BVI Reporting Requirements for Economic Substance
By way of background, the Economic Substance (Companies and Limited Partnership) Act 2018 (as amended) (“the Act” or “the legislation”) sets out the requirements for entities in terms of substance. A draft Code accompanies the Act currently. The BVI business world has been eagerly awaiting the release of the final Code; anticipating this would be released prior to 30 June 2019, the start of the first default financial period for BVI entities established before 1 January 2019 (“existing BVI entities”).
Instead, and at the “eleventh hour” the BVI released a Statutory Instrument (SI 2019 No. 41, Economic Substance (Companies and Limited Partnerships) Act, 2018 (published in the Gazette 28 June 2019)), which has the effect of delaying the coming into force of Section 16 of the Act.
Section 16 amends the Beneficial Ownership Secure Search System Act 2017 (“the BOSS Act”). This Section will not now come into force until 1 October 2019. This is the Section that imposes additional annual reporting requirements on entities that fall within the scope of the legislation, with respect to their relevant activities and operating model. Whilst this change is important to the legislation, it does not overly affect what or when an entity is required to report, nor by when entities are required to be compliant or need to establish economic substance.
What it does mean is:
The Act is not repealed and remains in full force and effect except with respect to Section 16.
The Code remains in draft, as a guide to the operation of the legislation.
SI 2019 No.41 confirms Section 16 of the Act (i.e. the self-reporting regime under the Boss Act) will now come into force on 1 October 2019, rather than it becoming law by default on 30 June 2019.
There is no change to the annual reporting obligations under the legislation, which obligation commences for each entity at the end of its first financial period (i.e. the first default financial period being 12 months from the date its establishment for entities established on or after 1 January 2019 (new entities) and 30 June 2019 for existing BVI entities) and continues annually thereafter in respect of each subsequent financial period.
All entities are required to be compliant with the Act as it relates to the establishment of economic substance.
Anticipated Reporting Requirements
Upon Section 16 of the Act coming into force, entities that carry out a relevant activity must submit information on their relevant activities to their registered agents.
Entities that carry out a relevant activity and are in scope for the substance requirements must provide the following information in relation to the relevant activity (and each if more than one), on an annual basis:
Amount and type of gross income by relevant activity in the BVI
Amount of operating expenditure by relevant activity in the BVI (excluding capital);
Details of premises - business address
Details of any equipment held in the BVI.
Number of (qualified) employees, specifying the number of full time equivalents
Confirmation of the Core Income Generating Activities (CIGA) conducted for each relevant activity;
Details of those individuals giving direction and management and whether they are resident in the BVI.
Confirmation of whether any CIGA have been outsourced and if so relevant details.
The requirement for Intellectual property entities is expected to require some additional information concerning the entities activities within the BVI.
“Out of Scope” Entities
Entities that deem themselves to be non-tax resident in the BVI, are only required to state the jurisdiction in which they are tax resident and provide “sufficient evidence” to prove it. The form of such evidence is not defined within the codes, and due to the varying nature of tax systems across the globe, no definitive list of “acceptable” evidence is expected from the authorities in the near future.
Upon Section 16 of the Act coming into force, entities that are not carrying out any relevant activity would just need to notify their registered agent of this and to reconfirm this to them on an annual basis at the end of each financial period. No evidence would be required to confirm this.
The information will be submitted by the registered agent into the BVI’s existing BOSS system, though currently no further details are available as to the make up of this process.
Automatic Exchange of Information
Whilst not to the same scale of the Automatic Exchange arrangements under FATCA and CRS, there is an expectation that under certain circumstances the BVI authorities will exchange information with relevant overseas jurisdictions.
The expectation is that “Spontaneous” exchange of information to relevant overseas authorities will occur when there is a
Breach in Economic Substance requirements by an entity, or
An entity carries out IP business and presumed not carry out CIGA in the BVI.
It is also expected that some form of notification to relevant overseas authorities may occur if the entity is claiming to be tax resident in another jurisdiction.