SUBSTANCE IN BVI - Extended Term

Walking the path towards fiscal transparency and in order to adapt to the global standards imposed by the BEPS plan ( base erosion and profit shifting) , which tries to combat fiscal erosion, is that the British Virgin Islands (BVI) approved the past January 1, 2019 Act 2018, which regulates the economic substance applicable to companies and limited liability companies incorporated in said jurisdiction, including those incorporated abroad registered with BVI (hereinafter the “Companies”).

Scope of regulations

The new approved regulation establishes that the so-called “ relevant activities ”, which we will detail later, carried out by the Companies will require economic substance, unless they can demonstrate that they have their fiscal residence in another jurisdiction that is not included in the list. from non-cooperating jurisdictions in the EU.

What are the activities that are considered “relevant”?

The following will be considered relevant activities:

a) Banking;
b) Insurance;
c) Fund administration;
d) Finance and leases;
e) Company headquarters;
f) Maritime business;
g) Holding company or holding company (holder of pure capital);
h) Intellectual property;
i) Distribution / Service and business center.

a) It will be considered as a Banking activity to receive and keep in a current account of savings, deposits or similar, money that is reimbursable by check or order and that can be invested by advance to clients or in another way (apart from a bank or fiduciary company ). Receiving money or the like when one company is a subsidiary of another is not included in this definition.

b) Business of assuming responsibilities for compensation or compensation for loss or damage through an insurance contract.

c) Maintain an investment business license in accordance with the 2010 Securities and Investment Business Law.

d) Provide credits of any kind in exchange for a consideration.

e) Provide administration, control risks or provide substantial advice, with the exception of the four aforementioned activities, to an entity of the same group.

f) The transport by sea of ​​people, animals, goods or mail.

g) Holding company that only holds shares in the capital of other entities and receives only dividends and capital gains.

h) Business of maintaining intellectual property assets, eg. Copyright, patents, trademarks, etc.

i) Supply goods or services to foreign subsidiaries.

Substance requirements

These may vary depending on the relevant activity carried out, it will be known specifically what requirements and in what proportion applies in each activity once the regulation of the standard is completed. However, they can be summarized as:

  1. Adequate number of employees at BVI;
  2. Direction and administration at BVI;
  3. Suitable cats in BVI;
  4. Offices or premises in BVI;
  5. Carry out your income generation activity in BVI.

In the event that companies carry out any relevant activity and comply with the substance requirements, they must communicate this information to the BVI tax authority through the resident agent.

Clarifications regarding Holding Companies or holding companies

Regarding the Holding Companies, it is necessary to mention that those that:

  • They only have a bank account or investment account;
  • It is only the owner of tangible goods (eg real estate, planes, yachts, etc);
  • He is a shareholder in a company in another jurisdiction and also has other tangible assets or has some type of bank or investment account.

Deadline to comply with the requirements of the economic substance regulations

Initially, the companies incorporated before January 1, 2019 had to comply with the requirements no later than June 30, 2019, however, this term was modified days before, with the new expiration date being October 1, 2019. While the reporting period is until June 29, 2020, with December 29 being the maximum date on which the information must be entered in the BVI database.

Companies incorporated as of January 1, 2019 must meet the requirements on the date of incorporation, the reporting period being 12 months after incorporation and the deadline to enter the information in the BVI database on 6 months after the end of the reporting period.

Penalties in case of non-compliance

Failure to provide information to the resident agent or false information to the resident agent may result in fines of up to USD 75,000 or two to five years in prison or both.

The fines for operating a legal entity that does not meet the requirements of the economic substance range from $ 20,000 to $ 400,000 if the risk is not corrected. Furthermore, the legal entity can be removed from the registry.

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