Rules on Economic Substance in the Virgin Islands (v4)

Summary

This is the International Tax Authority's consolidated Rules on Economic Substance in the Virgin Islands (v4), issued under the Economic Substance (Companies and Limited Partnerships) Act and the Beneficial Ownership Secure Search System (BOSSs) Act. It explains, in extracts of legislation, binding ITA rules, and explanatory notes, how legal entities and registered agents must determine whether economic substance requirements apply and how those requirements are to be met and reported.

• Scope: Applies to 'legal entities' carrying on a 'relevant activity' - BVI companies, foreign companies registered under Part XI of the Business Companies Act, and limited partnerships (BVI and foreign) - unless they qualify as non-resident for tax purposes outside the BVI or are excluded investment funds.
• Tax residence claims: Entities claiming to be non-resident (and so outside scope) must make and support a claim to the ITA with specified evidence (tax certificates, assessments, returns or rulings), with a distinct procedure for claims of residence in Guernsey, Jersey or the Isle of Man.
• Substance requirements: In-scope entities must have adequate employees and premises for the relevant activity, and (except pure equity holding entities in some respects) must be directed and managed from the BVI, incur adequate expenditure in the BVI, and carry on core income generating activity (CIGA) in the BVI.
• Intellectual property business: IP business relevant activities are subject to additional presumptions against compliance which the entity may need to rebut with evidence.
• Reporting: Registered agents must enter prescribed beneficial ownership and economic substance information into the RA database for each legal entity under section 10 of the BOSSs Act, and entities must comply with the reporting requirements set out in Rules 19 to 24.
• Limited partnerships: Modified rules apply to limited partnerships, treating the 'governing body' (typically the general partner(s)) as responsible for direction and management, with meetings and minutes required to be held/kept in the BVI.
• Enforcement: Failure to demonstrate tax residence outside the BVI or to meet substance requirements exposes the entity to enforcement action, including substantial fines and potential liquidation, and can trigger spontaneous exchange of information with overseas tax authorities.

The rules are explanatory guidance on compliance rather than a standalone source of new deadlines; they emphasise that entities relocating activity to the BVI to achieve compliance are typically expected to do so within two financial periods of notifying the ITA, after which non-compliance triggers information exchange with overseas competent authorities.

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 for each relevant activity if it carries on more than one).
• Entities claiming to be non-resident for tax purposes outside the BVI must make a claim to the ITA and support it with acceptable evidence (tax certificates, assessments, returns or rulings), following the Guernsey/Jersey/Isle of Man procedure where applicable.
• In-scope entities must maintain adequate employees and adequate premises for the relevant activity carried on.
• For intellectual property business and other relevant activities (other than pure equity holding in some respects), the entity must be directed and managed from the BVI, incur adequate expenditure in the BVI, and carry on core income generating activity in the BVI.
• Registered agents must enter the prescribed beneficial ownership and economic substance particulars under section 10 of the BOSSs Act into the RA database for every legal entity for which they act as registered agent.
• Legal entities must comply with the reporting requirements set out in Rules 19 to 24, including filing information on relevant activity status for each financial period (including investment funds confirming they are not conducting a relevant activity).
• A legal entity relocating a relevant activity to the BVI to achieve compliance should agree a compliance plan/timetable with the ITA and come into full compliance typically within two financial periods.

Applies to

legal entities (BVI companies), foreign companies registered under Part XI of the Business Companies Act, limited partnerships (BVI and foreign), registered agents, entities licensed by the Financial Services Commission (e.g. banking, insurance, fund management businesses), investment funds

Related documents

• This document is made under Economic Substance (Companies and Limited Partnerships) Act (Revised Edition 2020)
• This document is made under Beneficial Ownership Secure Search System Act (Revised Edition 2020)