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

Summary

This Act establishes the British Virgin Islands' economic substance regime, requiring companies and limited partnerships that carry on specified 'relevant activities' to demonstrate real economic substance in the Virgin Islands. It also amends the Beneficial Ownership Secure Search System Act (the 2017 Act, or 'BOSS Act') to impose related reporting requirements. The regime is administered by the International Tax Authority as the competent authority, working alongside the Financial Services Commission.

• 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 economic substance test: A legal entity must be directed and managed in the Virgin Islands, have adequate qualified employees physically present, adequate expenditure incurred locally, appropriate physical premises, and must conduct its core income-generating activities in the Virgin Islands.
• Pure equity holding entities: Face a reduced substance test: compliance with statutory obligations under the BVI Business Companies Act or Limited Partnership Act plus adequate local employees and premises for holding (and, if applicable, managing) equity participations.
• Intellectual property business: Subject to a rebuttable presumption of non-compliance in certain 'high risk' circumstances, which the entity may seek to rebut.
• Information and assessment: The competent authority may assess compliance and require legal entities (and their registered agents) to provide information; non-compliance can result in penalties, with a right of appeal to the Court.
• BOSS Act amendments: Registered agents must supply additional particulars about relevant activities, financial periods, and (for certain entities) details of overseas entities carrying out core income-generating activity on their behalf, plus evidence relating to any rebutted IP presumption.
• Cross-border information sharing: Schedule 4 requires the competent authority to disclose required information to relevant overseas competent authorities where an entity breaches the requirements, carries on IP activity in specified circumstances, or claims tax residence outside the Virgin Islands.

The Act commenced on 1 January 2019, except for section 16 (the BOSS Act amendments), which commenced on 30 June 2019. This is the Law Revision Commissioner's consolidated 2020 revised edition incorporating amendments made by Act 2 of 2019.

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 must comply separately for each relevant activity it carries on.
• A legal entity must notify the competent authority of its financial period (for entities incorporated/formed on or after 1 January 2019) or, in any other case, notify a financial period commencing no later than 30 June 2019.
• A pure equity holding entity must comply with its statutory obligations under the BVI Business Companies Act or Limited Partnership Act and maintain adequate local employees and premises for holding (and managing, if applicable) equity participations.
• Legal entities must provide information to the competent authority when required under section 11.
• A legal entity served with a section 12 notice for non-compliance must comply within the time specified under section 15.
• Registered agents must supply particulars required by section 10(3)(g) to the competent authority within a period after the end of the relevant financial period, to be fixed by regulations.
• Where a legal entity contests the rebuttable presumption of non-compliance for IP business, its registered agent must supply supporting evidence within a period after the end of the relevant financial period, to be fixed by regulations.
• The competent authority must disclose required information to relevant overseas competent authorities where an entity is found in breach of the economic substance requirements, is a high risk IP legal entity, has taken a position on the IP rebuttable presumption, or claims tax residence outside the Virgin Islands.

Applies to

companies, limited partnerships, legal entities carrying on relevant activities, registered agents

Deadlines

• 1 January 2019: Commencement of the Act generally (except section 16).
• 30 June 2019: Commencement of section 16 (BOSS Act amendments); also the latest date by which a legal entity's initial financial period (in cases other than new incorporations/formations) must commence.
• period following the end of the relevant financial period, to be fixed by regulations: Deadline for registered agents to supply required particulars under section 10(3)(g), and for supplying evidence relied on to contest the IP rebuttable presumption.

Related documents

• Economic Substance (Companies and Limited Partnerships) (Amendment) Act, 2021 (No. 30 of 2021) amends this document
• Rules on Economic Substance in the Virgin Islands (v4) is made under this document