We are pleased to be able to share with you some significant new developments regarding the applicability of the BVI economic substance requirements, and the procedures for satisfying the filing obligations of companies which are subject to them.

After much anticipation and speculation, the BVI International Tax Authority (ITA) has now released to the industry, a draft of the Data Model for filing companies’ details of their economic substance status, and related compliance measures (if applicable), via the BVI Beneficial Ownership Secure Search system (BOSSs) platform, together with an explanatory Economic Substance Decision Tree, a copy of which is available here.

It is anticipated that the portal for uploading economic substance data will be available by July 2020, and the process will be the same as under BOSSs, namely the registered agent will have the responsibility for uploading data and maintaining the database.

A brief period of consultation regarding the draft Data Model, provided the BVI Registered Agents Association with the opportunity to obtain welcome clarification from the ITA about some issues regarding the economic substance environment, which have been the source of considerable debate and uncertainty

The first such matter, is that of the relevance of income to whether a BVI company is carrying on a relevant activity bringing it within scope of needing to comply with economic substance requirements. And the good news, is that the ITA has confirmed that an entity should only be specified as carrying on a relevant activity if there is associated income. In the absence of such income, an entity will be considered to not be carrying on a relevant activity, and will have no filing obligation on the BOSS system other than to indicate it is not carrying on any relevant activity.

This is no doubt very welcome news to a great many clients who have been faced with a dilemma as to how to classify their BVI companies in light of the differing views that have previously been expressed on this issue, and having removed those concerns, will provide a clear and simple path forward for them to classify their companies, and authorize appropriate BOSSs filings in due course.

The second area in which much needed, but possibly less welcome, clarification has been provided by the ITA, is in connection with the position of pure equity holding companies (PEHCs). It had long been a commonly held view, that a BVI company carrying on this particular relevant activity in a passive manner, namely holding such equities on an investment basis, could satisfy its economic substance obligations simply by being in compliance with its statutory obligations under applicable BVI legislation, i.e. in the case of a company The BVI Business Companies Act 2004.

However, the ITA has clarified that in addition to being in good standing with its statutory obligations, such a company will also need to provide a declaration that it has adequate premises and employees in the BVI for holding equity participations. While a simple declaration to that effect will be sufficient for a passive PEHC, with no further details required at the filing stage, the ITA has indicated that it reserves the right to subsequently make further enquiries regarding a company’s statutory obligations, or its relationship with its registered agent, and to take those into consideration.

The message seems clear, therefore, that simply having appointed a registered agent, and having a registered office in the BVI, are not of themselves a total solution to achieving economic substance compliance for a passive PEHC , and something more will need to be in place and capable of demonstration to the ITA.

At Newhaven, with this in mind, we have a developed a simple, straightforward and cost-effective solution, that can be implemented quickly and conveniently, to put at rest any concerns whatsoever about your passive PEHC’s compliance with BVI economic substance obligations. Our dedicated Economic Substance Team can be contacted at bvies@newhavenglobal.com, for full details and a fee quote, or please feel free to get in touch with your usual representative at Newhaven.

As we are sure you are aware, time is quickly running out to get your economic substance compliance solutions in order, as the first financial period for legacy companies incorporated prior to 1^st  January 2019, will expire on 29th June 2020, after which the opportunity to get appropriate arrangements for compliance in place for that financial period will be permanently lost.

We look forward to being of service and assistance to you.

The NEST Team

Reference
Rules & Related Legislation