The British Virgin Islands International Tax Authority (ITA) published a draft Economic Substance Code (the draft Code)
The draft Code is supplementary to the Act and contains details on how the economic substance requirements may be met and guidance on the interpretation of the legislation and the manner in which the ITA will carry out its functions. It must be noted that the Code is guidance only on the interpretation of the legislation and is not legally binding.
Which entities will be affected?
The rules require entity which carry on ‘relevant activities’ in an offshore jurisdiction and are not tax resident in another jurisdiction, to comply with the economic substance requirements for such activity in the offshore jurisdiction.
Relevant activities for the purposes of this legislation covers the following nine businesses:
- Banking business
- Distribution and service centre business
- Finance and leasing business
- Fund management business
- Headquarters business
- Holding company business
- Insurance business
- Intellectual property holding business
- Shipping business
What are the economic substance requirements?
A legal entity which carries on one or more relevant activity are subject to the economic substance requirements must conduct “Core Income Generating Activity” (CIGA) in the BVI relating to that activity in respect of the relevant activity are:
- The entity be managed and directed in the BVI;
- Core income generating activities are undertaken in the BVI with respect to the relevant activity;
- The entity maintains adequate physical presence in the BVI;
- There are adequate number of employees in the BVI with suitable qualifications; and
- There is adequate operating expenditure incurred in the BVI in relation to the relevant activity.
What are the reporting obligations?
A relevant entity will be required to provide information to International Tax Authority (TIA) annually to report whether the relevant entity is carrying on relevant activities and, if so, whether it is complying with the economic substance requirements. It requires legal entities to submit information on an annual basis with details of any relevant activities carried on during the relevant reporting period and how they satisfy the economic substance requirements. Entities which are not tax resident in the BVI will have to notify details of the jurisdiction where they are tax resident.
Obligations of the entities that is carrying on a “relevant activity”
Entities that carry out a relevant activity and are in scope for the substance requirements must provide the following information in relation to the relevant activity (and each if more than one), on an annual basis:
- Amount and type of gross income by relevant activity in the BVI
- Amount of operating expenditure by relevant activity in the BVI (excluding capital);
- Details of premises – business address
- Details of any equipment held in the BVI.
- Number of (qualified) employees, specifying the number of full time equivalents
- Confirmation of the Core Income Generating Activities (CIGA) conducted for each relevant activity;
- Details of those individuals giving direction and management and whether they are resident in the BVI.
- Confirmation of whether any CIGA have been outsourced and if so relevant details.
We are here to support you
KPC is a professional business service provider, we partnered with experienced and trusted offshore registered agent to provide professional supports to our clients.
Although the final Code is not yet published, as directors, owners, managers of a BVI company, you do need to do something. You need to ensure that you understand the new legislation and its impact, so that you make the best decisions for your entity.
We can help you make the appropriate determination and provide preliminary assessments of your company’s current compliance obligations, and assist with possible future strategies.
For further information, please feel free to contact our corporate service team at [email protected] for further support.
KPC Corporate Services
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