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BVI | Economic substance overview

BVI Economic Substance

In 2016, the EU adopted criteria covering fiscal transparency, fair taxes, erosion of the tax base and transfer of benefits (BEPS), and evaluated countries during a process carried out in 2017.

The OECD adopted “Economic Substance” requirements to apply to zero or low income tax jurisdictions.

This means that the ‘Economic Substance’ rules will no longer be an EU standard but a global standard.

The BVI “Economic Substance (Companies and Limited Partnerships) Act” entered into force on January 1, 2019 and applies with immediate effect to all legal entities incorporated or formed as of January 1, 2019.

The Relevant Activities are:

 Banking business,
 Insurance business,
 Fund management business,
 Financing and financial leasing business,
 Company headquarters business,
 Shipping business,
 Asset Holding (Holding),
 Intellectual property business,
 Distribution and service center business.

The “Rules on Economic Substance in The Virgin Islands” in Section 2, Subsection 2.9 read:

Any entity that carries out a relevant activity that is potentially within the scope of the legislation has, in general terms, three options:

(a) can ensure that the substance of the relevant activity takes place within the British Virgin Islands.

(b) you can suspend the activity or modify it so that it is no longer within the scope of a relevant activity, or.

(c) can demonstrate tax residency in a jurisdiction outside the British Virgin Islands.

An entity that does not take steps to bring its relevant activity outside the scope of the law, or to bring it into compliance with the law, can expect to be subject to enforcement procedures.

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