British Virgin Islands economic substance (ES) update – ITA Rules updatedDownload pdf
The BVI International Tax Authority (ITA) published an updated version 3 of its rules and explanatory notes on ES in the BVI (the Rules) on 23 February 2023.
The Economic Substance (Companies and Limited Partnerships) Act (the ES Act) was introduced in the BVI, effective 1 January 2019, to address the concerns of the EU Code of Conduct Group and the OECD Forum on Harmful Tax Practices regarding ES.
The ES reporting regime was introduced via amendments to the Beneficial Ownership Secure Search System Act (the BOSS Act).
Why is this relevant?
All companies and limited partnerships registered in the BVI (Entities, which include foreign entities) should ensure that they have adequate systems and controls in place to comply with their obligations under the ES Act and the BOSS Act and are aware of their compliance and reporting obligations, even if the Entity does not carry on any of the nine “relevant activities” or is otherwise able to claim exemption from the ES requirements due to their tax status.
This is now a requirement of BVI law following amendments to the International Tax Authority Act, and the ITA has indicated that it expects to see robust written records (which may include resolutions of the director(s) or general partner(s) of the Entity) to evidence that Entities have properly considered their obligations and put systems in place to ensure compliance. Regard must be had to the Rules as the official guidance published by the ITA.
Entities should also ensure they have considered their reporting obligations, as every Entity is required to submit an annual ES declaration to the ITA via its BVI registered agent within six months of the end of the relevant ES financial period (the FP, which is not the same thing as an accounting or fiscal year). The ES reporting regime has been expanded significantly for FPs commencing on or after 1 January 2022, following amendments to the BOSS Act in 2021.
What are the key changes in v3 Rules?
V3 of the Rules reflects certain significant amendments to the ES Act and BOSS Act made during the course of 2021, and includes helpful further guidance and worked examples.
Download our guide to read more.