EU Substance (Companies and Limited Partnerships) Act, 2018

On January 1, 2019, the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the “Act”) came into force and applies to all resident BVI companies and Limited Partnerships. Companies that are within the scope of the legislation will need to demonstrate that they have economic substance in the British Virgin Islands. There is a relatively short list of defined activities that fall within the scope of the legislation and these are listed below:

  • Banking business
  • Insurance business
  • Fund management business
  • Financing and leasing business
  • Headquarters business
  • Shipping business
  • Intellectual Property business
  • Distribution and Service Centre Business
  • Holding Business

An entity which carries out one or more of the defined activities above must comply with the economic substance requirements in relation to each activity. If an entity does not carry out any of the defined activities above, then the company does not fall within the scope of the legislation.

Economic Substance Test

Other than a Pure Equity Holding Company, a company that falls within the scope of the Act must demonstrate that:

a. The relevant activity is directed and managed in the Virgin Islands;
b. It carries out core income generating activities in the jurisdiction; and
c. It has economic substance in terms of the scale of activities such as
i. There are an adequate number of suitably qualified employees in relation to that
activity
who are physically present in the Virgin Islands (although they need not be directly
employed by the entity)
ii. There is adequate expenditure in the Virgin Islands
iii. There are physical offices or premises as may be appropriate for the core income
generating activities
iv. In the case of intellectual property business, whether the business requires the use of
specific equipment, that equipment is located in the Virgin Islands.

What is a Resident Company or Limited Partnership?

“Resident” companies and limited partnerships are those registered in the BVI under the Business Companies Act, 2004 or the Limited Partnerships Act, 2017 (including foreign companies and foreign limited partnerships that fall under the above Acts) and which are not resident for tax purposes in a jurisdiction outside the Virgin Islands.

A company cannot claim to be non resident in the Virgin Islands by being tax resident in a jurisdiction that is included on the EU list of non-cooperative jurisdictions.

Effective Dates

Companies and Limited Partnerships are required to comply with the economic substance requirements under the Act from 30th June 2019 and to meet the reporting obligations within one year of formation.

Reporting

This will be carried out by Registered Agents via the Beneficial Owner Secure Search System (BOSS). The Act also makes amendments to the BOSS legislation to allow for this along with a list of what will be required to be reported.

Next Steps?

We will be contacting you to determine whether your company carries out any of the defined relevant activities above and if so, where the company is tax resident.

We will be in touch shortly. Please contact your usual AMS representative if you have any further queries.

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