BVI Updates – The Economic Substance (Companies and Limited Partnerships) Act, 2018

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Further to our E-Newsletter of 22 January 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”), the International Tax Authority (“ITA”) published a draft Economic Substance Code (the “Code”) on 23 April 2019, this is expected to be finalised soon.

The Economic Substance Code

The Code highlights the following key points:

  • An entity will be treated as carrying on a relevant activity in the BVI during any financial period in which it receives income from that activity.
  • The initial financial period for new entities (incorporated or formed on or after 1 January 2019) is 12 months from the date of formation. For existing entities, the initial financial period is 12 months from 30 June 2019.
  • Ownership by an entity of any investment, including bonds and cash, other than equity participations will mean that it is not a pure equity holding entity and providing no further relevant activities are undertaken will fall out of scope.
  • The business of being an investment fund (licensed by Securities and Investment Business Act) is not a relevant activity and therefore outside of scope of the economic substance requirements. However, if the fund carries on other activities that are “relevant activities” then this will bring it back in scope.
  • An entity which provides credit as “an incidental part of a different sort of business” will not be treated as carrying on financing and leasing business. For example, a builder’s merchant which supplies goods on account, thereby offering short term credit, will not be carrying on a finance and leasing business. Only where the provision of credit can be seen to be a business activity in its own right will the entity be treated as conducting financing and leasing business.
  • Entities which hold debt or debt instruments for the purposes of investment will not be regarded as being in the business of providing credit facilities (and therefore outside of financing and leasing business).

A link to the draft Code can be found at:

What will relevant entities that carry on relevant activities need to do?

An analysis will need to be carried out to assess whether a relevant entity is conducting any relevant activity, and any affected entities will need to consider their position and take appropriate action.

Entities which are subject to the economic substance requirements (other than pure equity holding entities, as described below) must manage and direct the relevant activity in the BVI and conduct core income-generating activity. They must also, taking into account the nature and scale of the relevant activity, show that they have an adequate level of employees and expenditure in the BVI and appropriate physical offices or premises for the core income generating activity. It should be noted that outsourcing of the income generating activity is permitted in certain circumstances.

Intellectual property businesses have a higher level of substance that needs to be achieved in order to satisfy the economic substance requirements.

A different test applies to 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. Under this test, the relevant entity will be deemed to have adequate substance if it complies with its statutory obligations under the BVI companies / limited partnership laws and has adequate employees and premises for holding and, where relevant, managing those equity interests.

If you have any questions regarding the above, please feel free to contact your Sertus Client Services Representative or contact us at

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