity's incorporation or formation date.

Key obligations

• A legal entity carrying on a relevant activity during a financial period must comply with the economic substance requirements for that activity, and separately for each relevant activity it carries on.
• A company incorporated on or after 1 January 2019 must notify the competent authority of its financial period (not more than one year from incorporation), with each successive period running one year from the end of the last.
• A limited partnership formed on or after 1 January 2019 must similarly notify its financial period to the competent authority.
• Any other legal entity must notify a financial period of one year commencing no later than 30 June 2019, and each successive year thereafter.
• A legal entity seeking to alter its financial period must apply to the competent authority for permission, and any altered period must not exceed twelve months.
• Pure equity holding entities must comply with their statutory obligations under the BVI Business Companies Act or Limited Partnership Act and maintain adequate employees and premises in the Virgin Islands for holding (and managing, if applicable) equity participations.
• Legal entities must provide information to the competent authority as required under section 11 for assessment of compliance.
• A legal entity that receives a section 12 non-compliance notice must comply within the time specified under section 15, subject to its right of appeal under sections 13 and 14.
• Registered agents must supply prescribed particulars for each corporate or legal entity carrying on a relevant activity within a period after the end of the financial period, to be fixed by regulations.
• Registered agents must, where an entity contests the rebuttable IP non-compliance presumption, supply the supporting evidence within a period after the end of the financial period, to be fixed by regulations.

Applies to

companies, limited partnerships, legal entities carrying on relevant activities (banking business, insurance business, fund management business, finance and leasing business, headquarters business, shipping business, holding business, intellectual property business, distribution and service centre business), pure equity holding entities, registered agents

Deadlines

• 1 January 2019: Commencement of the Act generally (except section 16).
• 30 June 2019: Commencement of section 16 (registered agent reporting duties); also the latest permitted commencement date for the financial period of legal entities not incorporated/formed on or after 1 January 2019.
• within one year of incorporation/formation: Companies and limited partnerships incorporated or formed on or after 1 January 2019 must set and notify an initial financial period of not more than one year from incorporation or formation.
• period to be fixed by regulations, following end of the relevant financial period: Registered agents must supply required particulars (and, where relevant, evidence contesting the IP non-compliance presumption) within a period after the end of each financial period, as set by regulations.