We are pleased to inform you that the Rules on Economic Substance (“the Rules”) have recently been updated on the 10th February 2020. In addition, the British Virgin Islands (“BVI”) has now officially been removed from the European Council’s “grey list” as of 18th February.
Removed from the “grey list”
BVI has been removed from the list of non-cooperative jurisdiction for tax purposes. This proves that BVI has strictly implemented their commitments with international tax standards and in accordance with the European Council’s criteria.
Updates from the Rules on Economic Substance
Since the first release last October, the Rules elaborated more explanatory options for an entity carrying on a Relevant Activity, which is potentially within the scope of the legislation and has broadly speaking, three options:
- It can ensure that the substance of the Relevant Activity is carried on within the BVI,
- It can discontinue the activity, or modify it so it no longer falls within the scope of a Relevant Activity, or
- It can demonstrate a tax residence in a jurisdiction outside the BVI.
In this update, the definition of Relevant Activities also received more specific explanation, particularly in Headquarters business, holding business and distribution and service centre business:
- Headquarter businesses – it is specifically noted that providing headquarter services is not dependent on the business position, in the group structure. An entity that carries on the activity that might fall within this definition but in fact forms part of another relevant activity will be considered as outside the definition of headquarter business.
- In case of holding business, a legal entity will only fall within the definition if it only holds equity participations, yielding dividends or capital gains.
- For an entity to carry on distribution and service centre business, it must have a business, which consists of purchasing assets from entities and/or a business providing services to entities in the same group.
The penalties imposed are intended to be rigorous, effective and dissuasive ranging from financial penalties ranging USD5,000 – 400,000 to strike off and imprisonment.
If you need more information, please contact our experts.