The British Virgin Islands (BVI) introduced economic substance legislation, the Economic Substance (Companies and Limited Partnerships) Act, as amended (the “ESA”), which requires legal entities in the BVI that engage in relevant activities to report and maintain economic substance.  

The BVI International Tax Authority (“ITA”) is the designated body under the ESA that has the authority to issue rules on how to meet these economic substance requirements. The ITA published these ES Rules on 09 October 2019, and they were most recently updated on 25 February 2023 to cover the changes made to the ESA and provide additional guidance on the ESA application.

Activities covered by the BVI ESA

Under the ES Law, the OECD and EU identify nine geographically mobile “relevant activities” that cover a wide range of business sectors. The following activities include:  

• Banking Business – Defined under section 2(1) of the Banks and Trust Companies Act, 1990. 
• Insurance Business – Defined under section 3(1) of the Insurance Act, 2008. 
• Fund Management Business – Defined as the conduct of an activity that requires a legal entity to hold an investment business license pursuant to section 4 and category 3 of Schedule 3 of the Securities and Investment Business Act, 2010. 
• Finance and Leasing Business – Defined as the business of providing credit facilities of any kind for any consideration. 
• Headquarters Business – The business of providing any of the following services to an entity in the same group: the provision of senior management; the assumption or control of material risk for activities carried out by any of those entities in the same group, or the provision of substantive advice in connection of the assumption or control of risk but the above does not include activities which would generally fall under any of the other category definitions. 
• Shipping Business – Defined as the operation of a ship anywhere in the world other than solely in the waters of the Virgin Islands. The definition of “ship” is taken from Section 2(1) of the Merchant Shipping Act, which excludes fishing vessels, pleasure crafts and small ships.  
• Holding Business – Holding business means the business of being a pure equity holding entity. A “pure equity holding entity” means a legal entity that only holds equity participations in other entities and only earns dividends or capital gains.  
• Intellectual Property Business – Means the business of holding intellectual property assets, which means any intellectual property right in intangible assets, including but not limited to copyright, patents, trademarks, brand and technical know-how from which identifiable income accrues to the business (such income being separately identifiable from any income generated from any tangible asset in which the right subsides).  
• Distribution and Service Centre Business – Defined as either or both of the following: purchasing from foreign affiliates component parts or materials for goods or goods ready for sale and reselling such component parts, materials or goods; providing services to foreign affiliates in connection with the business.  

Is your company covered by the ESA?

All companies and limited partnerships registered or incorporated in the BVI (“Entities”) must comply with the Economic Substance Legislation, save for limited partnerships (without legal personality) formed before 1 July 2021, which must comply with the Substance Legislation by no later than 1 January 2022.

Tax Residence outside the BVI

An entity which considers itself a non-resident company or a non-resident limited partnership must provide supporting information to the ITA to prove that it is tax resident in another jurisdiction. The evidence submitted must meet the requirements as specified under rule 3 of the ITA rules. 

Reporting requirements

All economic substance companies and limited partnerships without legal personality that engage in at least one of the relevant activities specified in the Act will be obliged by the ESA to submit the following information regarding the relevant activity conducted in the BVI on an annual basis:  

• Company’s tax residence status 
• Total turnover 
• Expenditure incurred 
• Total number of employees employed 
• Address of office(s) 
• Equipment located within the BVI 
• Details of the personnel in charge of directing and managing the relevant activities 
• Name, jurisdiction and tax identification number of its immediate or/and ultimate parent entity, if applicable  

Reporting periods

Economic substance is assessed by reference to financial periods. The financial periods are as follows: 

For companies incorporated or registered before 1 January 2019, their financial period is from 30 June to 29 June each year. For companies incorporated or registered on or after 1 January 2019, their financial period will commence on their date of incorporation or registration. 

The financial periods prescribed by the Substance Legislation do not have to (and usually do not) correlate with an entity’s accounting financial period. 

Provided notice is given to the BVI ITA. Companies can apply to the ITA requesting that their financial period be amended to align with the entity’s accounting financial period. It should also be noted that such an application can be made to shorten the financial period, but any alteration made to the financial period must not exceed 12 months in length.

How can Bolder Group help

As the economic substance regime develops, Bolder Group professionals can provide legal advice and guidance to help our clients comply with the ES Law. We are also committed to delivering comprehensive economic substance solutions, allowing all regime-impacted clients to meet the BVI’s substance requirements.   

Our in-house Law firm (BGA Law) offers a specialised service and a range of solutions regarding Economic Substance. Clients may select the type of service they require assistance with, and we will be more than happy to help.  

For further advice and information, please contact our BVI team or email us at economicsubstance@boldergroup.com.  

Bolder Group does not provide financial, tax or legal advice and the information contained herein is meant for general information purposes only. We strongly recommend that before acting on any of the information contained herein, readers should consult with their professional advisers. The Bolder Group accepts no liability for any errors or omissions in the information, or the consequences resulting from any action taken by a reader based on the information provided herein.

Bolder Group refers to the global network of independent subsidiaries of Bolder Group Holding BV. Bolder Group Holding BV provides no client services. Such services are provided solely by the independent companies within the Bolder Group which are each legally distinct and separate entities and have no authority (actual, apparent, implied or otherwise) to obligate or bind Bolder Group Holding BV in any manner whatsoever. The operations of the Bolder Group are conducted independently and have no affiliation with third party financial, tax or legal advisory firms or corporations.