Final Economic Substance Requirements Issued by BVI International Tax Authority

The BVI International Tax Authority has finalized the regime of new economic substance rules. The new rules, effective from the beginning of 2019, are included in the Economic Substance (Companies and Limited Partnership) Act, 2018.

According to the new requirements, which are effective in the large part of the European Union, and which have been supported by OECD BEPS Inclusive Framework members, the companies tax resident in a low or no tax jurisdiction and engaged in key activities identified by the EU, in order to access the tax regimes of the territory are obliged to meet minimum substance requirements as part of their annual tax return. 

In some business sectors, activities generating income must be primarily conducted with qualified employees and operating expenditure in the jurisdiction. Among the main activities identified by the European Commission Code of Conduct Group there are banking, insurance, financing and leasing, fund management, shipping, intellectual property, and holding companies whose income is generated from any of the above activities.

For each of the core activities standards vary to reflect the different needs of the companies involved, and are to ensure that there are sufficient activities undertaken in the relevant jurisdiction to reflect the amount of profits accounted there. The substance requirements will include being able to demonstrate that the company is directed and managed from the relevant jurisdiction, has physical office and sufficient level of employees and annual expenditure.

BVI and Seychelles Sign Multilateral Competent Authorities Agreement

According to the new update by OECD, the British Virgin Islands and Seychelles have signed up to the Multilateral Competent Authorities Agreement (MCAA) on country-by-country reporting. The BVI signed up to the pact on July 7, 2019, and Seychelles joined the agreement two days later. 

Country-by-country (CbC) reporting is a standard which requires the disclosure by large multinational groups of some basic items of financial data, usually in each country where the parent is located. Collected information includes the amount of revenue reported, profit before income tax, and income tax paid and accrued, as well as the stated capital, accumulated earnings, number of employees, and tangible assets. The OECD developed the Multilateral Competent Authority Agreement on the Exchange of CbC Reports, enabling their automatic exchange.

According to the OECD's update in the end of August 2019, a total of 82 territories have now signed up to automatically exchange CbC reports.

New Volume of Statistical Bulletin Published by the Commission

The BVI Financial Services Commission has issued the fifty-fourth volume of its Statistical Quarterly Bulletin, providing information about the financial services activities in the jurisdiction in the first quarter of 2019.

According to the Registry of Corporate Affairs, 7,214 new companies were incorporated in BVI in the first quarter of the year, which is 19.09% decrease compared to 8,916 in the fourth quarter of 2018 and 26.37% decrease compared to 9,798 in the first quarter of 2018. Total cumulative number of registered BCs as at 31 March 2019 was 408,838. Also, in the first quarter of 2019 there were 12 new Private Trust Companies, 1 Segregated Portfolio Company, 1 Foreign Company registered, along with 80 continuations. 

There were 56 new Limited Partnerships (LPs) formed in Q1 2019, which is a 80.65% increase when compared to 31 formed Q1 2018, and a 51.35% increase in the number of LPs formed in Q1 2019 when compared to 37 LPs formed in Q4 2018. Total cumulative number of active Limited Partnerships was 977 as at 31st March 2019.

In the first quarter of 2019, there were 57 new applications to register new Trade Mark, which is an increase by 21.28% when compared to Q1 2018, and a decrease by 1.72% when compared to Q4 2018. According to Banking, Insolvency and Fiduciary Services statistics, there were 6 new General Banking Licences and 1 Restricted Class 1 Banking Licence issued in the first quarter of 2019. The banking sector’s total asset size in this quarter at approximately US$2.43 billion is comparable to Q4 2018’s performance of US$2.37 billion. 

International Cooperation statistics records the number of incoming and outgoing requests for information, classified as formal or informal. In the first quarter of 2019, there were 15 formal and 5 informal incoming and no outgoing requests. Further information and statistics is available at the website of the Financial Services Commission.

UK Government Extending Deadline for Public Registers in BVI

The UK government has given its Overseas Territories including the British Virgin Islands an allowance to continue without implementing the public registers of company beneficial ownership until the year 2023. In fact this is a 3 year extension to the initial deadline set by the United Kingdom in its Sanctions and Anti-Money Laundering Act, which was forcing to implement public registers by the year 2020.

UK Minister responsible for OTs, Lord Tariq Ahmad, gave his comments about the deadline extension: “It is our intention that if by 2020 there is no public register, for whatever territory, we will then issue an Order in Council, which will then have a requirement for an operational public register by 2023.” By his words, the 2023 deadline will give the UK time to advance its mission of making public registers become a global standard. 

The public registers mean that the BVI along with other Overseas Territories will be required to disclose the names of beneficial owners of offshore companies registered in the jurisdictions. The BVI is objecting the implementation of public registers before they become a global standard, as it would place the territory in a disadvantageous position to other countries providing financial services.

BVI Passes The Economic Substance (Companies and Limited Partnerships) Act

According to the announcement of BVI Premier and minister of finance, Dr Orlando Smith, the territory has passed The Economic Substance (Companies and Limited Partnerships) Act, 2018, which came into force on January 1, 2019. This is an important legislation addressing the EU’s concerns over “economic substance”, ahead of the December 31 deadline set by the European union for the British Virgin Islands and other financial centres.

In his comments BVI Premier said: “The government has engaged closely with EU officials over the last 18 months to understand and address the concerns that have been raised and has consulted on a regular basis with representatives of the financial services industry. Dialogue with the industry will continue to ensure smooth implementation of the new requirements and the International Tax Authority is issuing a guidance note to accompany the new Act.” 

Also, the BVI government admitted that the legislation will create challenges for some companies and limited partnerships, mostly due to the compressed timeline. It is expected that the formal response of the European Union will be given after some months.

BVI Government Appoints Legal Council to Advise on Public Register

In the press briefing held on May 30, BVI Premier and Minister of Finance, Dr Orlando Smith, announced that the government has appointed legal counsel to advise on potential legal issues related to the public register of beneficial ownership imposed by Britain. This appointment followed the UK Sanctions and Anti-Money Laundering Bill which requires Overseas Territories, including the BVI, to make public beneficial ownership of all registered companies. With this Bill, the UK receives the right to implement sanctions on individuals, companies and states, and address money-laundering after the Brexit.

BVI Premier said that the legal team “is confident that the imposition of a public register would raise serious constitutional and human rights issues and would be subject to constitutional challenge.” 

A week earlier, BVI diplomat Benito Wheatley has informed the British government that the UK decision to force public registers of beneficial ownership will negatively impact the jurisdiction’s financial services sector that makes more than 60 percent of government revenue.

BVI Gets New Status on EU Tax list

On March 13, 2018, the European Union has made changes to the list of non-cooperative tax jurisdictions: three countries were removed and further three were added to it. Bahrain, the Marshall Islands and Saint Lucia were said by the EU Council to have made commitments to answer the EU’s concerns about them, and the Bahamas, Saint Kitts and Nevis, and the US Virgin Islands were, in their turn, included in the list.

The British Virgin Islands, along with Anguilla, Antigua and Barbuda, and Dominica were added to annex II of the list, which includes territories that have made commitments to reform their tax policies. These jurisdictions are subject to close monitoring. The original list comprised 17 jurisdictions and was announced on December 5, 2017.

BVI Faces Consequences of ‘Panama Papers’ Leak

BVI authorities said that the leak of confidential data from the Panama law firm Mossack Fonseca specializing in offshore financial services, which included about 11 million documents, prompted them to look for any breaches of financial regulations in the Caribbean territory. BVI-registered companies play the most important role in the leaked records, the same way as BVI takes its prominent place in the global offshore financial industry.

BVI financial regulating services have issued a statement where they say that they will ‘pursue a thorough investigation through the BVI's competent authorities, and further action will be taken, where necessary’.

Last year, there were 9,388 company incorporations in the BVI, down from 11,436 the previous year. The BVI is said to have ‘rigorous’ regulatory oversight of its financial sector and adhere to international standards.

Common Reporting Standards Come into Force in BVI

The so called Common Reporting Standards, developed by the OECD, came into effect from January 1, 2016 in many jurisdictions, including the British Virgin Islands, the Cayman Islands, Bermuda, Guernsey, and Jersey, providing for the exchange information between tax authorities. According to the publication by Ropes & Gray, in the countries which accepted this standard from the beginning of the year and are part of the “Early Adopters Group”, all persons opening new accounts are required to provide “self-certifications” allowing financial institutions to perform due diligence and define their tax residency. The first exchange of information as regards certain account holders is expected to take place in 2017.

All investment funds in the BVI and other Early Adopter jurisdictions should have updated subscription procedures for new investors admitted on or after January 1, 2016, and should be ready to gather additional information from all existing investors.

BVI FSC and Gibraltar FSC signed Memorandum of Understanding

The British Virgin Islands Financial Services Commission confirmed in the Press Release the signing of Memorandum of Understanding with the Gibraltar Financial Services Commission. The signed document, concerning the supervision of Managers of Alternative Investment Funds, allows for the exchange of information between the two jurisdictions, on matters related to the supervision and oversight of AIFMs, their delegates and depositaries. So, under the MoU, BVI- and Gibraltar regulated funds can operate in both jurisdictions.

The Memorandum was signed on 13 July by Robert Mathavious, the Managing Director/CEO of the BVI FSC, and Samantha Barrass, CEO of the Gibraltar Financial Services Commission. It is stated in the document how information will be exchanged between the financial regulators, the ways how it will be used, as well as confidentiality, share of information, and the procedures of executing requests for assistance.

Currently, the BVI FSC has signed 27 MoUs related to the supervision of Managers of Alternative Investment Funds.

Caribbean Community Issues Statement on Tax Haven Blacklisting

Following the European Commission’s decision to put some Caribbean jurisdictions – members of the Caribbean Community – on the “black list” as non-willing to co-operate with EU countries in the area of tax law enforcement, CARICOM issued a statement strongly objecting this, and emphasizing efforts of CARICOM member states to comply with regulatory measures.

BVI is among the “blacklisted” countries, along with Anguilla, Antigua and Barbuda, The Bahamas, Barbados, Belize, Bermuda, Cayman Islands, Grenada, Montserrat, St Kitts and Nevis, St Vincent and the Grenadines and the Turks and Caicos Islands. The criteria for considering the countries as non-cooperative included governance (transparency and exchange of information) and fair tax competition.

It is remarkable that in a formal statement issued by the OECD Global Forum this month, it has disassociated itself with the decision of the European Commission, although their own assessment was relevant for the purposes of determining country’s cooperation in tax matters. From the Global Forum statement, it became clear that the EU point of view does not correspond with that of the Global Forum, which, in its turn, is planning to extend support to its member countries put on the black list.

Revised Guidance Notes on FATCA Published by BVI

BVI jurisdiction has updated guidance notes concerning the international tax compliance requirements under its intergovernmental agreements with the US and the UK, drawing attention to the revised deadline of June 30, 2015, for financial institutions to report with respect to the 2014, for financial institutions to report under the US Foreign Account Tax Compliance Act (FATCA). The original version was issued in July 2015.

Also, it became known that the BVI Financial Account Reporting System (BVIFARS) will be available for use from April 15, 2015, when authorities will start to accept applications for enrolment from reporting financial institutions.

BVI Agencies signed MoU on Anti Money Laundering and Countering the Financing of Terrorism

14 BVI agencies signed memorandum of understanding with the Inter-Governmental Committee on Anti Money Laundering (AML) and Countering the Financing of Terrorism (CFT), during the opening ceremony to launch the British Virgin Islands’ National Risk Assessment Council (NRAC). Signatories to the MoU included the Attorney General’s Chambers, the Virgin Islands Shipping Registry, the BVI Post Office, the BVI Ports Authority, Her Majesty’s Customs, the Financial Investigations Agency, Financial Services Commission, the Department of Trade and Consumer Affairs, the Immigration Department, BVI Airports Authority, International Tax Authority, Non-Profit Organisation Registration Board, Office of the Director of Public Prosecution and the Royal Virgin Islands Police Force. Signing of the memorandum was witnessed by many top government and private sector officials.

The signing of this MoU means that the jurisdiction is ready to international co-operation in combating money laundering and terrorism financing, and continues to comply with global financial standards, including information exchange on tax matters. It is designed to foster cooperation between the relevant authorities to enable them to carry out their administrative and statutory obligations, and to assemble and analyze information concerning activities related to money laundering, combating financing of terrorism, financing of proliferation of weapons of mass destruction, corruption, and other serious crimes. 

UK Minister for Overseas Territories Commends BVI FSC

Mark Simmonds, the UK Minister for Overseas Territories, in his comments in response to a question from MP Martin Horwood on the issue of international standards endorsed the strength of the BVI independent regulator, the Financial Services Commission (FSC). He named it “an extremely impressive regulator who wants to ensure that the British Virgin Islands has the highest possible international reputation.” He also said: “The (BVI) regulator wants it to be seen as a well regulated jurisdiction in order to encourage, rather than inhibit or hinder, further investment.”

Mark Simmonds also mentioned the “extremely positive” engagement by the Overseas Territories on the issue of tax transparency. His statement actually followed David Cameron’s praise of the UK Overseas Territories for the actions taken to ensure the highest standards of tax transparency. Cameron said that it was no longer fair to refer to the BVI and other similar jurisdictions as ‘tax havens’.

BVI and Other Financial Centres Sign Up for UK Strategy to Enhance Tax Transparency

UK Chancellor of the Exchequer George Osborne welcomed the news that British Overseas Territories with significant financial industry sector, among them the Cayman Islands, the British Virgin Islands, Anguilla, Bermuda, Montserrat and the Turks and Caicos Islands, signed up for the UK government’s strategy on global tax transparency. This strategy will allow these financial centres to automatically share information bilaterally with the UK, and multilaterally with the G5 countries - the UK, France, Germany, Italy and Spain. 

Under the agreement, much greater levels of information about bank accounts, including those held by trusts, will be exchanged, marking a turning point in the fight against tax evasion and illicit finance. The parties involved in the agreement will know the names, addresses, dates of birth, account numbers, account balances and details of payments made into those accounts. This will increase the level of international transparency and will make it much harder for people to escape paying taxes.

This year, Britain’s Prime Minister David Cameron identified tax transparency as a key priority for the summit of the G8. The jurisdictions, including BVI, have also committed to take action to ensure they are at the forefront of transparency on BVI company ownership. Osborne has invited other countries to join the initiative.

BVI FSC Updated Public Statements Issued By FATF

The Financial Action Task Force (FATF) issued public statement reaffirming its blacklisting of Iran and the Democratic People’s Republic of Korea. The public statement reproduced in original form on the website of the British Virgin Islands Financial Services Commission was issued as an update for the previous FATF statements.

The updated statement also identified jurisdictions with strategic anti-money laundering and combating the financing of terrorism (AML/CFT) deficiencies that have not made sufficient progress in combating them: Bolivia, Cuba, Ecuador, Ethiopia, Indonesia, Kenya, Myanmar, Nigeria, Pakistan, Sao Tome and Principe, Sri Lanka, Syria, Tanzania, Thailand, Turkey, Vietnam, and Yemen.

In the currently listed public statement, the BVI FSC advised the general public of the Anti-Money Laundering Regulations and the Anti-Money Laundering and Terrorist Financing Code of Practice to note the concerns expressed by the FATF with respect to the named jurisdictions, when dealing with customers or transactions involving any of the jurisdictions identified by the FATF public statement.

There is also a separate statement issued on the same date and named “Improving Global AML/CFT Compliance: On-Going Process”, where the FATF organization updated statements on some countries that have committed to working with it to improve their AML/CFT frameworks. 

BVI Corporate Law Updated by Amendments and Regulations

The British Virgin Islands Financial Services Commission announced that the BVI Business Companies (Amendment) Act, 2012 and associated BVI Business Companies Regulations 2012 came into force on 15 October 2012, amending the original BVI Business Companies Act, 2004. Both the Act and the Regulations actually are the first significant update to the corporate law regime of the British Virgin Islands since 2006, and introduce a number of measures aimed at streamlining, clarifying and improving the administration of BVI Business Companies.

The BVI Business Companies (Amendment) Act, 2012 includes 85 new and amended provisions which clarify certain issues within the Act, and codify some existing practices. Some of the key changes that have been made affect such important issues as company names, share class conversion and bearer shares, Notice of Amendment, the Registrar of Companies, registered agents and registration procedure, voluntary liquidation and dissolution, fees, and security interests of the companies. All the changes are beneficial to the BVI regime and aimed to increase its attractiveness as one of the leading offshore jurisdictions worldwide. 

BVI Business Companies Regulations, 2012 have been developed to complement the implementation of some of the provisions of the Act. The Regulations have a total of 29 new provisions and three new Schedules.

The BVI Business Companies (Amendment) Act, 2012 and BVI Business Companies Regulations 2012 can be found on Commission’s website at www.bvifsc.vg.

Premier Explains Situation with Protocols to the Public Finance Act

The Opposition of the British Virgin Islands expressed its concerns about several issues, including the possible breach of the Protocols for Effective Financial Management by the administration, and the penalties that might follow from the United Kingdom (UK) Government. Hon. Andrew Fahie is going to ask over 30 questions at the sitting of the House of Assembly on September 3. 

The Protocols were signed in April 2012 by Premier and Minister for Finance, Hon. Dr. Orlando Smith on behalf of Government and Mr. Henry Bellingham, the United Kingdom Minister for the Overseas Territories. They called for the implementation and entering into force of the enhanced Public Finance Act by August 2012. 

Premier Hon. Orlando Smith said that the BVI Government has already reviewed the new provisions to the enhanced Public Finance Act, and after they are tabled at the next sitting of the House of Assembly, they will be debated and passed at the next sitting of the House.

Also, Premier said that this set of protocols to which the BVI Government has agreed will provide for effective management of finances, to be fully transparent and accountable. He stated that one of the significant things with the protocols is the question of liquid assets, as the British Virgin Islands jurisdiction from time to time has been in breach of the liquid assets under previous agreements. However, he assured: "I will say based on what is contained now in the protocols, we are in breach, but we also have an agreement that by 2015 we will meet all the requirements of the protocols."

Advisory Warning No.2 Issued by BVI FSC

Advisory Warning No. 2 of 2012 was published by the British Virgin Islands Financial Services Commission on 29 February, 2012, relating to the Stand Online Ltd./ Fidelity Ltd. - the companies which offered investment opportunities on the websites at www.stockcastle.com, and presented itself as being incorporated and registered in the British Virgin Islands.

The BVI FSC informed the public that Stand Online Ltd. / Fidelity Ltd. is not, and has not at any time been incorporated or registered in the British Virgin Islands jurisdiction, or licensed by the Financial Services Commission. The Commission urged the public to exercise extreme caution in conducting any transactions with Stand Online Ltd. / Fidelity Ltd.

Also, the Commission has been advised that neither of the entities has any affiliation to Fidelity Corporate Services Ltd. and Fidelity Management Services Limited – the companies which are licensed by the FSC, and have all the rights to offer incorporation and investment services in the British Virgin Islands jurisdiction.

BVI FSC Published Advisory Warning on Pyramid Scheme Frauds

In January, a special Advisory Warning was published by the British Virgin Islands Financial Services Commission, which became the first document of this kind in the year 2012, urging investors to beware of Pyramid Scheme Frauds and other investment scams.

In this press release, a pyramid scheme is defined as a fraudulent money-making scheme based on a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, without delivering a legitimate product or service. The published document contains also the signs of a pyramid structure becoming a pyramid scheme – for example, if joining the group allows the new member to profit by signing up new members, it is normally scam. There are also other ways to identify pyramid schemes.

The BVI FSC warns that if these companies do not disclose information on the risks involved or tell clients otherwise then they would be involved in illegal schemes. Also, legitimate trading schemes rely on valuable goods and services, while illegal pyramid schemes focus simply on recruiting investors.

On the British Virgin Islands website, there is additional information on pyramid schemes, how to evaluate potential opportunities to avoid becoming a victim of fraud, and some tips on what you can do if you have become a victim of pyramid scheme fraud.