Elise Donovan, the Chief Executive Officer (CEO) of BVI Finance Ltd disclosed to the Legislators of the House of Assembly that the BVI financial services industry is already showing response to the matter of economic substance.
The economic substance matter arose following a decision by the Council of the European Union (EU) to adopt a Code of Conduct for business taxation. This code is expected to stymied the effects of zero tax jurisdictions. It essentially calls for businesses to demonstrate some form of physical presence in the Territory.
BVI Finance is maintaining a positive can-do attitude towards the economic substance situation, even though meeting the stipulated requirements could mean that the thousands of BVI registered international companies may have to urgently set up headquarters and commence operations here in the Territory within months.
Nonetheless, the Territory has taken on a valiant approach to the matter by complying with the EU’s code and economic substance requirement, and passing the Economic Substance (Companies and Limited Partnerships) Act, 2018.
As a result of this legislation and works by BVI Finance, the Territory was not on the March 2019 list of European Union (EU) blacklisted countries. However, it was stated that the 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 and take into consideration that the Territory is cooperating with the EU with respect to commitments to implement tax good governance principles.
In a recent update on the economic substance matter, the CEO of BVI Finance explained to Legislators that the situation has caused the industry to take somewhat of a wait and see approach. In fact, Donovan mentioned that this uncertainty is coupled with the issue of the register for public interest.
Donovan told the Legislators some of their biggest service providers have reported a drop in 1st quarter incorporation figures.
The BVI Finance CEO further explained that the European Union has the requirement for the BVI to demonstrate substance in the most basic term.
“It is to demonstrate we have premises, economic activity and people; so generally, we have to demonstrate that we have core income generating activities in the jurisdiction to be defined as tax resident in the BVI. It is either you declare tax residency elsewhere or if you were declaring tax residency in the BVI, then you would have to demonstrate substance,” she pointed out.