Economic Substance in the British Virgin Islands (BVI)

In a context of in

creasing international pressure for transparency and tax integrity, the British Virgin Islands (BVI) introduced Economic Substance legislation in 2019. The purpose of this framework is to ensure that entities incorporated in the territory maintain real economic presence and activities, aligning the jurisdiction with the recommendations of the European Union and the OECD.

The Economic Substance Act directly impacts companies and entities registered in the BVI, requiring certain structures to demonstrate local economic substance in order to remain compliant. This measure is essential to reinforce the credibility of the BVI in the global arena and to preserve its attractiveness as a secure and efficient jurisdiction.

These requirements apply to:

• Companies incorporated in the BVI;

• Limited Partnerships, with or without legal personality;

• Foreign entities registered in the BVI.

Entities that can demonstrate tax residency in other recognized jurisdictions may be exempt from the Economic Substance regime.

Relevant Activities

The legislation defines the following as Relevant Activities:

• Banking and insurance business;

• Financing and leasing;

• Fund management;

• Headquarters business;

• Shipping;

• Distribution and service centres;

• Intellectual property business (IP business);

• Holding companies.

Holding companies are among the most common structures and, in many cases, may benefit from a simplified substance compliance regime.

Substance Requirements

Depending on the activity carried out, the entity must demonstrate:

• Effective direction and management;

• Adequate physical premises;

• Qualified employees or service providers in the BVI;

• Local performance of Core Income Generating Activities (CIGA).

Pure equity holding entities are subject to reduced requirements, while financial services and intellectual property activities are subject to enhanced substance obligations.

Annual Filing and Penalties

All entities are required to submit an annual Economic Substance declaration to the International Tax Authority (ITA), even if they do not carry out any relevant activities. The filing deadline is six months after the end of the financial period.

Non-compliance may result in severe penalties, including:

• Fines ranging from USD 20,000 to USD 400,000, depending on the activity and recurrence;

• Fines of up to USD 75,000 and imprisonment for up to five years for failure to provide information;

• Potential strike-off of the entity from the official BVI register.

Compliance with the Economic Substance requirements is essential for companies seeking to preserve the regularity and international reputation of their structures in the BVI.

Aurora, as a licensed registered agent with a specialized local team, is fully equipped to assist its clients in the analysis, structuring, and submission of the required filings, ensuring full compliance with the regulations and mitigating the risk of sanctions.