Draft Economic Substance Code published by the BVI International Tax Authority


We refer to our note dated 16/1/2019 in relation to economic substance in the BVI and attach the draft economic substance code (the “Code”) published by the British Virgin Islands International Tax Authority (the “ITA”) on 22/4/2019.

The ITA has announced that in early May the final Code will be issued. The Code contains rules as to how the economic substance requirements may be achieved and also provides guidance on the interpretation of the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the “Act”).

Points to pay attention to are:-

  • 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. (Rule 3)
  • Guidance on the meaning of “holding business” and “pure equity holding entity” will be of interest. Ownership by an entity of any investment other than equity participations will mean that it is not a pure equity holding entity. (Clause 60)
  • A framework for the initial financial periods for both new entities (incorporated since 1 January 2019) and existing entities (incorporated prior to 1 January 2019) that outlines key requirements. The initial financial period for new entities is deemed to be 12 months from the date of formation. For existing entities, the initial financial period is deemed to be 12 months from 30 June 2019. (Rules 14 to 18)
  • The business of being an investment fund is not a relevant activity. An investment fund is outside of scope of the economic substance requirement, unless it carries on relevant activities besides being an investment fund. We await further technical guidance on funds from the EU’s Code of Conduct Group which is expected mid-2019. (Clause 18)
  • 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 (one of the relevant activities under the Act). 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. (Clause 47)
  • 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). (Clause 48)


Nicosia 24 April 2019


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