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BVI Economic Substance

(Companies and Limited Partnerships) Act 2018

On December 19, 2018, the BVI government enacted the “Economic Substance (Companies and Limited Partnerships) Act 2018” (the Act), which establishes enhanced substance criteria for specific BVI-resident legal entities. Guidance notes are anticipated to be released at a later date.

This legislation is a response to concerns raised by the European Union (EU) Council about the absence of clear general legal substance requirements for entities conducting business in and through the BVI. The Act reaffirms the BVI’s commitment to meeting the requirements set by the EU Code of Conduct Group for jurisdictions listed on the EU’s “grey list” due to these concerns. The BVI, along with other grey list jurisdictions, was given until December 31, 2018, to pass domestic economic substance laws.

Economic substance requirements

The provisions of the Act took effect on January 1, 2019, with a six-month transition period for existing legal entities. These requirements apply to all BVI companies and limited partnerships with legal personality, except those considered non-resident under the Act, as well as foreign companies and limited partnerships conducting “relevant activities” within the BVI.

A non-resident company or limited partnership is one that is considered tax-resident in a jurisdiction outside the BVI, provided that jurisdiction is not on Annex 1 of the EU list of non-cooperative jurisdictions for tax purposes.

The legal entities subject to the Act, collectively referred to as “legal entities,” must meet economic substance requirements if they engage in one or more of the following relevant activities:

Banking business
Insurance business
Fund management business
Finance and leasing business

Headquarters business

Shipping business

Holding business

Intellectual property business
Distribution and service centre business

The Act distinguishes between legal entities other than pure equity holding entities and pure equity holding entities.

Legal entities other than a pure Equity Holding Entity

Legal entities, other than pure equity holding entities, involved in relevant activities must meet economic substance requirements by:

– Directing and managing the relevant activity in the BVI
– Employing an adequate number of qualified personnel physically present in the BVI
– Incurring sufficient expenditure in the BVI
– Maintaining appropriate physical offices or premises for core income-generating activities
– Locating specific equipment in the BVI (for IP businesses)
– Conducting core income-generating activities
– Ensuring no core income-generating activity is carried out outside the BVI when another entity handles income generation on behalf of the legal entity


Pure equity holding entity

Pure equity holding entities, which exclusively hold equity participations in other entities and receive dividends and capital gains, are subject to reduced requirements. They are deemed to have sufficient substance if they:

– Comply with statutory obligations under the BVI Business Companies Act 2004 or the Limited Partnership Act 2017
– Maintain an adequate number of employees and premises for holding equitable interests or shares. Have the necessary personnel and facilities for managing these interests or shares


Annual economic substance reporting

The Act also amends the Beneficial Ownership Secure Search System Act 2017 (BOSS Act) to impose additional annual reporting obligations on legal entities regarding their status and relevant activities.

All entities must provide information about relevant activities performed, parent entity details (if applicable), and the jurisdiction where the parent entity is formed. Entities listed on a recognized stock exchange must provide information about their stock exchange listing.

Legal entities conducting relevant activities and not considered non-resident must annually provide specific information for each relevant activity, including total turnover, BVI-incurred expenditure, the number of employees involved, premises addresses, equipment details (for IP businesses), and personnel responsible for activity direction and management.

Entities engaged in intellectual property (IP) business have additional reporting requirements, while non-resident companies and LPs must specify their tax residency jurisdiction and provide evidence of that status.

The expectation is that this information will be submitted by the entity’s registered agent and integrated into the BVI’s existing BOSS system. Further guidance on the updated BOSS system’s availability and the deadlines for initial substance reporting will be released later.

Penalties and other sanctions for noncompliance

The Act outlines a notice process with escalating penalties for noncompliance with economic substance requirements after each notice. The maximum fine is USD 400,000 for high-risk IP legal entities and USD 200,000 for other legal entities.

Ultimately, the BVI International Tax Authority may recommend to the Financial Services Commission that the legal entity be struck off the Register of Companies or the Register of Limited Partnerships if economic substance requirements are not met following the second notice, or if it is deemed unlikely that the legal entity can meet these requirements.



Entities potentially affected by this legislation should evaluate its implications and take appropriate steps to ensure compliance with economic substance requirements as soon as possible. Considerations include:

Identifying entities subject to the legislation and assessing whether any BVI entities are non-resident companies or LPs.
Categorizing structures on a per-entity basis to identify those conducting relevant activities and thus subject to the new requirements.
Evaluating current and future compliance with substance requirements for entities engaged in relevant activities.
Establishing mechanisms for documenting and substantiating compliance with economic substance tests.
Exploring operational or structural changes that may be necessary to meet substance requirements.

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