Economic substance requirements for BVI companies
The British Virgin Islands (BVI) has passed the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the “Act”), requiring companies and partnerships which are resident in the BVI and which operate in any one or more of the nine pre-defined business sectors, to comply with the economic substance requirements, as these are set out in the Act.
Entities incorporated before 1 January 2019 must ensure that they are compliant with the economic substance requirements by 30 June 2019.
The pre-defined business sectors are the following:
- 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.
The holding of equity participations in other entities is one of the nine pre-defined business sectors of the Act. The Act, however, covers entities for which the holding of equity participations in other entities and earning dividends and capital gains is their only activity. It is unclear whether the Act covers entities holding assets other than shares (e.g. securities, investments, cash, properties).
In any event, the relevant authorities may amend the Act and expand the meaning of any of the terms which are defined in the Act, so that more entities are caught by its provisions (e.g. entities holding assets other than shares).
Entities will have to inform registered agents of the jurisdiction(s) in which they are tax resident and may have additional reporting obligations. The entities which are caught by the provisions of the Act must provide evidence that they comply with the economic substance requirements. The Act provides for fines for non-compliance with the economic substance requirements and for fines and/or imprisonment for failure to provide information or for providing false information upon the request of the relevant authority.