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BVI Economic Substance Requirements for Financing and Leasing Business

Updated: Mar 10, 2020

For general background on The Economic Substance (Companies and Limited Partnerships) Act, 2018 (the "Economic Substance Act"), the related draft International Tax Authority Economic Substance Code that was issued on 22 April 2019 (the "Guidance") and for the meaning of 'legal entity', please click here

This update assumes that an entity has already been determined to be a 'legal entity' under the Economic Substance Act and that the 'legal entity' is now considering whether it is carrying on one of the nine categories of geographically mobile 'relevant activities' - in particular, under the 'financing and leasing business' category.

What is 'Financing and Leasing Business'?

'Finance and leasing business' in the Economic Substance Act is defined to mean 'the business of providing credit facilities of any kind for consideration'.

The Economic Substance Act further provides (at section 3) that:

(a) the consideration may include consideration by way of interest;

(b) the provision of credit may be by way of instalments for which a separate charge is made and disclosed to the customer in connection with:

  • (i) the supply of goods by hire purchase;

  • (ii) leasing other than any lease granting an exclusive right to occupy land; or

  • (iii) conditional sale or credit sale;

(c) 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;

(d) any activity falling within the definition of 'banking business', 'fund management business' or 'insurance business' is excluded from this definition (please refer to our separate updates on these separate categories of 'relevant activities'). .

Economic Substance Test

If a 'legal entity' only carries on a 'relevant activity' that is a 'financing and leasing business', it will be subject to the economic substance test set out in the Economic Substance Act. The economic substance test can be satisfied in relation to that 'banking business' if the 'legal entity' ensures that:

(a) the 'financing and leasing business' is directed and managed in the British Virgin Islands;

(b) having regard to the nature and scale of the 'financing and leasing business':

  • (i) there are an adequate number of suitably qualified employees in relation to that activity who are physically present in the British Virgin Islands (whether or not employed by the relevant legal entity or by another entity and whether on temporary or long term contracts);

  • (ii) there is adequate expenditure incurred in the British Virgin Islands;

  • (iii) there are physical offices or premises as may be appropriate for the core income generating activities (as described below in the context of 'banking business');

(c) the legal entity conducts core income generating activity in the British Virgin Islands as described below in the context of 'financing and leasing business': and