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URGENT 2020 DEADLINES: BVI Companies' Compliance with Economic Substance & Reporting Requirements


As we approach the end of the third quarter and look towards the final quarter of 2020, it is critical that we highlight the urgency of ensuring that your BVI Company and/or Legal Entity is in full compliance with the Economic Substance (Companies and Limited Partnerships) Act, 2018 (“the ESA”) and the Beneficial Ownership Secure Search System Act (“the BOSSS Act”). Both the ESA and the BOSSS Act require BVI companies and legal entities to take steps that are very important and also urgent as there are deadlines and requirements which must be met before the end of 2020.


Classification of a BVI Company or Legal Entity under the ESA (ideally based on BVI legal advice) is only one step towards full compliance. Have you identified all other steps that your BVI Company must take in 2020? Note that non-compliance results in significant fines & penalties…



As a Director, Shareholder, or Owner of a BVI Company it is likely that you are already familiar with the ESA which was passed at the beginning of 2019 and introduced the concept of Economic Substance. The ESA applies to all BVI companies to a greater or lesser degree. It requires all BVI companies to engage in a thorough review of its activities so that an accurate conclusion is made on whether or not it is conducting any one or more categories of what is defined under BVI law as ‘relevant activity’. The process of engaging in this type of review in order to come to this conclusion is commonly referred to as ‘Classification’. Other key determinations are required under the ESA and form part of this review process. At the very least, all BVI companies should engage in this classification process. While legal advice is not required it is highly recommended to ensure the conclusion made is accurate under BVI law, and it is clear what further steps are needed for your BVI Company or Legal Entity to be fully compliant.


Furthermore, this classification process which is one of the urgent and important steps that a BVI company must take this year, must be done in relation to each financial period (as defined under the ESA). BVI Companies and Legal Entities which were formed before 1 January 2019 completed their first financial period on 30 June. They are now in their second financial period.


All BVI Companies and Legal entities should have already engaged in a classification process in relation to their initial or first financial period which ended on 30 June 2020. A thorough process would indicate whether the BVI company or legal entity is conducting ‘relevant activity’ of any kind under the ESA; and thus subject to economic substance requirements which vary based on the nature of the company and scope of its business activity.

 

DEADLINE: The deadline for compliance with economic substance requirements under the ESA for any relevant activity conducted by your BVI Company or Legal entity during its first financial period under the ESA was 30 June 2020. There has been no extension to this deadline.


Please note that if a BVI Company is conducting ‘relevant activity’ under the ESA and has not fulfilled all the economic substance requirements that are applicable within the financial period during which this activity was carried out; it is subject to a financial penalty. This will amount to a minimum of US$5,000 on the first occasion of non-compliance; and a minimum of US$10,000 on a second finding of non-compliance. The financial penalty can be higher at the discretion of the regulators in the BVI.

 

In light of the above, particularly the severity of the fines & penalties for non-compliance with economic substance; it is absolutely necessary and urgent for BVI Companies to ensure that they have engaged in a thorough classification process. Not only does this indicate whether or not they are subject to economic substance and/or exposed to penalties; a thorough classification process should also identify further steps that must be met to fulfil additional requirements under the ESA and the BOSSS Act which must be met before the end of 2020.


We have created an overview of the action steps that a BVI Company should take to be fully compliant with the ESA and the BOSSS Act based on the outcome of its classification. This has been extremely helpful in providing clients with a full picture as to what is needed and the advice as well as guidance needed to ensure full compliance with the ESA and the BOSSS Act. Obtaining legal advice or otherwise engaging in a classification process is one of several steps that must be taken.


We encourage you to view our outline of Economic Substance Compliance Action Steps that relate to a BVI Company. This is a helpful starting point in appreciating the action steps that must be taken before the end of this year and the guidance that would be needed in ensuring this is done. Kindly note that more action steps would be needed if the BVI Company is classified as conducting ‘relevant activity’ or is non resident for tax purposes.

 

In relation to the BOSSS Act, it is important to highlight the amendments made at the end of 2019 in relation to the information that all BVI Companies must identify and provide to their BVI registered agent so that this can be filed by the end of this year. Such information relates to beneficial ownership as well as economic substance. There are specific deadlines that must be met in relation to providing such information which in any given year will relate to the Company’s activity during the financial period that came to an end in that particular year.


DEADLINE: The 2020 deadline for compliance with the reporting obligations for your BVI Company or Legal entity under the BOSSS Act is 6 months from the end of its first financial period. For most companies this period expires by the end of 2020. There has been no extension to this deadline.


In addition to its reporting obligations, BVI Companies have legal obligations under the BOSSS Act that relate to obtaining this information and providing it to their registered agent so that it can be filed. This includes ensuring that the information is accurate. Please note that if a BVI Company fails to provide the information as it is obligated to do under the BOSSS Act, or if it intentionally provides false information; it is liable to severe financial penalties that can amount to a maximum penalty of US$40,000 or US$75,000 at the discretion of the regulators in the BVI.


In light of the above, particularly the severity of the fines & penalties for non-compliance with economic substance; it is absolutely necessary and urgent for BVI Companies to ensure that they have engaged in a thorough classification process.


HOW WE CAN HELP YOU : We provide the Legal advice, guidance and support needed as it relates to the ESA and the BOSSS Act.

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 BVI Economic Substance applies to them. In addition, we also appreciate the urgency and importance of obtaining legal guidance on the reporting requirements under the BOSSS Act to ensure all information that is required is properly identified and accurately reported.


Bearing in mind the critical dates and timelines for 2020, action steps must be identified and put into place on an urgent basis to ensure that BVI Companies and Legal Entities establish economic substance as this relates to their relevant activity.


For further information and a request for our services so that we can help you identify and action all steps needed so that your BVI Company is in full compliance before end of 2020 please contact us by email at info@sagebvi.com


DISCLAIMER: This is a Private & Confidential client update. 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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