The British Virgin Islands International Tax Authority has said that investment funds are not subject to the economic substance requirements unless they carry on other relevant activities.
The Economic Substance (Companies and Limited Partnership) Act 2018 has been enacted in the BVI and came into force on 1 January 2019.
The jurisdiction's Tax Authority has now published a draft code setting out the effect of the new framework. The tax office interpretation is that the EU does not require investment funds to be subject to economic substance rules.
This guidance confirms that an entity will be treated as carrying on a relevant activity in the BVI during any financial period in which it receives income from that activity.
Financing and leasing businesses will be considered as relevant entities, but entities that provide credit as an incidental part of their business, or which hold debt for investment purposes, will not be considered as financing businesses. Ownership by an entity of any investment other than equity participations will mean that it is not a pure-equity-holding entity.
However, the EU's Code of Conduct (Business Taxation) Group is expected to issue further technical guidance on funds in mid-2019, which will affect not just the BVI but other jurisdictions such as the Cayman Islands.
"We are pleased and grateful for the engagement of the BVI's international business and financial services sector as we work towards the most effective solution for implementing the Economic Substance Act. The process of establishing the Act has been a collaborative process throughout and this approach will be maintained as it is actively implemented," Elise Donovan, Chief Executive Officer of BVI Finance, said.
"Though the process is still ongoing, BVI Finance is working alongside the BVI Government to help implement the legislation in a manner that will meet the EU's substance needs, whilst preserving the future and continued prosperity of our successful business and financial services industry. Together we will continue to cement the BVI's position as a global leader in international trade, business and investment," she added.
Under the new rules, it is mandatory for offshore financial services companies to set up physical offices in the BVI. According to the director of international business, Neil Smith, while the 400,000 plus registered companies in that sector will be reduced, the number of persons involved in the sector is likely to triple on the ground.