Rules on Economic Substance in the BVI4th March 2020
As you will know from our previous updates, the Rules on Economic Substance in the BVI were published by the BVI International Tax Authority (ITA) on 9 October 2019 and were updated on 10 February 2020 (the Rules). If you have not seen it already, take a look at our Quick Recap Video here.
We consider that the changes are mostly common-sense based and reflect a refinement of the first draft of the Rules. In summary, the changes primarily relate to the following areas:
- Intellectual Property: A number of examples have been provided [para 5.31] to assist individuals in their analysis of whether an entity falls within this relevant activity. It has also been made clear that entities that fall within this category (and are deemed “high risk”) carry the evidential burden of demonstrating that no core income generating activities have been carried out for all historic periods when the IP business was being carried out.
- Pure Equity Holding: Clarification has been provided that an entity that falls within this relevant activity, cannot carry out another relevant activity, which seems logical.
- Banking, Insurance, and Fund: It is now clear that entities licensed for these types of business in BVI, will be subject to the Rules and any consequent ES requirements.
- Foreign Residence: Entities that claim to be tax resident in another jurisdiction will need to upload evidence of this into BOSS and the Rules relating to evidence of this are now slightly more pragmatic.
- Direction and Management: It has been emphasised that in order to get adequate substance, directors need to be appropriately qualified; the Board as a whole must have necessary knowledge and expertise to make strategic decisions and these must be taken in the BVI [para 7.4]. This means that nominee directors in BVI will not be adequate and conversely, will result in the likely growth of governance and sector segment specialists on Boards to ensure governance standards are met – which is an area that Newhaven is particularly well placed to assist with.
- Outsourcing: It has been made clear that when any activity is outsourced the monitoring of the outsourcing needs to take place in the BVI [para 7.22].
This note is intended as a brief bulletin. If you would like more information, an official status report or even a legal opinion to support your classification, then please reach out to your local account manager at Newhaven or firstname.lastname@example.org...and don’t forget, if you have not classified by now, you should have! Here is a quick link to our NEST platform!