On October 9th, the British Virgin Islands International Tax Authority officially released the Rules on Economic Substance. To view the document, please click on the following link: BVI ESA Rules.
For easy reference, noticeable changes include the following:
1. The inclusion of a more robust requirement that, where a legal entity makes an application to be treated as provisionally tax resident in a jurisdiction outside the BVI, if the ITA accedes to such an application, the requirement for the ITA to specify a “reasonable” period in which evidence is to be submitted would typically not extend beyond two financial periods (inclusive of the financial period for which the entity has applied for provisional treatment);
2. The insertion of a new rule to clarify the expression “expenditure” in section 8 of the Act and section 10 of the Beneficial Ownership Secure Search System Act, 2017;
3. Confirmation that substance requirements are expected to be complied with during the time that an entity is in liquidation;
4. In terms of the economic substance information that is to be uploaded to the Registered Agent database, the following are additional filing requirements (as appropriate):
confirmation as to whether a legal entity carries on a relevant activity (hence, legal entities that claim to be outside the scope of economic substance requirements by being tax resident in a jurisdiction outside the BVI, will also have to provide this information to its registered agent);
the residential address of the beneficial owner;
the total amount of expenditure incurred on the relevant activity (as a whole);
the total number of employees engaged in the relevant activity both as a whole and within the BVI);
for an entity carrying on intellectual property business that wishes to rebut the presumption that it does not conduct core income-generating activity:
- detailed business plan explaining the commercial rationale of holding the IP asset in the BVI; and
- solid evidence that decision-making is taking place within the BVI, e.g., detailed minutes of the meeting which have taken place in the BVI.
5. Rules are not static, and so it is intended that they will be updated from time to time, as necessary.
Note that the previous classification of the relevant activities remains the same, and the first compliance periods have started for all relevant entities; therefore, if you have yet to do so, we encourage you to classify your entities as soon as possible to ensure your company is compliant with the law’s requirements.
If you are uncertain about your Economic Substance position, we suggest that you contact your Account Manager immediately and seek clarification.
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