SOS Substance on Substance - Common misunderstandings regarding the ES timetable

In this episode of Harneys’ Substance on Substance series, Philip Graham and Joshua Mangeot confirm that the first economic substance (ES) compliance “financial period” has commenced for all BVI companies and other relevant legal entities and also address some common misunderstandings regarding the ES timetable.

Phil and Josh discuss the release of the finalised International Tax Authority (ITA) ES Code, confusion on classification and compliance deadlines, and to which types of entity the ES requirements apply.

Click below to listen.

Key takeaways:

• The final form of the ITA Code is known and it should be available for formal release to the public by the end of August (as it requires enabling legislation)
• The BVI ES legislation had immediate effect from 1 January 2019 for companies or limited partnerships with legal personality incorporated or registered in the BVI (legal entities) on or after that date
• There was a grace period until 30 June 2019 for legal entities existing before 1 January 2019 – this has not been extended
• As a result, every legal entity is now in its first compliance “financial period” and needs to have classified its activities
• There have been references to an October date but this point is of narrow application and relates to a delay to some new reporting obligations – it was not a change to the commencement dates for legal entities’ “financial period”
• All BVI legal entities should be classified regardless of whether they are perceived to be out-of-scope – “nil returns” will be required in 2020
• Based on statements by the ITA regarding the exercise of its investigation powers, entities should maintain a robust written record of the basis of their classification
• Affected legal entities with relevant activities (which are not “non-resident” for tax purposes) should be taking steps to become compliant or reorganise themselves if the ES requirements necessitate it

Stay tuned for more Substance on Substance.

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