Banking business
An entity engages in "Banking Business" where it is in the business of receiving (other than from a bank or trust company) and holding on current, savings, deposit or similar account, money that is repayable by cheque or order and is capable of being invested by way of advances to customers or otherwise (as per section 2(1) of the Banks and Trust Companies Act, 1990).
The receipt of savings, deposits or similar account money, which is paid by one company to another at a time when: (a) one is the subsidiary of the other; or (b) both are subsidiaries of another company is not caught by the definition of "Banking Business".
Insurance business
An entity engages in "Insurance Business" where it is in the business of undertaking liability under a contract of insurance to indemnify or compensate a person in respect of loss or damage, including the liability to pay damages or compensation contingent upon the happening of a specified event, and includes life insurance business and reinsurance business (as per section 4(1)(a) of the Insurance Act, 2008).
Fund management business
An entity engages in "Fund Management Business" where it conducts an activity that requires it to hold a Category 3 Investment Business License under the Securities and Investment Business Act, 2010 ("SIBA"). Category 3 Investment Business Licenses are divided into the following sub-categories:
Sub-Category A Licence, for Managing Segregated Portfolios (Excluding Mutual Funds)
Sub-Category B Licence, for Managing Mutual Funds;
Sub-Category C Licence, for Managing Pension Schemes;
Sub-Category D Licence, for Managing Insurance Products; and
Sub-Category E Licence, for Managing Other Types of Investment.
The management of funds is separate and distinct from the business of being a custodian of investments. To provide management of funds services, an entity would need to hold Category 5 (rather than Category 3) Investment Business License. As such the management of funds is outside the scope of the economic substance requirements.
The business of being an investment fund is not deemed to be a "Relevant Activity" and it is outside the scope of the economic substance requirements. However, if an entity carries on other activities, besides being an investment fund, and those activities do constitute a "Relevant Activity", then the economic substance requirements will still have to be fulfilled in respect of those other "Relevant Activities".
Finance and leasing business
An entity engages in "Finance and Leasing Business" where it is in the business of providing credit facilities of any kind for consideration. Such consideration may include interest and the provision of credit may be by way of installments, for which a separate charge is made and disclosed to the customer in connection with: (a) the supply of goods by hire purchase; (b) leasing other than any lease granting an exclusive right to occupy land, or (c) conditional sale or credit sale. Further, where an advance or credit repayable by a customer to a person is assigned to another person, that other person is deemed to be providing the credit facility.
An entity that provides credit as an incidental part of a different sort of business will not be treated as carrying on a "Finance and Leasing Business". For example, a merchant which supplies goods on account, thereby offering short term credit, will not be carrying on "Finance and Leasing Business". Only where the provision of credit can be seen to be a business activity in its own right will the entity be treated as if its business (or part of its business) is "Finance and Leasing Business".
Entities which carry on a factoring activity, by which they purchase and then collect another business’s book debts, will be treated as carrying on "Finance and Leasing Business". However, entities which hold debt or debt instruments for the purpose of investment will not be regarded as being in the business of providing credit facilities.
Although the activity is described as "Finance and Leasing Business", the essence of the activity, is the provision of credit facilities. So the mere fact that an entity leases items does not mean it is carrying on "Finance and Leasing Business". So short term hiring out of vehicles, boats or equipment will not be caught.
If an entity carries on business activities that fall within the definition of Banking Business, Insurance Business or Fund Management Business, then it will not fall within the scope of "Finance and Leasing Business". However, if the entity engages in Headquarters Business, Shipping Business, or Intellectual Property Business, this does not preclude it from carrying on a "Finance and Leasing Business".
Headquarters business
An entity engages in "Headquarters Business" where it is in the business of providing any of the following services to an entity in the same "Group" (defined below): (1) the provision of senior management; (2) the assumption or control of material risk for activities carried out by any of these entities in the same Group; and (3) the provision of substantive advice in connection with the assumption or control of risk referred to in (2).
Whether an entity carries on "Headquarters Business" is not dependent on its position in the Group structure. It is entirely dependent on the services it provides to other companies in the Group, whether Parents or Subsidiaries (terms defined below). For example; a Group includes, as a Subsidiary, a service company which employs all the employees in the Group. If senior management in the Group are employed by the service company it will be providing "Headquarters Business" services to the Group.
Any activity which might otherwise fall within the definition of "Headquarters Business", but which in fact forms part of another "Relevant Activity", will typically fall outside the definition of "Headquarters Business". However, it is possible for an entity to carry on both "Headquarters Business" and another form of "Relevant Activity", if the activities form two distinct business activities.
Defined Terms
The following terms shall be modified so that references to a company include references to a limited partnership, and other expressions appropriate to companies shall be construed as including references to the corresponding persons, documents or organs, as the case may be, appropriate to limited partnerships:
"Group" in relation to a company (the “first company”), means the first company and any other company that is: (a) a Parent of the first company; (b) a Subsidiary of the first company; (c) a Subsidiary of a Parent of the first company; or (d) a Parent of a Subsidiary of the first company.
"Parent", in relation to a company (the “first company”), means another company that, whether acting alone or under an agreement with one or more other persons; (a) holds, whether legally or equitably, a majority of the issued shares of the first company; (b) has the power, directly or indirectly, to exercise, or control the exercise of, a majority of the voting rights in the first company; (c) has the right to appoint or remove the majority of the directors of the first company; (d) has the right to exercise a dominant influence over the management and control of the first company pursuant to a provision in the constitutional documents of the first company; or (e) is a parent of a parent of the first company.
"Subsidiary" in relation to a company (the “first company”), means a company of which the first company is a parent.
Shipping business
An entity engages in "Shipping Business" where its activities involve operating a Ship (defined below) anywhere in the world, other than solely within BVI.
Operating a Ship means: (1) transporting, by sea, persons, animals, goods or mail; (2) renting or chartering of ships for the purpose described in (1); (3) selling travel tickets or equivalent, and ancillary services connected with the operation of a ship; and (4) using, maintaining or renting containers, including trailers and other vehicles or equipment for the transport of containers, used for transporting anything by sea; and (5) managing the crew of a Ship
The term "Ship" means every description of vessel used in navigation other than a:
(1) fishing vessel, being any vessel used or, intended to be used, for or in connection with fishing for sea fish, other than a vessel used or intended to be used for fishing otherwise than for profit or a vessel for the time being used or intended to be used wholly for the purpose of conveying persons wishing to fish for pleasure; or
(2) pleasure vessel, being any vessel including a dive boat which at the time it is being used is:
in the case of a vessel wholly owned by an individual or individuals, used only for the sport or pleasure of the owner (which includes a charterer) or the immediate family (i.e. the husband or wife of the individual and a relative (being a brother, sister, ancestor or lineal descendant) of the individual or the relative’s husband or wife) or friends of the owner; or
in the case of a vessel owned by a body corporate, one on which the persons are employees, officers or shareholders of the body corporate, or their immediate family or friends; and
on a voyage or excursion for which the owner does not receive money for or in connection with operating the vessel or carrying any person, other than as a contribution to the direct expenses of the operation of the vessel incurred during the voyage or excursion, or
(3) pleasure vessel being any vessel wholly owned by or on behalf of a club formed for the purpose of sport or pleasure which, at the time it is being used, is used only for the sport or pleasure of members of the club or their immediate family, and for the use of which any charges levied are paid into club funds and applied for the general use of the club.
In the case of any pleasure vessel referred to in (2) or (3), no other payments can be made by or on behalf of the users of the vessel, other than by the owner.
Holding business
An entity engages in "Holding Business" where it is in the business of being a "pure equity holding entity" i.e. an entity that only holds Equity Participations (defined below) in other entities and only earns dividends and capital gains. An entity will only fall within the definition of a being "pure equity holding entity" if it holds nothing but Equity Participations, yielding dividends or capital gains. The ownership of any other form of investment or asset (e.g. bonds, government securities, legal or beneficial interests in real property) will take an entity outside the scope of being a "pure equity holding entity".
However, an entity that holds assets that are not Equity Participations may still be found to carry on other "Relevant Activities" i.e. Banking Business, Insurance Business, Fund Management Business, Finance and Leasing Business, Headquarters Business, Shipping Business, Intellectual Property Business or Distribution and Service Centre Business. The fact that an entity engages in "Holding Business" does not preclude it from carrying on one or more of these other "Relevant Activities".
Defined Terms
"Equity Participations" include shares in a company and other forms of investments in an entity, which give the investor the right to participate in the profits of that entity. The interest of a general partner in a limited partnership will usually be of this quality. The word “dividends” will be construed broadly to encompass any payments made to an investor in respect of an Equity Participation.
Intellectual property business
An entity engages in "Intellectual Property Business" where it is in the business of holding Intellectual Property Assets (defined below) from which identifiable Income (defined below) accrues to the business, such income being separately identifiable from any income generated from any tangible asset in which the right subsists.
An entity that receives Income from Intellectual Property Assets that it has not developed itself or, as the case may be, is not actively exploiting, will be deemed to carry out "Intellectual Property Business". However, an entity that owns Intellectual Property Assets merely as an adjunct to its business will not be deemed to carry on "Intellectual Property Business". This is because most businesses will own some form of Intellectual Property Asset e.g. trade mark protection, copyright in their advertising material, technical know-how relating to their processes etc., but this Intellectual Property Asset, like premises or plant and machinery, does not earn specific amounts of revenue – it simply contributes to (or protects) the general profitability of the business.
Defined Terms
"Income" means royalties, capital gains and other income from the sale of an intellectual property asset, income from a franchise agreement, and income from licensing the intangible asset.
"Intellectual Property Assets" means any intellectual property right in intangible assets, including but not limited to copyright, patents, trade marks, brand, and technical know-how.
Distribution and service centre business
An entity engages in "Distribution and Service Centre Business" where it is in the business of: (1) purchasing from foreign affiliates component parts or materials for goods (or goods ready for sale) and reselling such component parts, materials or goods; and/or (2) providing services to foreign affiliates in connection with the business. This category of "Relevant Activity" has been created to prevent entities paying zero tax in the BVI from extracting profits from entities in other jurisdictions, which might be paying substantial tax on their profits.
For an entity to be classified as carrying on a "Distribution and Service Centre Business", it must have a business which consists of purchasing assets from other entities in the same Group (defined below), and/or a business providing services to entities in the same Group. The affiliates (defined below) in question must be “foreign” – that is to say an affiliate which is an entity which is not: (1) a BVI business company; (2) a BVI limited partnership (with legal personality); (3) a company incorporated outside of the BVI that is registered in the BVI as a foreign company; or (4) a limited partnership (with legal personality) formed outside of the BVI that is registered in the BVI as a foreign limited partnership.
The following activities do not constitute "Distribution and Service Centre Business": (1) the business of purchasing and reselling assets from, or providing services to, entities in the same Group both of which are located in the BVI; or (2) the business of purchasing and reselling assets from, or providing services to, entities which are not part of the same Group as the entity carrying on the business, even if located outside the BVI; or (3) occasional transactions within the description which do not form part of a business, but are undertaken ancillary to a different business.
If an entity carries on business activities that fall within the definition of Banking Business, Insurance Business, Fund Management Business, Finance and Leasing Business, Headquarters Business, Shipping Business, or Intellectual Property Business then it will not fall within the scope of "Distribution Service Centre Business". However, if the entity engages in "Holding Business", this does not preclude it from carrying on a "Distribution and Service Centre Business".
Defined Terms
A company is "affiliated" with another company if it is in the same Group as the other company. For the avoidance of doubt the following terms shall be modified so that references to a company include references to a limited partnership, and other expressions appropriate to companies shall be construed as including references to the corresponding persons, documents or organs, as the case may be, appropriate to limited partnerships:
"Group" in relation to a company (the “first company”), means the first company and any other company that is: (a) a Parent of the first company; (b) a Subsidiary of the first company; (c) a Subsidiary of a Parent of the first company; or (d) a Parent of a Subsidiary of the first company.
"Parent", in relation to a company (the “first company”), means another company that, whether acting alone or under an agreement with one or more other persons; (a) holds, whether legally or equitably, a majority of the issued shares of the first company; (b) has the power, directly or indirectly, to exercise, or control the exercise of, a majority of the voting rights in the first company; (c) has the right to appoint or remove the majority of the directors of the first company; (d) has the right to exercise a dominant influence over the management and control of the first company pursuant to a provision in the constitutional documents of the first company; or (e) is a parent of a parent of the first company.
"Subsidiary" in relation to a company (the “first company”), means a company of which the first company is a parent.