Greek (Greece)

On 1st of January 2019, the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the “Act”), which requires the establishment of adequate “economic substance” for legal entities that fall within its scope, came into force in the British Virgin Islands (“BVI”). Regulations and guidelines which will provide clarifications for the implementation of the Act are going to be issued. However, it is expected that these regulations and guidelines will not be available until March 2019.

 

To whom it applies

The Act may apply to BVI companies and limited partnerships or foreign companies and limited partnerships which are registered in the BVI, provided that they are tax residence in the BVI and they carry on one of the nine “relevant activities” defined by the Act which are:  banking business, insurance business, fund management business, finance and leasing business, headquarters business, shipping business, holding business, intellectual property business and distribution and service centre business.

 The Act does not apply to legal entities that are tax residents in another jurisdiction which is not included in the EU list of non-cooperative jurisdictions. In these cases the BVI company which is not tax resident of BVI has to disclose its tax residence and provide its tax identification number.

The new economic substance requirements

Depending on the nature and the scale of its “relevant activities”, the legal entity has to show that it manages and directs its business and carries out “core income generating activities” in the BVI. To prove this, the legal entity must have adequate number of suitable qualified employees physically present in the BVI, appropriate physical premises in the BVI and adequate expenditures in the BVI.

Intellectual property businesses requiring the use of specific equipment must additionally show that this equipment is located in the BVI.  

Pure equity holding entities are considered to have adequate economic substance when they comply with their statutory obligations and they have adequate employees and premises in the BVI for holding and where necessary for carrying out the relevant management.

Reporting obligations

The Act also provides for the amendment of the Beneficial Ownership Secure Search System Act 2017, which now requires from legal entities to give information about their tax residency status and activities on an annual basis. In case of non-compliance, the BVI International Tax Authority (“ITA”) may impose criminal and financial sanctions and it may also order strike-off the Registry of the entity.

Automatic notification

The ITA will notify the relevant overseas competent authorities in case a legal entity is found in breach of the economic substance requirements or carries out an intellectual property activity under certain circumstances or claims to be tax resident in a jurisdiction outside the BVI.

Financial period

Pending the issuance of the relevant regulations and guidelines on March, existing entities which fall into the scope of the Act must comply with the economic substance requirements until 30 June 2019 and with the reporting obligations until 30 June 2020.

Conclusion

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