Since the publication of the final version of the British Virgin Islands (BVI) Economic Substance Act, 2018, our team has been advising clients on the importance of complying with local obligations.

 

As a reminder to our reader, the BVI Economic Substance Law is applicable to all companies headquartered in the country that are holders of a business considered to be a “relevant activity”. Consequently, companies (whether they are joint stock companies or limited liability companies) headquartered in BVI must submit the Economic Substance Report annually.

 

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I own a holding company headquartered in BVI. What are the relevant activities?

 

A company that controls another company or economic group outside the BVI is called a "pure equity holding entity", having its applicability under the following conditions:

 

I. Has participation in the capital of other company(ies), and,

II. It only receives dividends or capital gains.

 

BVI defines equity participation as holding shares of another company, as well as those that have other types of investments that provide BVI-based companies with the right to participate in the profits of the controlled company. If the BVI company only holds shares, it is possible to classify it in the Economic Substance Report as a relevant activity “holding a business”.

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If my company in BVI is a holding company that only controls other companies through equity interest. What requirements do I have to comply with?

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The first analysis to be done is to verify whether the BVI company has an active or passive business. When the relevant activity is purely passive “holding a business”, the services provided by E&G may be sufficient to satisfy the requirements of economic substance in the country. Common examples of passive activity: a) a company in BVI that is the parent of a Ltda (Limited Liability) company whose assets are real estate properties in Brazil; b) a company in BVI that is the parent of an LLC (Limited Liability Company) and has real estate and/or financial investments in the US.

 

However, if such a BVI company is responsible for actively managing its business, it must have employees and an office in the country in order to comply with the requirements of the Economic Substance Act.

 

It is important that if your parent holding is headquartered in BVI, you seek professional assistance to optimize your tax planning and protect your business and assets from the consequences of the Economic Substance Law.

 

 

 

How is the company in BVI accountable to local authorities?

 

Your company must file an annual statement within six months of the end of the fiscal year. The information provided is entered into the Beneficial Ownership Secure Search System (BOSS).

 

E&G has a team of experts experienced in fulfilling the legal obligations of offshore companies, including the British Virgin Islands.

 

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What happens if I don't provide the necessary information?

 

Delivering information incompletely or incorrectly can incur fines ranging from US$5,000 (five thousand US dollars) to US$400,000 (four hundred thousand US dollars), and the company can be severely punished for non-compliance.

 

In addition, failure to provide the necessary information or provide false information may result in a fine of US$75,000 (Seventy-five thousand US dollars) and up to five years in prison.

 

If you are unsure whether your BVI-based company is complying with all obligations, contact our team immediately to avoid serious legal and financial consequences. We are available to assist with your tax planning and ensure compliance of your business.