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BVI economic substance regime updates
Episode 524th June 2022 • Substance on Substance • Harneys
00:00:00 00:14:18

Shownotes

In this episode, Partner Joshua Mangeot and Director of Fiduciary and Custodial Kerry Graziola discuss the various amendments in 2021 to the Economic Substance (Companies and Limited Partnerships) Act (the ESA) and the Beneficial Ownership Secure Search System Act (the BOSS Act) and provide an update regarding steps being taken by the International Tax Authority (ITA) to monitor entities’ compliance.

By way of background, the BOSS Act was amended twice in 2021 – first, with effect from 1 July 2021 via the Beneficial Ownership Secure Search System (Amendment) (No. 1) Act, 2021 (the First Amendment) and the Beneficial Ownership Secure Search System (Amendment) (No. 2) Act, 2021 (the Second Amendment and together with the First Amendment the 2021 Amendments). Many of the key changes made via the First Amendment were summarised in our client update of 19 July 2021.

Key takeaways:

  • We expect the third version of the ITA economic substance (ES) rules and explanatory notes (the Rules) to be published later this year. We understand that publication has been delayed by the EU Commission and, as a result, the Rules do not yet reflect the 2021 Amendments.
  • The main changes made by the Second Amendment relate to limited partnerships without legal personality (which includes foreign limited partnerships without legal personality registered in the BVI) (Relevant LPs) being added to the ES and beneficial ownership (BO) reporting regimes and expand the ES prescribed information to be reported by a “corporate and legal entity” (an Entity) for each ES financial period (FP) beginning on or after 1 January 2022.
  • Many Relevant LPs are investment funds – and amendments to the ES Act in 2021 confirmed the industry view that “investment fund business” is not a relevant activity.
  • Broadly, the 2021 Amendments:
  • significantly expanded the scope of the ES reporting regime for FPs beginning on after 1 January 2022;
  • provided that Relevant LPs must report their BO information within 15 days of identifying those matters following 1 January 2022, other than where the Relevant LP is an “exempt person” which does not carry on any ES “relevant activity” (an Exempt Person);
  • introduced an obligation to identify, and report certain prescribed information in respect of, any “immediate parent” and “ultimate parent” (as defined) of every Entity, other than an Exempt Person; and
  • expanded the scope of jurisdictions which may receive information under the spontaneous information exchange mechanism in Schedule 4 to include the overseas competent authority for each state in which an immediate parent or ultimate parent of the Entity is registered.
  • Although the first reports under the new reporting regime for most Entities incorporated or formed prior to 1 January 2019 will be filed in 2023, Entities should ensure they are aware of the new requirements now and may need to discuss the changes with their accountants and legal advisors.
  • We are already seeing the ITA take steps to investigate entities to determine compliance. The ITA has broad investigation powers to request any information it reasonably requires from any person to determine compliance and generally has up to six years from the end of an FP to make a determination, subject to some limited exceptions.

The Harneys ES Classification Solution

Our  Classification Solution has already been updated to reflect the 2021 Amendments and provides a cost-effective way for BVI companies and limited partnerships to demonstrate formally that they have considered their position under the ES Act. Our automated Classification Solution helps to classify your entity, provides tailored real-time legal advice, and is accessible through our online platform, at your convenience. Classify your entity here.

If you have any questions regarding the amendments or how they may apply to your BVI entity, contact our team of economic substance specialist lawyers  by emailing bvieconomicsubstance@harneys.com.

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