SOS Substance on Substance: Season two - BVI economic substance reporting FAQs

• The reporting deadlines for most BVI companies and other relevant entities are imminent - and in some cases have already passed. Most BVI entities must ensure reports are submitted by their Registered Agent (RA) before 30 December 2020 or face significant fines and penalties - and even personal liability.
• Deadlines have not been allowed to be extended by the EU despite COVID-19 but the regulator has issued practical guidance in this area. Please click here for our alert on this topic.
• Compliance is assessed by “financial period”. Entities incorporated before 1 January 2019 have a default first financial period of 30 June 2019 to 29 June 2020. Companies incorporated from 1 January 2019 onwards have a first financial period of 12 months from incorporation. After the end of the financial period, entities have six months in which to arrange reporting into the BOSS(ES) system via their RA.
• The ES financial period may not be the same as the entity’s tax or accounting financial year. The entity needs to review its individual non-consolidated accounts to determine its assets and sources of gross income over the financial period - this may require discussion with the entity’s accountants.
• Since most BVI companies were incorporated before 2019 (and may not have changed their default financial period), their first report will have to be filed by their RA before 30 December 2020.
• Where any relevant activity was carried on during the financial period, entities either need to claim and evidence exemption due to their tax status under the “non-resident” exemption or submit reporting information demonstrating how they had adequate BVI substance over the period.
• There are special regimes for pure equity holding entities (holding business) and intellectual property business - the latter regime is extremely onerous and entities with any potential IP business should seek BVI legal advice. For entirely passive holding businesses or entities without any relevant activity, compliance and reporting should be quite straightforward. Nil returns are required even where there is no relevant activity.
• The tax non-resident exemption can also apply to transparent/disregarded entities and certain entities subject to tax on their income from relevant activities. Care needs to be taken when dealing with territorial or sectoral tax regimes and objective evidence will need to be provided to back up a claim. There is a mechanism to apply for provisional non-resident treatment, where such evidence cannot be obtained within the 6-month reporting window. This can be complex and may need tax advice.

Read the Practical guide to BVI ES reporting by Josh and Amy here.

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