Update on EU Blacklist Process on Economic Substance in the British Virgin Islands (the “BVI”)

 

The European Union (the “EU”) has on 5/12/2017 published their list of "non-cooperative" taxation jurisdictions, popularly referred to as the 'EU Blacklist'. Several of the traditional offshore jurisdictions, including the BVI, have been deemed by the EU to 'facilitate offshore structures or arrangements aimed at attracting profits that do not reflect real economic activity ('Substance') in the jurisdiction', and hence added to a grey list. 

To stay off the EU Blacklist the BVI passed relevant legislation which came into force on 1/1/2019. We are awaiting guidance from the BVI as to more detailed definitions of the relevant activities and also what kind of Substance might be required.

Substance requirements are expected to apply to BVI entities that are tax resident in the BVI and which conduct relevant activities. Companies that are tax resident elsewhere outside of the BVI are not in scope. Relevant activities identified by the EU and more recently by the OECD include:

  • Banking business
  • Insurance business
  • Fund management business
  • Finance and leasing business
  • Headquarter business
  • Shipping business
  • Holding business
  • Intellectual property business
  • Distribution and service centre business

BVI tax resident companies conducting any of the relevant activities set out above, may require substance in the BVI.

If required, existing companies will need to comply with economic substance requirements by 30/6/2019 and meet the reporting obligation within one year of 30/6/2019. New companies must comply with the economic substance requirement immediately and are required to meet the reporting obligations within one year of the date of incorporation.

There is nothing to do at this stage. We await further guidance to be published by the BVI shortly and, we will update you with more information on the likely impact of this legislation to your business.

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