On 24 February 2023, the BVI International Tax Authority (ITA) published version three of its economic substance rules and explanatory notes (the Rules). The Rules primarily impact on BVI entities that engage in certain specified “relevant activities” that require them to demonstrate economic substance in the BVI unless they qualify for exemption due to their tax status.

The BVI economic substance regime was introduced in 2019 in response to concerns raised by the EU Code of Conduct Group regarding economic substance requirements for entities in low-tax jurisdictions. All companies and limited partnerships registered in the BVI must ensure they have adequate systems and controls in place to ensure they meet all applicable compliance and reporting requirements.

The updates to the Rules primarily align with the modifications made to the Economic Substance (Companies and Limited Partnerships) Act and the reporting regime under the Beneficial Ownership Secure Search System Act during 2021. These changes have been implemented to clarify and expand certain reporting obligations and terms introduced or extended by the amendments.

We will be updating our client guides and publishing further communications on this topic but it is important that all companies and limited partnerships registered in the BVI understand these changes and take appropriate steps to ensure compliance.

In particular, we recommend that entities ensure that they are aware of the expanded reporting requirements for financial periods commencing on or after 1 January 2022, as set out in Part 12 (Reporting requirements) of the Rules.

We can assist you with navigating these complex regulations and implementing effective compliance measures.

Our online economic substance classification solution is being updated to reflect the revised Rules. The solution provides formal legal advice on a reliance basis for a low fixed fee. We recommend it as a first step to classify entities – please let the authors know if you would like to be notified once the solution has been updated and is back online.

If you have any questions or concerns about how these developments may affect your BVI entities, please do not hesitate to contact us.

The official press release can be found here.

Version three of the Rules can be found here.