Comment: What does a good BVI company look like?
For companies with offshore operations in jurisdictions such as the British Virgin Islands (BVI), now is the perfect time to take a proactive step in managing risk through economic substance, writes Simon Filmer (pictured below), Debbie Farman and Michael Thomas.
The European Union's introduction of the Economic Substance (Companies and Limited Partnerships) Act, 2018 (ES Act) continues to validate the ongoing drive for global transparency in the international business landscape.
According to the Beneficial Ownership Secure Search System Act, 2017 (BOSS Act), which came into force on 30 June 2017, all BVI companies were required to provide certain information, such as details regarding the company's beneficial ownership, to BVI authorities through their Registered Agent (RA). The RA would have already dealt with these requirements.
It is important to note that an entity has only 15 days to notify its RA of any changes to this information, or else risk penalties.
Based on the ES Act's amendments to the BOSS Act, the BOSS system must be updated annually with economic substance information as it relates to each BVI entity, with the first filing for this due in 2020. The RA will reach out to the company to carry out the necessary filing.
Sound governance
It is vital for a company to make sure that its corporate governance practises meet the expectation of the BVI authorities, whether it be for the purpose of demonstrating substance compliance, or just noting general operations.
For example, if the board has decided on a particular course of action for the business, it would be sensible for the directors to record such decisions by way of board minutes or resolutions. If the entity needs to demonstrate substance in the BVI, it should be able to show written evidence that this understanding was reached and that further actions were decided upon in the BVI by a majority of the board.
The BVI authorities will inspect as required, so you need to have these corporate records available upon request, along with other supporting documentation. The appointment of a local Company Secretary or Corporate Administrator would be able to ease this burden on the Directors if required.
In addition, the BVI authorities expect entities to be able to provide an accurate financial position upon request, despite this not being a formal requirement under BVI Company Law at present.
This is why it is only prudent that companies strive to maintain some form of accounting; this is advantageous not just when it comes to submitting concrete substance evidence for Economic Substance, but also to demonstrating compliance with global anti-money laundering requirements.
Staying alert
With the growing emphasis on global tax transparency and fairness, and given its zero-tax threshold, the BVI has committed to full cooperation and compliance to relevant global initiatives.
Additional to the emphasis on Economic Substance, BVI entities should also be mindful of other regulations, such as the Foreign Account Tax Compliance Act (FATCA), the Common Reporting Standards (CRS) and Country by Country Reporting (CbCr).
For FATCA, every BVI Company is required to classify itself against the legislation, and depending on classification, it may need to register with both the US Inland Revenue Service (IRS) and the BVI authorities, as well as to compile and submit an annual report.
Where Country-by-Country Reporting is concerned, entities that are part a global group earning consolidated revenues of more than EUR750 million (or the currency equivalent) may have to conduct extensive annual reporting if they are the lead entity, and an annual notification requirement if they are a group subsidiary. Whilst the volume of tax legislation seems daunting, local service providers are well trained and can offer services to ensure ongoing compliance.
Conclusion
To achieve full compliance through all the pulls for information and transparency, it is important that directors and shareholders remain vigilant to the requirements of operating and managing risk for a BVI company.
As such, a good course of action would be to engage a reputable global service provider and registered agent, which can serve as a trusted partner in helping you identify and manage risks in a complex regulatory landscape.
Simon Filmer is global lead for company formation at Vistra; Debbie Farman is managing director for legal and regulatory services at Vistra; Michael Thomas is global head of information reporting services at Vistra
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