Introduction of the requirement of a real place of business in The British Virgin Islands
From 01 January 2019 in the British Virgin Islands entered into force the Law The Economic Substance (Companies and Limited Partnerships) Act, 2018, which applies to all companies and limited partnerships, registered in the British Virgin Islands, as well as companies and limited partnerships engaged in business in the BVI. This Law applies to the following activities:
- banking business;
- insurance business;
- fund management business;
- finance and leasing business;
- headquarters business;
- shipping business;
- holding business;
- intellectual property business;
- distribution and service centre business.
Thus, a legal entity carrying out the above-mentioned business activities during any reporting period must meet the criteria of economic substance. In order for a BVI company to have economic substance, it must meet several criteria simultaneously (i.e. pass a kind of "economic substance test"), listed below.
Economic substance test at BVI
1) Business activities shall be managed from the territory of The British Virgin Islands.
2) Taking into account the nature and scope of activities it should meet the following criteria:
- the company must have the necessary number of qualified personnel in respect of this type of activity, which is physically present in the territory of the British Virgin Islands (the staff can be hired by this company or another, both on a long-term and short-term basis);
- the company must bear the necessary level of expenses in respect of this type of activity on the territory of The British Virgin Islands;
- the offices and premises of the company suitable for the conduct of the main income-generating activities must be located in The British Virgin Islands;
- if the company carries out business in the field of intellectual property, the necessary equipment must be located on the territory of The British Virgin Islands.
3) The company should implement a major bring her income activity on the territory of BVI. At the same time, this type of activity means the following:
- fund raising, credit, currency and interest rate risk management;
- position insurance;
- loans and borrowings or other financial services to customers;
- equity management;
- preparation of acts, reports and tax returns.
- identification and calculation of risks;
- insurance or reinsurance of risks;
- provision of other insurance business services to customers.
Management of funds:
- decision-making on the ownership and implementation of investments;
- calculation of risks and reserves;
- making decisions on currency and interest rate fluctuations, as well as risk insurance decisions;
- preparation of reports for public authorities and investors.
Financial activities and leasing:
- agreement of financing conditions;
- identification and acquisition of assets for leasing;
- setting the terms and conditions of financing or leasing;
- control and verification of transactions;
- risk management.
Activities of the parent company:
- making appropriate management decisions;
- incurring costs for affiliates;
- the management of the Affairs of the group.
- management of the marine crew (including recruitment, remuneration and monitoring of performance of duties);
- the movement of ships and their contents;
- control and tracking of goods delivery;
- definition of goods for delivery and destination of goods shipments;
- organization and control of sea transportation.
Business in the field of intellectual property:
- intellectual property assets such as patents, research and development;
- intangible non-trade related assets such as trademark, trademark and customer data, marketing, branding and distribution.
- transportation and storage of goods;
- inventory management;
- order acceptance;
- provision of consulting and other administrative services.
Separately, the criteria of economic substance for pure equity holding entity, which are understood as legal entities that are only holders of shares in the share (authorized) capital of another person and receiving dividends and other income from the capital of the capital gains, which meet the criterion of economic substance, if:
- such company fulfils its legal obligations under the BVI Business Companies Act, 2004 or the Limited Partnership Act, 2017;
- has an adequate number of staff and facilities to carry out such activities. That is, as such, the actual substance on the territory of BVI for holding companies is not required. They must only comply with BVI Business Companies Act, 2004 or the Limited Partnership Act, 2017 and have sufficient employees to carry out their activities.