Since the introduction of the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the ES Act), relevant legal entities registered or existing in 2019 should by now have submitted their economic substance reports to be uploaded onto the BVI International Tax Authority (ITA)’s secure reporting database.
The ITA is now in the process of auditing those reports to verify entities’ declarations – including where an entity has submitted a “nil return”. The audit request includes questions around the purpose of the entity, its assets and its activities. It also includes questions around how the entity made its determination as to whether it was carrying on any “relevant activity” for the purposes of the ES Act during the financial period.
There is a continuing obligation on every BVI company and limited partnership (and hence their directors or general partners, as applicable) to identify and report on whether the entity carries on any relevant activity – failure to do so without reasonable cause is an offence carrying significant penalties (and, in limited circumstances, personal liability). We recommend that directors and operators of BVI legal entities ensure that that they are able to produce robust evidence of the basis on which they classified their entity and to show that they have exercised all reasonable diligence in identifying and reporting the prescribed economic substance information. This could include formal memoranda of legal advice and minutes or resolutions recording steps taken to ensure compliance.
Need help to classify your entity?
Our online Economic Substance Classification Solution provides the quickest and most cost-effective way for entities to demonstrate that they have taken formal legal advice on their position under the ES Act to determine whether they are conducting a relevant activity and their entity’s tax status (where relevant). It provides a formal memorandum of advice from the leading law firm in the BVI on a reliance basis for a low fixed fee, together with pro forma resolutions in some cases.
Who needs to classify?
Every company or limited partnership registered in the BVI, even if not conducting any relevant activity or claiming the tax “non-resident” exemption from the economic substance requirements, must classify itself and submit a report. The ES Act was amended in July 2021 to bring limited partnerships without separate legal personality within the regime. Click here to learn more about these changes.
If you have not yet classified your entity due to it being recently formed, restructured or used for a new purpose, or if you are based in a jurisdiction that has come on or off the European Union’s “tax blacklist”, you will need to classify your entity and provide the results to your registered agent with enough time to allow for processing and reporting.
How can Harneys help?
If you have any queries regarding the economic substance regime, our expert team of lawyers would be happy to assist. Please click here to contact them.