Further to our E-Newsletter of 22 January 2019 and 31 May 2019 regarding the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the “Act”) which came into force on 1 January 2019 in the British Virgin Islands (“BVI”), we have set the following further details on reporting obligations and mechanism for your information.
Out of Scope Legal Entities
- A BVI business company or limited partnership with legal personality (“LP”) which is not carrying on any relevant activity will need to file an annual return stating that it does not carry on a relevant activity.
- A BVI business company or limited partnership with legal personality which does not satisfy the definition of “legal entity” because it is resident for tax purposes in a jurisdiction outside the BVI (and not in a jurisdiction which is on the European Union list of non-cooperative jurisdictions for tax purposes) will need to demonstrate to the BVI authorities that it is resident for tax purposes outside of the BVI.
In-Scope Legal Entities
A legal entity carrying on a relevant activity must provide the following information to its’ BVI registered agent for uploading onto the BVI Beneficial Ownership Secure Search (“BOSS”) system. Such information will be provided to the International Tax Authority (the “Authority”) via the BOSS system and the Authority may use the information to discharge its duty to supervise and enforce the economic substance requirements:
(a) the total turnover generated by the relevant activity;
(b) the amount of expenditure incurred on the relevant activity within the BVI;
(c) the total number of employees engaged in the relevant activity;
(d) the number of employees engaged in the relevant activity within the BVI;
(e) the address of any premises within the BVI which is used in connection with the relevant activity;
(f) the nature of any equipment located within the BVI which is used in connection with the relevant activity; and
(g) the names of the persons responsible for the direction and management of the relevant activity, together with their relationship to the company and whether they are resident in the BVI.
The Authority may also require a relevant entity to provide additional information (including copies of books, documents or other records, or of electronically stored information) and failure to provide requested information without lawful excuse or within the time specified by the Authority is an offence.
Timing
Existing companies and LPs (formed prior to 1 January 2019) must comply with economic substance requirements by 30 June 2019 and originally meet the BOSS reporting obligations within six months of the end of their first financial period ending no later than 30 June 2020. Thereafter, reporting is an annual obligation.
New companies and LPs (formed on or after 1 January 2019) must comply with economic substance requirements immediately and to meet the relevant reporting obligations originally within six months of the end of the first year (or financial period) of operation. Thereafter, reporting is an annual obligation.
Penalties
Any legal entity carrying on a relevant activity and which fails to comply with the economic substance rest is subject to penalty, strike off, or both. There will be a three-stage regime for sanctions:
- Upon the initial determination that a legal entity is non-compliant, the Authority will issue a notice and indicate steps to attain compliance, accompanied by a minimum USD5,000 fine.
- Failure to attain compliance in subsequent years will meet an escalating fine.
- Striking off the legal entity will be the ultimate recourse.
Next Steps
The Act relies on a self-reporting regime in which registered agents are required to take steps to collect the economic substance information from clients, and clients are required to provide the required information.
Please pay attention that further regulations concerning filing format and submissions periods are currently being drafted by the Authority and Sertus will keep you updated once the information has been published.
If you have any questions regarding the above, please feel free to contact your Sertus Client Services Representative or contact us at info@sertus-inc.com.