Economic substance refers to new legislation introduced in the BVI which derives from an EU based unfair tax practices initiative that requires certain entities that are incorporated or registered in the BVI, and which conduct one or more of a set list of nine relevant activities, to comply with local requirements and demonstrate adequate ‘economic substance’. The BVI legislation follows closely the approach taken by the Crown Dependencies of the UK (Jersey, Guernsey and the Isle of Man) and the other UK Overseas Territories including the Cayman Islands and Bermuda.

The legislation imposes economic substance requirements on companies incorporated or registered in the BVI and limited partnerships that are formed or registered in the BVI (together, relevant legal entities), which carry on one or more of the following relevant activities:

Investment fund business is not a relevant activity.

The directors or general partners (as appropriate) of all relevant legal entities are under an obligation to ensure they have classified their entity and understood its obligations under the economic substance law. The International Tax Authority in the BVI (the ITA), as the competent authority for this regime, has made it clear that it will expect to see robust documentary evidence of the basis of the entity’s classification on the files held and maintained by the entity’s registered agent. Examples of this would be a formal memo of legal advice on the classification and/or extensive board resolutions which show the analysis having been conducted. To determine if your entity is conducting a relevant activity, Harneys has developed an innovative legal technological product, the Economic Substance Classification Solution.

Harneys’ Economic Substance classification solution provides a cost effective way for BVI entities to demonstrate formally that they have considered their position under the economic substance legislation and determine whether they are conducting a relevant activity. The automated classification solution provides tailored real-time legal advice, signed by Harneys lawyers, for a cost-effective flat fee and is generated instantly after your completion of an interactive questionnaire.

Every BVI entity. They need to show that they have taken reasonable steps to demonstrate that they have considered their position under the economic substance legislation and produce robust evidence of classification.

We strongly advise that entities move to classify themselves as soon as possible. All relevant legal entities are now subject to related obligations (including to identify whether they carry on any relevant activity), save for limited partnerships without legal personality prior to 1 July 2021 for which the first compliance period must commence by 1 January 2022 at the latest.

If you would like to get started on your entity classification please click here.

Certainly, please reach out to our support team here.