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Financial Period has begun: ALL relevant BVI Legal entities must comply with economic substance


Important highlight in relation to COMPLIANCE with the economic substance regime of the BVI


We are currently within the First Financial Period for ALL relevant BVI Legal Entities under the Economic Substance (Companies and Limited Partnerships) Act, 2018 ("the ES Act") and thus, such entities must now comply with the economic substance requirements in relation to any relevant activity which they are conducting. This is in light of the fact that compliance with economic substance must begin from the start of the financial period of an entity caught within the scope of the ES Act and carrying on "relevant activity".


Based on the ES Act, the financial period in the case of a BVI Legal Entity incorporated or formed on or after 1 January 2019 is defined as not more than 1 year from the date of its incorporation or formation. As it relates to a BVI Legal Entity incorporated or formed before 1 January 2019, the financial period begins on a date no later than 30 June 2019.


Given that we are now within the period of economic substance compliance for all relevant BVI Legal Entities, it is critical that ALL BVI Legal Entities assess the extent of the impact of the ES Act on them and determine whether they are caught within the ES Act and are carrying on "relevant activity". This determination can be made by conducting internal reviews and utilising classification tools made available by the entity's registered agent or a BVI professional with experience and expertise in the financial services industry of the BVI.


It is also prudent (especially in light of the severity of the sanctions under the ES Act for non-compliance) to seek and obtain BVI legal advice in order to verify and confirm any assessment obtained regarding the status of a BVI Legal Entity in respect of the ES Act.


Where confirmation has already been obtained that a BVI Legal Entity is carrying out relevant activity as defined under the ES Act; BVI Legal advice and guidance should be obtained on an urgent basis as to how such entity would comply with economic substance. Once this type of advice has been obtained, steps should be taken as soon as possible to ensure that such entity is compliant with the ES Act.


It is useful to bear in mind the importance and urgency of the points highlighted above as to compliance with economic substance; together with the consequences of non-compliance. As highlighted in a previous post, the ES Act includes a robust sanction regime which involves severe consequences, including significant financial penalties, in the event a BVI Legal Entity to which economic substance applies, is in breach of its obligation to fulfill the requirements in place for economic substance.


Furthermore, as stated in the ES Code, the importance which the legislature attaches to compliance with the economic substance requirements is reflected in the fact that, once it has determined that an entity is in breach of these requirements, the ITA has no discretion as to whether to impose a financial penalty. It must impose a minimum penalty of $5,000 on a first determination of non-compliance and $10,000 on a second determination of non-compliance. This can only be challenged by submitting an appeal under the ES Act which must be dealt with by the Supreme Court in the BVI.


 

HOW WE CAN HELP YOU


With our tailored approach to your specific needs Sage BVI provides the guidance and support you need...

We appreciate the critical importance and impact of the economic substance regime; as well as the urgent need for ALL BVI legal entities to determine whether and the extent to which this new regime applies to them.


We also appreciate that there is a critical need for BVI Legal Entities to understand what they must do to ensure compliance in the event they are caught within the scope of the ES Act and are conducting relevant activity. Bearing in mind the critical dates and timelines under the ES Act, action steps must be identified and put into place on an urgent basis to ensure that relevant BVI Legal Entities have established economic substance and are thus compliant with the ES Act.


In light of the above, we have developed our services so as to provide expert guidance to BVI Legal entities, in a cost effective and efficient manner. Our services take into consideration the various needs and areas of concern that an entity may have at any given time, so as to encourage a step by step or phased approach to navigating the economic substance regime effectively.


The following is an outline of the services we offer in relation to economic substance:


1. Economic Substance online Assessment & Legal Advice on classification of BVI Legal Entities: We have developed ESAT: an online assessment tool which helps clients classify their legal entity in relation to the BVI economic substance law, particularly with a view to identifying whether its business activities fall within any one or more of the categories of "relevant activity" under BVI law which would require such entity to comply with economic substance . Kindly contact us to arrange access to this tool.


In addition, we also provide our Legal Opinion where a higher level of review and confirmation is needed in relation to your BVI legal entity's status and classification under the BVI economic substance law. We also review and provide confirmation if needed and where appropriate in relation to the findings of any assessment which a BVI legal entity has already undertaken in this regard.


N.B.: Further guidance was issued which confirms that the BVI competent authority expects that all BVI companies and legal entities are able to demonstrate in sufficient detail and formality the determination made as to a BVI entity's classification or status under the BVI economic substance law.


Accordingly, we strongly recommend obtaining an assessment and/or legal opinion so that you can adequately demonstrate how your entity is classified in relation to BVI economic substance law.



2. Legal Opinion on Compliance with Economic Substance: This is geared towards anyone who has already undertaken an economic substance assessment or review regarding their BVI legal entity (whether formally or informally); AND has confirmed that their BVI Legal Entity is conducting relevant activity.


This service is more tailored and focused on the specific economic substance requirements which apply to a BVI legal entity. It involves a review as to how a BVI Legal entity would ensure compliance with the ES Act based on the nature and scope of their business. This results in clear action steps being provided so that a BVI legal entity is able to move forward & take the steps needed to ensure compliance with BVI economic substance law.



3. Economic Substance Implementation: This service is focused on providing the legal advice, commercial guidance and tailored support that a BVI legal entity would need in order to execute the steps which must be taken for it to establish economic substance in the BVI as well as ensure it can demonstrate CIGA (Core income generating activity) as needed, in compliance with BVI law.


Please visit our website: www.sagebvi.com or

contact us at economic-substance@sagebvi.com for further details as well as to arrange a preliminary consultation in order to determine how best we can help you.


N.B.: IF your BVI registered agent referred you to our services please contact them so that they can liaise with us as to the most effective way that we could collaborate with them in order to provide our services to you.

DISCLAIMER:

This post is for information purposes only. It is not intended to be a comprehensive study or legal advice. It is also not a substitute for specific advice concerning individual situations.

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