BVI economic substance requirements

Effective January 2019, British Virgin Islands (BVI)-incorporated companies and limited partnerships must adhere to economic substance requirements (ESR) rules.

  • ESR rules

    • ESA rules apply to all BVI LLCs and limited partnerships, which carry out the following ‘relevant’ activities: i) banking and insurance ii) fund management iii) finance and leasing iv) headquarters business v) shipping vi) pure holding equity business vii) intellectual property and viii) trading companies (distribution and services centres).
    • If an entity carries out more than one relevant activity at a time, ESRs must be satisfied for each activity.
    • Any BVI entity carrying out a relevant activity has two options:
      • Demonstrate tax residence in a jurisdiction outside the BVI. Annually, the shareholders and directors must submit a declaration to the BVI government confirming where the LLC is tax-resident. Non-resident BVI LLCs must also annually supply the government evidence the entity is tax-resident overseas including i) foreign tax registration numbers and ii) foreign tax returns.
      • Demonstrate economic substance of a relevant activity within the BVI. Tax-resident BVI LLCs and limited partnerships must supply to the government evidence they have a physical office and staff and active director(s) in the BVI.
    • Because of the above changes, on 18 February 2020, the EU moved the BVI to the whitelist from the so-called grey list.
    • These reforms are an attempt by the BVI government to improve the reputation of BVI companies, negatively perceived as ‘tax haven’ entities by international banks, governments, investors, and customers.
  • Reporting requirements

    • Under the Beneficial Ownership Secure Search System Act, 2017, all legal entities (even those that are exempt from ESR rules) must submit a self-assessment reporting (declaration) to the ITA within six (6) months of the last day of its financial period.
    • The above reporting includes i) ultimate beneficial owners, corporate and legal entities information ii) name, incorporation number and jurisdiction of incorporation of the parent company (if any) iii) its 12-month financial period iv) business activities details v) amount and type of gross income vi) amount and type of expenses and assets.
    • If the entity is engaged in relevant activities, the following is required: i) total turnover generated by the relevant activity ii) amount of expenditure iii) total number of employees iv) addresses of any premises within the BVI v) names and address of the persons responsible for the direction and management of the relevant activity.
    • If no relevant activity was carried out during a financial period, a “NIL return” is required.
    • All legal entities must complete and submit their economic substance report within six (6) months of the end of their financial period (or 18 months from the start of their financial period).
    • For companies incorporated on or after 1 January 2019 the financial period begins on the date of its incorporation and ends 12 months thereafter.
    • For companies incorporated prior to 1 January 2019 will commence on a date on or after 30 June 2019.
    • For new legal entities, ESRs will apply for only that part of the financial period during which the relevant activity is being conducted.
    • If required, every legal entity can modify its financial periods by notifying the ITA.
    • Where an entity claims to be tax-resident outside the BVI, the ITA will send a notification of this claim to the tax authorities of the specified foreign jurisdiction. In addition, if the beneficial owner of the entity is resident in an EU member state, the ITA will notify the competent authority of that EU member state that the entity is claiming tax residency outside of the BVI, and the ITA will provide the competent authority with the name of the jurisdiction in which tax residency is being claimed.
  • Problems and solutions

    Healy Consultants Group PLC will help multi-national Clients as follows:

    New legal requirementSimple, practical low cost solution

    BVI companies and limited partnerships engaged in relevant activities must i) conduct core income generating activity (“CIGA”) in the BVI ii) rent physical office space in the BVI iii) hire adequate number of qualified employees, who are physically present in the in BVI and iv) have active directors in the BVI and v) to have an adequate number of board meetings held in the BVI.

    BVI companies and limited partnerships engaged in relevant activities must i) conduct core income generating activity (“CIGA”) in the BVI ii) rent physical office space in the BVI iii) hire adequate number of qualified employees, who are physically present in the in BVI and iv) have active directors in the BVI and v) to have an adequate number of board meetings held in the BVI.

    The above requirements do not apply to a holding business (ie the business of a pure equity holding company). See below.

    Healy Consultants Group PLC will assist you to:

    • Locate a small shared physical office space for a one-time fee of US$950. Rental fees are then paid by our Clients directly to the landlord.
    • Recruit a local, low-salary admin employee for a one-time fee of US$4,950.
    • Secure your local visa for a one-time fee of US$4,950.
    • Appoint a company secretary for an annual fee of US$4,500. Healy Consultants will act as our Client BVI Company Secretary, for which our annual responsibilities include i) securely maintaining company records; ii) liaising with the BVI government on behalf of our Client; iii) legal filing of changes of company structure; and iv) ensuring company record compliance with local company law; v) assistance to arrange the Annual General meeting; vi) provision of annual economic Substance Act compliance certificate.

    A pure equity holding entity (which carries on no relevant activity other than holding equity participations in other entities and earning dividends and capital gains) must have in the BVI adequate employees and premises for holding or managing its equity participations.

    All legal entities that hold assets that are not equity participations (e.g., real estate, bank accounts) are not pure equity holding entities. If such entities do not carry on any other relevant activity, they will not be subject to economic substance requirements

    Healy Consultants Group PLC will assist you to:

    • Locate a small shared physical office space for a one-time fee of US$950. Rental fees are then paid by our Clients directly to the landlord.
    • Recruit a local, low-salary admin employee for a one-time fee of US$4,950.

    All legal entities (even those that are exempt from the substance requirements) must submit the self-assessment reporting (declaration) to its registered agent within six (6) months after the last day of its financial period.

    The declaration includes i) ultimate beneficial owners, corporate and legal entities information ii) name, incorporation number and jurisdiction of incorporation of the parent company (if any) iii) its 12-month financial period iv) business activities details v) amount and type of gross income iii) amount and type of expenses and assets.

    • For a fee of US$600, Healy Consultants Group PLC will prepare and file this report for an active company. For a dormant company the fee is US$450.
    • The contents of this report will be agreed with our multi-national Clients, to ensure their business goals continue to be met.

    Our Client wishes to shorten or lengthen its financial period.

    • For a fee of US$350, Healy Consultants Group PLC will assist our Client to prepare and submit a written notice to the ITA for an earlier commencement or termination date of a company’s Financial Period or other alteration of it.

    Failure to timely comply with the above may result in i) a fine of penalty ranging between US$5,000 and US$20,000 (US$50,000 if the entity is a provide false information to the ITA or to fail to provide information in response to an ITA request.

    For providing false information to the ITA or failing to provide information in response to an ITA request, the person may be liable to a term of imprisonment of up to five (5) years and a fine of up to US$75,000 (for high-risk IP entity) and/or dissolution of the company.

    • Together with our multi-national Client, Healy Consultants Group PLC will timely accurately and completely discharge your BVI annual legal, accounting and tax obligations.
    • If required, Healy Consultants Group PLC will assist you to prepare accurate and complete financial statements for your BVI business, for these accounting and tax fees.
    • While the preparation of annual financial statements is not legally required, Healy Consultants Group PLC recommends our Clients prepare them, in case the government of the British Virgin Islands or of their country of domicile requires to sight them.

    Our multi-national Client does not want to submit an annual ESR report to the British Virgin Islands government.
    In 2021 i) there is a 50% probability that BVI will be blacklisted again by the EU or another western government and ii) it will become even more challenging to secure and maintain multicurrency corporate bank account numbers for BVI LLCs

    • Our client can modify the activity so it no longer falls within the scope of a relevant activity.
    • We help our Client re-domicile the British Virgin Islands entity to alternative reputable zero tax jurisdictions, including Singapore or Delaware.

Conclusion

As a short-term solution, engage Healy Consultants Group PLC to register for your BVI company for tax, and complete its international accounting and tax filing obligations. Refer to this webpage for more information on why you should transfer your firm to Healy Consultants Group PLC;

As a long term solution, engage Healy Consultants Group PLC to re-domicile your British Virgin Islands business or register a new business in a reputable zero tax country.

Contact us

For additional information on our company registration services in BVI, please contact our in-house country expert, Mr. Kunal Fabiani, directly:
client relationship officer - Kunal