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BVI economic substance update – limited partnerships and investment funds

19 Jul 2021

The Economic Substance (Companies and Limited Partnerships) Act 2018 (the ESA) was updated on 29 June 2021, with consequential amendments being made to the Beneficial Ownership Secure Search System Act, 2017 (BOSS) on 16 July 2021 as well.

The key high–level points to note are the inclusion of limited partnerships without legal personality in the regime and an express carve-out clarifying that “investment fund business” is not a relevant activity requiring economic substance.


The Economic Substance (Companies and Limited Partnerships) Act, 2018 was introduced in the BVI, effective 1 January 2019, to address the concerns of the EU Code of Conduct Group (COCG) and the OECD Forum on Harmful Tax Practices regarding economic substance.

It was always anticipated that the ESA, BOSS and other ancillary legislation would be updated as the regime matured and the latest updates were certainly anticipated by the industry.

We expect that consequential amendments to the International Tax Authority (the ITA) rules and explanatory notes will be published soon.

Limited partnerships

Broadly, prior to this amendment, a limited partnership without legal personality (a Relevant LP) was not a “legal entity” and so outside the regime and did not need to conduct an analysis of its position accordingly. The update ensures that all limited partnerships (including foreign limited partnerships) registered in the BVI are relevant legal entities.

The inclusion of all remaining limited partnerships was expected and was discussed on 18 March 2021 on our popular Substance on Substance podcast series. The change simply reflects requirements of the COCG and is noticeable in all of the comparable jurisdictions as well.

In practical terms, the impact of this change is expected to be fairly limited as many Relevant LPs are investment funds or transparent “look-through” vehicles under applicable tax regimes, which may qualify them for exemption from economic substance requirements (if they carry on relevant activity) anyway.

Timing and transitional provisions

The first “financial period” of a new Relevant LP formed on or after 1 July 2021 will commence on its date of formation or registration in the BVI. It is worth highlighting again that this “financial period” is a specific term under the ESA and does not directly correlate to the accounting financial period of the relevant entity.

There are transitional provisions for existing Relevant LPs similar to those which appeared for pre-2019 entities in the original ESA. The first financial period of a Relevant LP formed or registered prior to 1 July 2021 must commence no later than 1 January 2022 and so we fully anticipate that all existing Relevant LPs will select 1 January 2022 as the commencement of their first financial period.

Investment funds

The latest inclusion of a definition of “investment fund business” in the ESA is a helpful confirmation and ratification of the general position that the financial services industry in the BVI has always adopted that a legal entity established to operate as an “investment fund” will not be conducting one of the nine relevant activities.

Broadly, this definition will catch most vehicles in typical fund structures but not an entity that is itself the ultimate target.

For a legal entity that is an “investment fund” to be found to be conducting a relevant activity pursuant to the ESA, it will need to be shown that it is conducting a separate and distinct business activity in its own right. Otherwise, an investment fund will always be submitting a “nil return” to the ITA as part of its annual filing requirement.

Therefore, the directors of a legal entity that falls into the definition of investment fund (or the general partner, where it is a Relevant LP) will still need to determine whether it conducts any activities other than investment fund business and we would recommend that this determination is documented accordingly.

Other amendments

Most of the other amendments are relatively minor for clarification or enacted in primary legislation provisions which previously appeared in Regulations or other legislation.

These changes include:

  • clarification regarding the services-related limb of the distribution and service centre business definition, which applies to legal entities with a business of providing consulting or administrative services to foreign affiliates
  • further definition of “core income generating activities” as the activities that are of central importance to the relevant entity in terms of generating relevant income and must be carried on in the BVI

If you have any questions regarding the amendments or how they may apply to your BVI entity, Harneys’ team of economic specialist lawyers can be contacted via this link.