The Economic Substance (Companies and Limited Partnership) Act 2018 came into force in the BVI to address tax system concerns by the EU and OECD. Companies and Limited Partnerships which fall into a specifically targeted relevant activity will need to show substance/presence in the BVI, unless they are tax resident in another jurisdiction. Many of the companies with IBCF would fall under holding company activities, which is part of the “relevant activities.”
The Economic Substance Act requires that all Business Companies and Limited Partnerships
incorporated in the BVI inform the International Tax Authority of their Economic Substance status. This will be done via the Beneficial Owner Secure Search System (“BOSSS”), which is the existing portal used by the International Tax Authority for private filing of ultimate beneficial ownership.
Companies which do not fall under the “relevant activities” will only need to submit a filing to confirm that they do not fall under the scope of the Economic Substance Act, in conjunction with a resolution of the directors attesting to the fact, and an independent legal assessment.
Companies and limited partnerships that do fall under the scope of the ES Act that are not tax resident in any jurisdiction are required to become tax resident in the BVI and show substance in the BVI; by proving that they are managed and directed from the BVI, that they are conducting their core income generating activities in the BVI, that they have office and adequate staff in the BVI and that they have adequate expenditures in the BVI. These entities will need to restructure to move some aspects of their operations to the BVI in order to show sufficient substance. It is important to note that the directors do not have to reside in the BVI but an adequate number of meetings of the directors must be held in the BVI. Pure equity holding companies are given a more relaxed substance requirement in that they are required to have office space, show expenditure and staff in the BVI. Pure equity holding entities will be allowed to show substance through the Registered Agent in providing an office space and employee. In order for an entity to be tax resident in the BVI it must obtain a (trade) license from the appropriate authorities and subsequently apply for its tax ID and register with Social Security and National Health Insurance.
Companies and limited partnerships that do fall under the scope of the ES Act but are tax resident in another jurisdiction are only required to submit evidence of their tax residency, which should be in an EU approved jurisdiction, supported by a resolution of the directors and independent legal assessment. Evidence of tax residency could be in the form of a letter or certificate from the tax authority in the foreign jurisdiction or copies of the last tax returns filed in the foreign jurisdiction. Please take note that the International Tax Authority will be informing the tax authorities in the foreign jurisdiction that the entity has indicated that it is a tax resident in that jurisdiction.