To address the concerns of the EU Code of Conduct Group and the OECD Forum on Harmful Tax Practices regarding economic substance, all BVI companies and limited partnerships (the “Entities”) must comply with the requirements under the Economic Substance (Companies and Limited Partnerships) Act 2018 (the “Act”) which came into force on 1 January 2019.
On 9 October 2019, the BVI International Tax Authority (“ITA”) has published final Economic Substance Rules and Explanatory Notes (the “Rules”) to provide guidance on the interpretation of the Act and on the manner in which the ITA will carry out its obligations under the legislation.
Below are the highlights of the Act and the Rules:
Reporting obligations and mechanism
All Entities will be required to provide information to the BVI authority as to whether they are carrying on relevant activities and (if so) whether they are complying with the economic substance requirements. The Act also requires all Entities to submit their tax residency status.
Timing
Thereafter the reporting is an annual obligation.
Penalties
Relevant Activities
Entities may be subject to the economic substance requirements if they conduct any of the following relevant activities:
The Economic Substance Test
Under the Act, if Entities are subject to the economic substance requirements (with the exception of a pure equity holding entity), they must be able to demonstrate that:
How we can help
We can assist our clients undergo a review in order to determine whether they are within the scope of the economic substance legislation. The output will include a report and director resolution.
For further information, please contact Ms. Amie Cheung at amie@beas.com.hk