SOS Substance on Substance - ITA guidance to BVI industry participants on the practical application of the Rules

• The ITA Rules were formally published on 9 October 2019. The rules with statutory effect under the BVI Beneficial Ownership (Secure Search System) Act 2017 (BOSS) will come into effect when a further amendment to BOSS is enacted. This is expected to be passed by the BVI House of Assembly in one sitting within the next few days, as the proposed changes are purely for clarification.
• We expect a revised Rules “v2.0” later this year reflecting consequential legislative changes (for example, to the BVI Business Companies Act 2004 and the Limited Partnership Act 2017) referred to in earlier ITA guidance and to clarify the format and timing of reporting via the updated BOSS system.
• We also expect industry communications regarding funds and collective investment vehicles and the revised BOSS IT system before the end of 2019. Regulated BVI funds are not expected to be within the scope of the economic substance legislation.
• The ITA confirmed that every legal entity must identify whether it carries on any relevant activity and report this via its BVI registered agent (RA), even if wishes to claim it is “non-resident” under Part 4 of the Rules – “nil returns” will be required and there is expected to be an annual filing obligation.
• The obligation to identify this and the other prescribed economic substance information under BOSS falls on the entity (rather than the RA). The ITA encourages BVI entities to seek appropriate legal advice if they are at all uncertain regarding their classification and expects they will have maintained a clear record of the basis for their classification (including by reference to advice, where required). This reflects an ongoing obligation under section 9 of BOSS (from 1 October 2019 onwards) to identify whether the entity carries on any “relevant activity” unless the entity has a “reasonable cause” not to have done so. The ITA expressed the view that the primary legislation passed in January 2019 and the draft guidance available since April 2019 should have allowed entities to classify themselves in most cases but that, in circumstances where the final Rules have changed or clients have reasonably relied on legal advice with which the ITA disagrees, this should be taken into account.
• It was confirmed that entities will have six months from the end of the relevant “financial period” to submit the prescribed economic substance information to their RA, to be uploaded to the BOSS system. The filing timings will be set out in Regulations.
• Entities carrying on a relevant activity requiring substance in the BVI (other than “non-resident entities” and most passive “pure equity holding entities”) that are moving their business and employees to the BVI do need to consider any applicable obligations under the BVI’s trade or financial services business licensing requirements and employee-related obligations (such as work permits, payroll tax, and other contributions). The Premier confirmed that the BVI government is standing ready to assist BVI entities to make that process as efficient as possible. Where an entity wishes to outsource activity within the BVI (for example, via their RA), it was noted that such outsourcing providers will have appropriate licenses and permits for their business and employees already.
• There is further clarification around the obligations of entities in liquidation, which we will address in a future recording.

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