BVI Financial services practitioners are expected to receive the draft BVI Government guidance, termed the Economic Substance Code (the Code) before the end of April. This guidance document will provide clarity on economic substance matters in the BVI’s quest to meet EU requirements.
On March 12 the Territory received a small breather when it was announced that the BVI was not among the European Union (EU) blacklisted countries. However, it was stated that he BVI was placed on an alternative list called Annex II and was now awaiting further EU instructions.
The Annex II stipulations echo the conclusions that were adopted by the European Union’s Council (Council) at its meeting held on 12 March and noted that jurisdictions such as the Territory is cooperating with the EU with respect to commitments taken to implement tax good governance principles
In the case of the BVI, Bahamas and Cayman Islands the Council noted: “These jurisdictions committed to addressing the concerns relating to economic substance in the area of collective investment funds, have engaged in a positive dialogue with the Group and have remained cooperative, but require further technical guidance, were granted until end 2019 to adapt their legislation.”
Following the EU announcement Neil Smith, the Director of International Business and Regulations and CEO of BVI Finance Elise Donovan explained that there was a wait to see if the EU would accept the BVI’s position. Smith mentioned that the government would prepare guidance notes for the industry to ensure compliance. These notes were expected to be ready in the next month or two.
However, this week it was announced that the Government and BVI Finance privately updated the industry and announced that the guidance Code will be coming soon. In fact, Appleby, a BVI based law firm disclosed that “BVI Finance announced on 29 March 2019 that with the assistance of external draftsmen progress is being made with the drafting of the BVI Government’s guidance.”
Appleby further stated: “BVI Finance anticipates that the draft Code will be published in late April 2019. This is to be followed immediately by an education campaign in the BVI, followed by a similar campaign in Hong Kong for the Asian market. Publication of the Code in finalized form is expected shortly after the conclusion of these campaigns.”
Since last December, the matter of economic substance was a concerning factor for residents, industry stakeholders and the government. In fact, many keenly listened as the Legislators in the House of Assembly took a bipartisan approach to meet the end of the year deadline. The passage of the legislation was followed by a suspense type wait across all areas of the BVI as many had ears cracked to learn whether the EU would find the BVI’s response satisfactory.
The BVI complied with the EU‘s request by passing the Economic Substance (Companies and Limited Partnerships) Act, 2018 which was further amended in January. This legislation states that a legal entity which carries on a relevant activity during any obligation financial period must comply with the economic substance requirements in relation to that activity.
This requirement is extended to entities that carry out more than one relevant activity. Such activities include banking, insurance, fund management, finance and leasing business, headquarters business, shipping business, holding business, intellectual property business, distribution and service centre business.
The CEO also said that BVI Finance anticipates an upward trajectory for the industry and noted that the BVI continues to be favored in the Asian market. In fact, she referred to the Territory as the little engine that could and noted that the BVI remains compliant, cooperative and ahead of the industry requirements.