Deadline for Economic Substance Filing for Most BVI Companies is Fast Approaching.

December 29, 2020 marks the date by which most companies and limited partnerships registered in the BVI are required to submit their first Economic Substance filing to the BVI International Tax Authority. 

The Economic Substance (Companies and Limited Partnerships) Act, 2018 (“TheAct”) came into force on 1 January 2019.  The Act requires all BVI entities classified as a “legal entity” conducting “relevant activity”, to maintain economic substance and make reports to the BVI International Tax Authority (“ITA”) via its registered agent.  A legal entitywhich does not conduct relevant activity is required only to submit notifications to the ITA. 

The deadline for submission of an economic substance filing to the ITA is 6 months after the end of the Reporting Period.

  • For New Entities (incorporated after 1/1/2019), the Reporting Period ends 12 months from the date of incorporation.  For example, if incorporated on May 1, 2019, the reporting period ends on April 30, 2020 and submission is due by October 29, 2020.
  • For Existing Entities (incorporated pre-2019), the initial Reporting Period was set to end on June 29, 2020 which means that submission is due by December 29, 2020.  

Therefore,for the majority of BVI companies the deadline for submission is fast approaching.

Companies are required to provide their relevant agents with the relevant information to enable them to submit the filing by the deadline date to avoid potentially severe fines and consequences.

The Act provides that on a first determination of non-compliance, the ITA shall issue a notice to the legal entity notifying:

(a) that it has determined that the legal entity has not complied with the economic substance requirements for that financial period,

(b) the reasons for determination,

(c) the amount of penalty imposed,

(d) the date on which the penalty is due, being not less than 28 days after the issue of the notice,

(e) what action should be taken by the legal entity to meet the economic substance requirements and the date by which such action needs to be taken, and

(f) the legal entity’s right of appeal.

In terms of the quantum of penalties, the initial fine can be up to US$20,000 or $50,000 for high-risk IP legal entitieswith $5,000 being pegged as the minimum fine. Continued failure to comply can lead to maximum penalties of up to $200,000 or $400,000 for high-risk IP legal entities. Furthermore, there may be criminal penalties assessed for failing to provide information or knowingly providing false information and ultimately a company may be struck from the Register.

In light of the above, companies incorporated before January 1, 2019 that have not yet filed, should now be taking urgent, positive and deliberate steps to ensure that they comply on or before December 29, 2020.

Written by:Glenn Harrigan, ACA

Guide to Six Typical uses of BVI Business Companies

The BVI is by far the world’s pre-eminent choice of offshore corporate domicile with well over 1 million companies formed and over 380,000 currently active on the register. On a practical level however, many persons wonder what some of the most popular uses of a BVI Business Company are. Below is a guide which provides an outline of six typical uses:

1. Primary Vehicle for Operational Companies. BVI companies are often used as the primary vehicle under which a business is operated. This can be a Factory, an Import Export business, an IT Consulting Firm, a product sales website. Such businesses although incorporated in the BVI typically operate in the country or countries adjacent to where the owner is based.

2. Holding Company for Investments. A BVI company is typically used to hold an investment(s) for the benefit of an individual or family office. The form of investment may vary. For example, a portfolio of stocks and bonds at a global investment bank, a commercial complex in Singapore, a residential rental property in London or, an Art collection to name a few.

3. Ship Registration. – Persons choosing to register ships in the British Virgin Islands typically use a British Virgin Islands company to own the ship.

4. VISTA Trusts – unique only to the BVI, a VISTA trust enables a settlor to set up a trust where the trustees are subject to limitations on their ability to intervene in the management and operations of the trust assets. So, for example a settlor can create a trust to own shares in a BVI Company under which a family business operates, confident in the knowledge that he can exercise full control over the business except for rare situations where control reverts to the trustees. Combining a BVI company with a VISTA trust allows a family to access the benefits of a trust arrangement such as estate and succession planning without being subject to trustee intervention and interference which are the hallmarks of standard trusts in other jurisdictions.

5. Funds – BVI law allows for private, professional and public funds. Wealthy individuals are mostly attracted to the private funds which limit the number of investors to 50. A company can be used as the vehicle to set up the fund and a director of the fund can thereafter manage assets subject only to restrictions contained in the fund offering documents. Shares can be easily issued to family members and they can easily be redeemed or separated into different classes with different rights.

6. Initial Coin Offerings – Initial currency offerings (ICO) for new crypto-currencies have become increasingly popular over the past two years. Although there are no specific crypto, blockchain or ICO provisions or guidelines built into any BVI Legislation at present, BVI companies provide certain inherent advantages which have made the BVI an attractive jurisdiction with several successful launches in recent times.

Written by: Glenn Harrigan