As of October 1, the changes that were made to the BVI’s Beneficial Ownership Secure Search System Act come into force, bringing with it the means by which companies will be required to report on substance.
In order to meet economic substance requirements, the legislation governing the Beneficial Ownership Secure Systems (BOSS) (which is an interface that was created to meet the Territory’s beneficial ownership requirements), was amended to include economic substance reporting.
Therefore, from Tuesday, October 1 entities that engage in relevant business, are tax resident, and are incorporated in the BVI must report their activity according to the requirements of the Act.
Trust Companies Provide Clarity
Over the past months, many of the trust companies operating in the BVI have written pieces on the economic substance requirement and the October date.
Trident Trust pointed out that the October date is not the deadline for filing of substance.
“The 1 October deadline is the date on which the BOSS amendments come into force. It is not a filing deadline and does not replace the 30 June 2019 deadline for legal and corporate entities to be compliant with applicable economic substance requirements.”
In fact, the Trident Trust professionals noted that by 1 October, all legal and corporate entities should have already determined whether they are or wish to be tax resident in the BVI. The company said that by October 1 the entities should have conducted a classification exercise; determined the start and end dates of their financial periods; and put measures in place to meet the economic substance test related to the relevant activity in which they are engaged.
As it relates to the actual reporting of economic substance, KPMG mentioned a 2020 date.
The company said, “In either case, all legal entities must report to the ITA by 31 December 2020 at the latest. Filing and reporting is to be made via the Beneficial Ownership Secured Search System Act, 2017.”
KPMG also mentioned that there would be fines and enforcement associated with the economic substance requirements.
The company said, “Entities which carry on a relevant activity, which cannot demonstrate tax residence outside of the BVI, and which fail to meet the economic substance requirements, will be subject to enforcement action. This could result in substantial fines and potential strike off from the BVI Register of Companies. Likewise, if legal entities do not take steps to either change their activities so that they outside of the scope of the legislation, or to bring themselves into compliance with the Act, they can expect to be subject to enforcement action.”
Additionally, KPMG said that the Act outlines a notice process with graduated penalties to be applied for failure to meet economic substance requirements following each subsequent notice.
The maximum penalty is US$400,000 for a high-risk intellectual property legal entity and US$200,000 for all other legal entities.
Public Wants More Info
During a public meeting that was held by members of the Opposition on September 11, a member of the public asked the legislators why the Government or the Opposition has not hosted public discussion on the matter of economic substance.
In his response, Opposition Leader, Hon. Marlon Penn said, “We can’t speak for the Government, but we have countless times debated and outlined where we foresee opportunities of the Economic Substance Bill for the Territory, but we need to have a national strategy.”
The Opposition Leader said that following the Economic Substance Bill, a committee was supposed to be created to examine the benefits of this requirement to the people of the Territory, but he said that this was not done.
“One of the things that was discussed after the Bill was passed was that there was supposed to be a committee to look at local opportunities and how the local entrepreneurs can [benefit] from this legislative framework,” he said.
Additionally, the Opposition said that they are open to discussing the matter with the Government,
“We have a new administration. To date, we haven’t heard of any committee, any ideas, any strategy for us to capitalize on economic substance. At the end of the day, we’ve elected a Government to lead. We have expressed to the Government that at the end of the day we are interested and wrote formally that we want to sit down with matters of economic substance and the economy.”
The date of October 1 was announced in an extraordinary Gazette that was published on 28 June this year.