Rules on Economic Substance in the Virgin Islands (v4, 2 April 2024)

Summary

This is version 4 (2 April 2024) of the International Tax Authority's consolidated Rules on Economic Substance in the Virgin Islands, issued under section 17 of the Economic Substance (Companies and Limited Partnerships) Act and section 16B of the Beneficial Ownership Secure Search System (BOSSs) Act. It combines extracts of legislation, ITA rules, and explanatory notes to guide legal entities and registered agents on how to meet economic substance and related beneficial ownership declaration obligations.

• Scope: Applies to 'legal entities' -- BVI companies, foreign companies registered under Part XI of the BVI Business Companies Act, and limited partnerships (BVI and foreign) -- that carry on a 'relevant activity' generating income, unless they are tax resident outside the BVI in a jurisdiction not on the EU non-cooperative list.
• Core requirements: Entities conducting a relevant activity must meet economic substance requirements: adequate employees and premises for all relevant activities, and additionally direction and management from the BVI, adequate expenditure in the BVI, and core income generating activity (CIGA) carried on in the BVI for non-holding activities.
• Non-residence claims: An entity claiming to be tax resident outside the BVI (and therefore excluded as a 'non-resident company/limited partnership') must make and evidence that claim to the ITA, following specific procedures depending on the claimed jurisdiction (e.g. Guernsey, Jersey, Isle of Man follow Rule 5A; other jurisdictions follow Rule 3 evidence requirements).
• Registered agent duties: Registered agents must ensure prescribed beneficial ownership and economic substance information under section 10 of the BOSSs Act is entered into the RA database for every legal entity for which they act.
• Reporting and enforcement: Legal entities are subject to reporting requirements (declarations to the ITA) and to enforcement action, including substantial fines and potential liquidation, for non-compliance or failure to demonstrate tax residence outside the BVI.
• Limited partnership modifications: For limited partnerships, the 'direction and management' requirement is satisfied by the governing body (typically the general partner(s)) meeting in the BVI with adequate frequency, taking and keeping strategic decision minutes in the BVI.
• Exclusions: Investment fund business (as defined) is excluded from relevant activities, as are entities licensed under the Banks and Trust Companies Act, Insurance Act, Cooperative Societies Act or Friendly Societies Act when acting purely as investment funds.

The rules also describe the ITA's approach to compliance plans for entities relocating activity into the BVI (generally allowing up to two financial periods), and the ITA's obligations to spontaneously exchange information with overseas tax authorities where non-compliance persists.

Key obligations

• A legal entity carrying on a relevant activity during a financial period must comply with the applicable economic substance requirements for that activity (ESA section 5(1)).
• An entity claiming non-resident status (tax resident outside the BVI) must make a claim to the ITA and support it with acceptable evidence (certificates, tax assessments, tax returns, or rulings from the foreign tax authority) under Rules 2 and 3, or follow the Rule 5A procedure if claiming residence in Guernsey, Jersey or the Isle of Man.
• Registered agents must enter the prescribed beneficial ownership and economic substance information required under section 10 of the BOSSs Act into the RA database for every legal entity for which they act.
• Legal entities carrying on a relevant activity must maintain adequate employees and premises, and where applicable, be directed and managed from the BVI, incur adequate expenditure in the BVI, and conduct core income generating activity (CIGA) in the BVI.
• Legal entities must comply with the reporting/filing requirements set out in section 12 and Rules 19-24 of the rules.
• Limited partnerships subject to the direction and management requirement must have their governing body meet in the BVI at adequate frequency, record strategic decisions in minutes, and keep those minutes in the BVI.
• A legal entity relying on a compliance plan to relocate a relevant activity to the BVI must come into full compliance generally within two financial periods, or risk triggering spontaneous exchange of information with overseas tax authorities.

Applies to

BVI companies, foreign companies registered under Part XI of the BVI Business Companies Act, limited partnerships (BVI and foreign), registered agents, entities carrying on relevant activities such as banking, insurance, fund management, holding business, and intellectual property business, investment funds (as an excluded category)