2020 ECONOMIC SUBSTANCE LAW – BRITISH VIRGIN ISLANDS
Since January 2020, the British Virgin Islands “BVI” will require all companies registered in the jurisdiction to report annually if the company is classified in a relevant activity and adopts economic substance (ES).
Companies should report to the British Virgin Islands Tax Authority “ITA” through their Registered Agent if the company participates in one or more relevant activities, classified into nine categories as follows: 1. Banking business. “Banking Business”; 2. Insurance business. Insurance Business; 3. Fund management business. Fund Management Business 4. Finance and leasing business. “Finance and Leasing Business”; 5. Headquarters business. Headquarter business; 6. Shipping Business. Shipping business; 7. Intellectual Property Business. Intellectual Property Business; 8. Distribution business and service center. “Distribution and Service Center Business”; 9. Business holding. Holding Business.
In order for the company to be classified in activities 1 to 8 above, it must demonstrate that:
1) Manages and directs business from BVI; 2) Performs its main income generating activity at BVI; 3) incur adequate expenses at BVI; 4) Has an adequate number of qualified employees at BVI; 5) Has adequate facilities at BVI.
Holding Business companies will have reduced ES requirements. (a) Companies that own equity must have (i) adequate numbers of qualified employees and (ii) premises to maintain equity interests or equities; or (b) companies that manage equity must have (i) an adequate number of qualified employees; and (ii) assumptions for managing equitable interests or actions.
Exceptions to Economic Substance
The ES requirements will not apply to companies that do not participate in a relevant classified activity or that are tax residents in a foreign jurisdiction that is not on the list of non-cooperative EU jurisdictions for tax purposes.
Legislation and rules contain flexible criteria for demonstrating tax residence. The criterion meets a company that is taxed in all its activities in a jurisdiction outside BVI, even if the company is not technically a tax resident in a foreign jurisdiction. To demonstrate that the company is a tax resident in a foreign jurisdiction, it must:
1. Issue a letter or certificate certifying that the company is a tax resident in a foreign jurisdiction; and
2. Provide ITA with one of the following:
a. Tax assessment of the company, issued by the foreign tax authority.
b. Confirmation of tax self-assessment by the company.
c. A tax invoice on behalf of the company issued by the competent foreign tax authority.
d. Proof of payment of tax issued by competent foreign tax authority.
e. Any other document proving foreign tax residence.
Legislation requires the company to prepare and file an ES report every year, even if the company is a tax resident in a foreign jurisdiction. The report will require the company to certify to ITA its relevant activity and falls under an exception to higher education.
The registered agent of the companies must collect the information contained in the ES annual report and file the ES report in ITA, observing the following deadlines:
For companies incorporated in calendar year 2019: The day before the anniversary of the date of incorporation and each year thereafter on the same date.
For companies incorporated before January 2019: June 30, 2020 and thereafter each year on the same date.
Legislation and rules impose severe fines and penalties for companies that fail to comply with the annual ES report or provide incomplete or inaccurate information in their ES reports. Fines range from $ 400,000, imprisonment for up to five years, company extinction order or all of the above.
Companies or individuals who submit false or misleading information will face harsh fines of up to $ 75,000, imprisonment of up to five years, or both.
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