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 EU co-chair Meeting to Discuss EU Tax List Issues

BVI and European Commission co-chaired the meeting of financial services partnership working party which was held in Belgium between the EU and a number of Overseas Countries and Territories. During the meeting, the EU list of non-cooperative jurisdictions for tax purposes was discussed. From OCT jurisdictions, there were representatives of Aruba, British Virgin Islands, Cayman Islands, Turks and Caicos Islands and some others, from EU, there were the officials from the Directorate General for Tax and Customs Union and Directorate General for International Development and Cooperation. 

Beside the listing process and ongoing procedures, the participants of the meeting also discussed beneficial ownership developments in the EU and OCTs and EU approach to taxation in the digital economy sector. 

BVI London Office director and UK and EU representative Benito Wheatley co-chaired the meeting on behalf of the BVI, and currently is co-chairing the OCT/EU financial services partnership working party. He said in his comments: “It is critical that the EU and OCTs maintain dialogue on tax and other financial services issues to gain a greater understanding of any concerns.”

IMF Issued Document on CARICOM Countries' Tax Reforms

The International Monetary Fund has issued the new paper where informed that CARICOM members including the British Virgin Islands need more tax reform while having benefited from introducing VAT. In the opinion of the IMF, zero-rating of domestic supplies, generous exemptions, low registration thresholds have negative effect on the performance of VAT in the CARICOM countries, which should enhance the efficiency of their regimes.

The IMF also asked CARICOM members to pay closer attention to other major taxes: to simplify personal income tax regimes to simplify compliance and improve compliant rates; to coordinate on the design of corporate income tax systems and to tackle international tax evasion and avoidance. It also urged member countries to implement programs to strengthen IT support, audit capacity and enforcement.

BVI on the List of Countries for AEOI Consultations with Switzerland

British Virgin Islands is included in the list of the countries with which the Swiss Federal Department of Finance has launched a consultation on the introduction of the automatic exchange of information in tax matters (AEOI). The consultation will be held until March 15, 2017, and the AEOI for the listed countries is expected to enter into force on January 1, 2018, with first exchanges to start in 2019.

According to the Federal Department of Finance, the introduction of the AEOI with the new countries will confirm international commitment of Switzerland to implement the AEOI standards. 

The FDF said that these countries, which along with the BVI include Andorra, Argentina, Barbados, Bermuda, Brazil, the Cayman Islands, Chile, India, Israel, Mauritius, Mexico, Monaco, New Zealand, the Seychelles, and some others, adhere to the principle of speciality and implement appropriate measures to safeguard the confidentiality of the data exchanged.

In 2017, Switzerland will introduce the AEOI with EU member states, Australia, Iceland, Norway, Japan, Canada, South Korea, Jersey, Guernsey, and the Isle of Man.

Statutory Deadlines Extended for BVI Financial Institutions

The BVI Financial Account Reporting System will be ready to accept UK CDOT or UK FATCA filings by May 2, 2016. BVI Financial Institutions have been informed of this fact, and they can submit their reports to the International Tax Authority as of this date and no later than the extended dates which are as follows: the statutory deadline for registration with the Tax Authority is extended from April 1 to June 10, and the statutory deadline to submit 2014 and 2015 reportable accounts to the ITA is extended from May 31 to July 29.

The extended deadlines relate only to reportable accounts submitted via BVI Financial Account Reporting System. Concerning the Alternative Reporting Regime (ARR) under UK CDOT and UK FATCA, the original statutory deadline remains the same.

BVI Budget Debate Starting on Tuesday

BVI Territory's largest proposed budget debate is to start on March 22, more than month after being presented by BVI Premier and Minister of Finance Dr Orlando Smith, and after weeks of meeting where parliamentarians examined the budget for the 2016 fiscal year; also, Accounting officers participated in these meetings, discussing plans for the ministries and departments. The meetings have finished, and now both the government and opposition sides will take part in the budget debate, which will be followed by the approval of the proposed budget, possibly with changes.

In his budget speech, the premier announced new tax measures which will make people pay more for work permits and water supply, and, along with new legislation enforcing compliance, will enable the government to collect over US$20mln in revenues. He said, however, that these new tax measures ‘will not have any great effect on the citizens of the BVI’. The opposition responded to this statement, saying that the tax increases are being proposed at a time when more people have less.

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.

OECD Improved BVI Status as to Tax Transparency

The OECD Global Forum on Transparency and Exchange of Information for Tax Purposes has issued review reports for 12 jurisdictions regarding their compliance to the global standards on taxation transparency and information exchange. Among the countries, there was the British Virgin Islands which was stated to have made improvements of its exchange of information practices under its Phase 2 review, and was moved from the status of “Non-Compliant” to “Largely Compliant” jurisdiction.

The OECD Global Forum is the world’s largest international tax group, including 127 members. The Forum has completed 198 peer reviews and assigned compliance ratings to 80 jurisdictions that have undergone Phase 2 reviews.

BVI Government Introduces Measures to Increase Revenues

The British Virgin Islands Government reported the increase of tax revenue in 2013 by 3.3 percent as compared to the previous year. Payroll taxes increased by 8.5% in 2013, and revenues from property tax and trade taxes decreased.

The BVI Government is implementing a number of measures in the 2015 Budget to expand revenue of the territory. Among the measures that will be undertaken there is changing the current structure of work permits so that fees will be based on occupation type. The Government will also return to imposing import duties on cost, insurance and freight value basis, and review current legislation to provide revenue collecting agencies with more power to enforce compliance.

The Government is also planning to close loopholes in BVI tax and fee structures and make sure that fees cover the costs of providing services. From 2016, a tourist arrival levy will be introduced.

BVI Premier Signed FATCA-related Agreement

The Model 1B intergovernmental agreement (IGA) was signed by the government of the BVI at the Department of Treasury in Washington, DC. According to BVI Premier Dr Orlando Smith who signed the IGA, this is the final step in the current phase of Foreign Account Tax Compliance Act (FATCA) implementation in the British Virgin Islands. Next phase will be creation and issuance of guidance notes that assist financial institutions and other parties in the jurisdiction to determine their requirements under the agreement.

BVI Financial Secretary Neil Smith stated among the key benefits of the IGA that BVI financial institutions have until the end of 2014 to obtain a global intermediary identification number (GIIN). 

The BVI government will issue a draft of the territory’s guidance notes to receive comments from members of the financial services industry. It will be possible to give feedback on the guidance notes also through participating in workshops that will be provided for the industry specialists by KPMG (BVI) Limited. After making sure that the guidance notes will adequately address any BVI-specific situations, they will be updated and amended.

FATCA was enacted in 2010 by the US Government, with the main purpose to combat tax evasion by some US citizens holding their investments in accounts outside of the United States, and requires foreign financial institutions to report to the IRS information on assets of US$50,000 or more held by US taxpayers.

TIEA Signed by BVI and Japan

In June, the BVI government announced the signing of tax information exchange agreement (TIEA) with Japan. The new TIEA, which became 26th tax agreement for the jurisdiction, will come into force on the thirtieth day after completion of the domestic implementation procedures by both parties. In the British Virgin Islands, TIEAs are implemented through subsidiary legislation under the Mutual Legal Assistance (Tax Matters) Act, 2003. 

The BVI-Japan TIEA complies with OECD standards for these agreements, providing for assistance through the exchange of information concerning taxes covered by the TIEA. For BVI, the competent authority is the Financial Secretary or an authority designated by him in writing, for example, the International Tax Authority, and for Japan the competent authority is the Minister of Finance or his authorized representative.

UK Minister for Overseas Territories Visited the BVI House Asia

The UK Member of Parliament and Under Secretary of State for Foreign and Commonwealth Affairs Hon. Mark Simmonds visited the BVI House Asia, Hong Kong, with a fact-finding trip. Mr Simmonds confirmed his support for the BVI, and stated that the financial services industry was a ‘fundamental pillar for the future of the BVI’. 

During his visit, Mr. Simmonds received presentations from Director of BVI House Asia Ms. Elise Donovan, Deputy Managing Director of the BVI FSC, Mr. Kenneth Baker, as well as presentations from some other members of the BVI financial services industry in Asia, which gave an overview of how BVI companies are used across the region. According to the Premier’s Office, the presentations outlined the advantages of doing business in the BVI, the flexibility of its corporate structures, legal system, and strong BVI legal expertise. 

The BVI practitioners told the UK Minister for Overseas Territories that the BVI was still the most important jurisdiction in the Asian market, and they were pleased that the BVI Government had established BVI House Asia to provide support for their work in Asia. They also stated that taxation was not a primary reason for using BVI corporate structures, and the most important reasons for use currently and in future are asset protection, wealth management, funds management, investment holdings and trading.

BVI Government Initialled FATCA Inter-governmental Agreement

The BVI and the US government concluded negotiations on the inter-governmental agreement (IGA) concerning the US Foreign Accounts Tax Compliance Act (FATCA). The initialling of the final text of the agreement now can be followed by its implementation in the British Virgin Islands. 

Upon signing of the agreement, foreign financial institutions in the jurisdiction that are required to comply with US FATCA, will be able to report certain information on US account holders to the BVI International Tax Authority who would automatically exchange information with the US government. 

By words of BVI Premier and minister of finance, Dr Orlando Smith, “The initialling of the FATCA IGA is another important signal of BVIs commitment to global standards on transparency.”

The conclusion of negotiations on the agreement was preceded by long lasting dialogue with the US Treasury in which the BVI government negotiated and received some exceptions for relevant entities such as non-profit organizations and pension plans and their accounts. Now the BVI is to put into place shortly the final legal and administrative procedures to facilitate the implementation of the agreement.

BVI Presents on China Offshore Summit

Martin Crawford, chief executive of Offshore Incorporations Ltd, has referred to the status of the British Virgin Islands jurisdiction as the leading one for Chinese investors and entrepreneurs, during the China Offshore Summit recently held in Shanghai and attended by more than 350 Chinese wealth planners, bankers, lawyers, and offshore professionals.

In his presentation he named the reasons why the BVI is the most complete jurisdiction for the needs of Chinese investors, among them opportunities for non tax-driven structures such as asset protection, wealth management, funds management, investment holdings, trading, special purpose vehicles, and listing vehicles for IPOs. It was stated by him as an example that 60 per cent of the multi-million dollar London properties, owned by Chinese citizens, were purchased through BVI entities.

The chief executive of one of offshore industry leaders made his presentation on behalf of the BVI International Finance Centre (BVI IFC), platinum sponsor of the summit. Christopher McKenzie, representative of BVI law firm O'Neal Webster, promoted BVI trusts on a panel discussion titled Strategies for Family Business Succession, while Janice Skelton of Newhaven Corporate Services described the benefits of the BVI on a panel on Selecting Jurisdictions for Chinese Private Wealth Management. Barry Mitchell and Charlie Sparrow of law firm Maples and Calder presented on the benefits of BVI Trusts for Asian IPOs. On the second day, there was a two-hour special feature on the BVI jurisdiction, which included presentations and panel discussions under the theme BVI: The Complete Offshore Solution. There was also an update on BVI House Asia, established in Hong Kong this year.

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 Government Invites Specialist in FATCA

The British Virgin Islands jurisdiction has invited a specialist in the United States Foreign Accounts Tax Compliance Act (FATCA), which is now being discussed by the U.S. and BVI governments. The specialist will make special presentations to individuals affected by the US law. Financial Secretary Mr Neil Smith stated in his comments that specialist’s visit has the purpose of informing residents on their individual obligations under FATCA. He said: "What is important to note, is that FATCA gives the Internal Revenue Service (IRS) a new mechanism to collect information on US citizens that are not properly filing US income tax returns and reporting their bank accounts. The government really wants to ensure US citizens in the BVI are aware of their general US tax filing requirements."

 A few months ago, the BVI government commissioned professional services firm KPMG to carry out a study on FATCA, to highlight the persons who may be exempt from reporting under the law, and for better comprehension of obligations of individuals who are not exempt from compliance with the law.

BVI Government Discusses Foreign Account Tax Compliance Act

The British Virgin Islands jurisdiction has started to discuss the Foreign Account Tax Compliance Act (FATCA) with the US Department of the Treasury. According to BVI Premier Orlando Smith, who told this to reporters on August 20, 2013, the territory is talking about the “intergovernmental agreement” with the US to comply with FATCA.

The Premier expressed the opinion that this course of action is the best for the BVI, and noted that its financial services industry complies with it.

The Foreign Account Tax Compliance Act provides that the Inland Revenue Service obtains information on accounts of US taxpayers, held abroad at foreign financial institutions. If foreign financial institutions fail to disclose information on their US clients, account ownership, and changes on the account balance, it will result in the requirement to withhold 30 percent tax on US source income.

In August, the Cayman Islands has concluded negotiations with the United States on agreements for automatic information exchange under the Foreign Account Tax Compliance Act, and Bermuda and the Bahamas have also expressed their intention to comply with FATCA.

Global Forum Released Reports on Information Exchange in BVI and Other 12 Jurisdictions

According to the Tax-news, Global Forum on Transparency and Exchange of Information for Tax Purposes issued peer review reports assessing tax systems of thirteen countries, including BVI, for information exchange. These reviews are to become part of the ratings of 50 jurisdictions, in compliance with G20 and Global Forum efforts to strengthen tax cooperation.

All the reports assess the commitment of the jurisdictions to the international requirements for tax information exchange. Of these 13 reports, 11 are “Phase 2” reports covering the exchange of information in Austria, Bermuda, Brazil, British Virgin Islands, India, Luxembourg, Malta, Monaco, Qatar, San Marino and The Bahamas. Two are “Phase 1” reports, concerning Israel and Lithuania, looking at the legal and regulatory framework for transparency and exchange of information. 

The Chair of the Global Forum Kosie Louw, of the South African Revenue Service, welcomed the reports noting: "The Global Forum is applying pressure on all jurisdictions to implement the standard and co-operate effectively in tax information exchange. The publication of the ratings later this year will be a crucial moment for all those committed to fighting cross-border tax evasion."

BVI Premier Confirms Support of G8 Tax Decisions

Last week, Premier and Minister of Finance of the British Virgin Islands Orlando Smith returned from London and gave his comments on G8 Tax Statement, confirming his support of the UK government’s global agenda on tax, transparency and trade, and his agreement to take an active part in the new initiative of multilateral automatic tax information exchange agreed upon by the UK, Germany, France, Spain and Italy. The BVI Premier also confirmed the plans to prepare national actions to meet the FATF standards on beneficial ownership, and to join the Multilateral Convention on Mutual Assistance on Tax Matters.

Orlando Smith noted in his comments: “In the debate about tax and transparency the fact that the BVI already has stronger financial regulation for trust and corporate service providers, as well as rules regarding beneficial ownership than many countries in the G8 itself, has not been adequately appreciated… For many years we have implemented the highest international standards on transparency, accountability and information exchange on tax matters, as set out by the OECD. The BVI will continue to be a constructive partner in evolving and setting the highest standards of regulation.”

BVI Signed TIEA with Canada

Last week, the British Virgin Islands government has signed TIEA with Canada. This tax information exchange agreement became the 24th for the BVI territory, allowing for the exchange of information by request on criminal and other tax matters in accordance with the procedures.

The TIEA was signed by the BVI Premier and Minister of finance, Dr Orlando Smith, and by the High Commissioner for Canada, Gordon Campbell from the Canadian side.

The Premier Dr Orlando Smith welcomed the agreement, and also, during his speech at the signing ceremony, which coincided with the Caribbean Council Reception, stated that the British Virgin Islands is unequivocally against tax evasion, fraud, money laundering and any forms of illegal activity, and supports UK strategy and UK Prime Minister’s agenda for the G8 summit. The Premier took the opportunity to reinforce the association the BVI has with the UK and welcome the spirit of cooperation between the countries.