On 9 October 2019, the BVI International Tax Authority (ITA) issued and released the long-awaited Rules on Economic Substance, a finalization of the draft guidelines and rules that were provided in late April. The rules will take effect on the date when the Beneficial Ownership Secure Search System (Amendment) (No. 3) Act, 2019 comes into effect.
Recap: Which entities are affected
As referred to in previous articles, the regime focuses on BVI entities that carry out a relevant activity. A BVI entity which carries out a relevant activity during any financial period must comply with the Economic Substance requirements in relation to that activity. If the entity carries on more than one relevant activity, it should comply with the Economic Substance requirements in respect of each activity. You can access a full copy of the rules here.
Why you should act now
All BVI entities formed after 1 January 2019 are already in the initial financial period. For those formed prior to this date, the first period starts 12 months from 30 June 2019.
It is critical that our clients take before the end of the year in order to prepare the necessary steps:
- Currently, there is an annual legal obligation for all BVI entities to identify whether they are carrying on any relevant activities.
- Timelines and compliance periods are already effective and applicable to all BVI entities.
- Entities risk increasingly adverse and severe consequences if the above legal obligation is not fulfilled and/or these entities are not compliant within this current financial period – which has already begun.
List of action steps for Q4 2019
The main objectives for all BVI entities in this fourth quarter should be to ensure that by the end of 2019 the following has been done:
- Determine the position under the BVI economic substance regime by classifying or assessing the entity in the context of the Economic Substance Act
- Document the basis of, or reasons for, this assessment of the BVI entity in a manner that will satisfy the relevant BVI regulatory authority
- Ensure compliance with all aspects of BVI law that relate to the BVI entity especially as this relates to Economic Substance
What qualifies as ‘relevant activities’?
- Banking
- Insurance
- Fund management
- Finance and leasing
- Headquarters
- Shipping
- Holding
- Intellectual Property
- Distribution and service centre
Contact us for the advice
It is important to obtain expert legal advice to ensure the rules and related Acts are properly understood – especially when it comes to determining whether the business and activities of your BVI entity falls within any one or more of these categories.
These activities have specific definitions under the Economic Substance Act and should only be interpreted based on the meaning provided in these definitions. There are also guidelines provided on each category which gives further understanding about the context in which it should be applied and understood.
We are available to assess the impact of these rules on any of your entities and to assist with the requisite planning. Make sure you contact us on info@localhost or +230 650 4030 for assistance.