BVI economic substance - last chance to report
With timing running out before the 29 December 2020 deadline for BVI's economic substance reporting we've taken another look at the requirements.The legislative background
Deemed 'no or nominal tax' offshore jurisdictions have come under the spotlight in recent years after the EU and OECD introduced initiatives aimed at curtailing perceived harmful tax practices. Offshore financial centres such as the BVI have responded by bringing in updated economic substance legislation. The aim of this legislation is to require relevant vehicles undertaking 'relevant activities' to substantiate claims that they have sufficient substance in the BVI to be considered tax resident in the jurisdiction.Who must comply and how
The rules apply to all BVI companies and limited partnerships with legal personality. Those vehicles are required to complete annual reporting to the BVI government under the Code via their registered agent in the BVI.
For those who undertake 'relevant activities' they must demonstrate that they met the economic substance requirements as defined in the legislation in any financial period in which they carried out a 'relevant activity'.
As at the date of this article 'relevant activities' are banking fund management insurance shipping finance and leasing intellectual property and headquarters or a service centre in the BVI.When is the financial period for a legal entity and when must reports be submitted by?
The reporting deadline is defined by when a company or limited partnership is incorporated and when its financial year commences.
For entities incorporated on or after 1 January 2019 annual economic substance reports have to be submitted within six months from the end of their first financial year.
For example if a company was incorporated on 2 January 2019 its financial year would start on 2 January 2019 then its annual economic substance report would have been required on or before the 1 July 2020 (one financial year + six months).
For entities incorporated before 1 January 2019 the relevant financial period commences on 30 June 2019 and their first annual economic substance report must be filed by 29 December 2020. It is possible to amend the financial period although a financial period cannot be for more than one year.What happens if an entity does not comply with the regulations?
Any entity that does not comply with the BVI economic substance requirements will be subject to financial penalty and be at risk of being struck off.
All relevant entities established in the BVI must understand the rules and submission requirements to ensure compliance with the BVI economic substance regime.
To discuss whether your particular entity falls under the scope of BVI economic substance regime or for further advice and guidance on submitting a report before the end of the year talk to one of our BVI experts Jonathan Bailey Joanna Caen Monika Freemantle or Melanie Ison.