The House of Assembly passed the Beneficial Ownership Secure Search System (Amendment) (No.2) Act 2019 on Aug. 2, tweaking existing legislation in order to help ensure compliance with the European Union's economic substance regulations and avoid a “blacklist” designation. The BVI’s International Tax Authority (ITA), Ministry of Finance will finalize the code within the next weeks and will be entered into force later this year.

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The Amendment “expands the scope of the disclosure required to oversee where a legal and corporate entity claims to be resident in another jurisdiction and its beneficial or legal owners are in an EU member state.”

Also, by October 1, 2019, all legal and corporate entities should have already:

1. Determined whether they are or wish to be tax resident in the BVI;

2. Conducted a classification exercise;

3. Determined the start and end dates of their financial periods; and

4. Put measures in place to meet the economic substance test related to the relevant activity in which they are engaged, if any, once they are claiming tax residency in the BVI.

Additionally, the Amendment puts an emphasis on the day-to-day responsibility for managing the business and affairs of BVI companies falls on their directors, and the directors shall understand its obligations under the economic substance law as the first compliance periods have started and there are potentially onerous consequences for non-compliance.

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Although there are provisions in the BVI Business Companies Act 2004 (BCA) which broadly allow directors to rely upon expert advice when discharging their duties, the ITA has made it clear that it will expect to see robust documentary evidence of the basis of the entity’s classification, such as a formal memo of legal advice on the classification and/or board resolutions.

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Finally, the Amendment also emphasizes that there are existing statutory obligations under the BCA for BVI companies to keep records and underlying documents that enable the financial position to be determined at any point in time with reasonable accuracy – this includes a statement of assets and liabilities and records of receipts and expenditure. Thus, if the ITA is unable to determine a clear basis for the classification, there is a risk that companies (or their registered agent, directors or other functionaries) may incur additional scrutiny in the event of an ITA investigation if they are unable to produce the required evidence promptly on request.

(Author: Pei-Yuan Wei Legal Consultant)

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