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 needs 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. The exception is limited partnerships without separate legal personality. They are not subject to the BVI economic substance legislation and so should not complete this online solution. If you are unsure whether your entity is in or out of scope or your limited partnership has separate legal personality, we recommend that you consult with your BVI registered agent or email our BVI team at bvieconomicsubstance@harneys.com for a consultation with an individual lawyer.

We strongly advise that entities move to classify themselves as soon as possible. The first reporting period has now started for every relevant entity.

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

Certainly, please reach out to our support team at ecsolutions@harneys.com.

For clients that need to establish and demonstrate substance in the BVI, we are perfectly positioned to provide bespoke and integrated legal and administrative substance solutions. We already provide our clients with a full suite of governance, resident director and accounting services, and have extensive experience with assisting our clients to obtain trade licences, work permits, premises, specialist equipment, or dedicated human resources. We are ready to meet additional needs and can offer flexible packages and develop these to meet your specific requirements. For more information on our economic substance solutions and to receive a bespoke proposal, click here.