(1) Under ESA, legal entities registered in the BVI and carrying on any relevant activities are required to satisfy economic substance requirements in the BVI as follows:

· for relevant entities in existence prior to 1 January 2019 – for the period from 30 June 2019;

· for relevant entities established on or after 1 January 2019 – for the period from the date on which the relevant entity commences the relevant activity.

(2) Where a legal entity is subject to the economic substance regime, it will need to demonstrate that it adheres to the BVI Law. Legal entities must notify their registered agent in the BVI of any relevant activities they carry on within 6 months of the end of the financial period (such financial period will normally be the one year period beginning on the date set above in paragraph 1).

(3) Should the company consider 31 December as the end of its financial year, an application should be submitted before the end of the year to change the financial period. In such case, the beginning of the financial year will be considered 1 January 2019, and the end of financial period will be considered 31 December, 2019.

(4) The first step is to consider whether a legal entity is carrying on a “relevant activity” and to consider whether it has sufficient substance or is tax resident in another jurisdiction.

Relevant activities include the following types of business/business activity:

· Banking Business

· Fund management Business

· Insurance Business

· Intellectual property Business

· Shipping Business

· Finance and leasing Business

· Headquarters Business

· Holding Business

· Distribution and service centre

(5) In order to meet the Economic Substance Test, a legal entity carrying on a relevant activity must:

· conduct core income generating activities in BVI;

· be directed and managed in the BVI;

· have an adequate number of suitably qualified employees physically present in the BVI;

· have an adequate amount of expenditure incurred in the BVI;

· have appropriate physical offices in the BVI.

(6) Note that if a company is a “pure equity holding entity” which carries on no relevant activity other than holding equity participations in other entities and earning dividends and capital gains, the ES Act provides that it satisfies the Economic Substance if it complies with its statutory obligations under the BVI business Companies Act; and has adequate employees and premises in the British Virgin Islands for carrying out the management of the participations.

It is possible to outsource some or, if pure equity holding entity, all of the activities, provided the legal entity is able to demonstrate that it is able to monitor and control the outsourced activities and that those activities are undertaken in the BVI.

(7) We would also like to bring to your attention that, provided that a company is carrying any of the relevant activities, must also satisfy Substance requirements when entering into liquidation or other changes in its status, since the regulations state that the trigger for the commencement of an entity’s obligations to comply with the provisions of the ESA is the start of its first financial period.

(8) Please take in consideration that the above requirements are not applicable if the entity is tax resident in a jurisdiction outside BVI (other than jurisdictions listed in the EU tax heaven blacklist – please see “Schedule B” below).

If the entity is considered tax resident in another jurisdiction, the company will be asked to provide further information or evidence showing the legal entity is non-resident for tax purposes in the BVI, such as:

· Official statement of submission of annual tax from the relevant tax authority; or

· Tax Certificate identifying the name and tax ID number and residency in another jurisdiction;

(9) The ESA contains penalties for failure to satisfy the Economic Substance Test, including:

· for the first determination of non-compliance, a minimum penalty of $5,000 and a maximum penalty of $20,000 ($50,000 for high risk IP entities) may be imposed by the ITA;

· for the second determination of non-compliance, a minimum penalty of $10,000 and a maximum penalty of $200,000 ($400,000 for high risk IP entities) may be imposed by the ITA;

· The ITA may also serve notice on the Financial Services Commission requiring that the legal entity be struck off the Register of Companies or Register of Limited Partnerships as applicable.

What to do?

1. If your company is carrying on a relevant activity and conducts core income generating activities in BVI, you should take the necessary steps to comply with the substance requirements. These steps should be taken immediately, since the entity must satisfy the Economic Substance Test for the whole financial period during which the company carried the aforementioned activity.
2. If the company is tax resident in another jurisdiction, the necessary steps should be taken to obtain the relevant supporting documentation (please see paragraph 8).
3. Should you wish to move the seat to another jurisdiction, we can offer depending on your needs redomiciliation to Seychelles, in case if no substance is necessary or the business, or to Ras-al-Khaimah with possibility to establish full physical presence with office facilities and visa for investors and workers. Check our comparison table in “Schedule A” below to find out more about the advantages of each jurisdiction.

Considering the latest developments and current worldwide tendency of the regulatory authorities towards higher transparency and expectation for strong physical presence in the country of registration, we consider the redomiciliation or registration of companies in a jurisdiction with low or zero substance requirements to be a temporary or ineffective solution.

On the other hand, The United Arab Emirates has an abundant ecosystem of professionals, experts, infrastructure and resources to meet the Economic Substance Requirements, and consistent long history of commitment to liberal economic policies. By taking advantage of the Premium Product (check “Schedule A” below), through a simple procedure, investors and managers can obtain visa and residency in UAE, therefore effectively managing expenses, employment and tax planning matters of the company.

We offer you the opportunity to REDOMICILIATE your company TO RAS AL KHAIMAH FREE OF CHARGE UNTIL THE 31 DECEMBER 2019.

For further information or clarification, please do not hesitate to contact us.

Schedule A:

*only for income outside the jurisdiction

**license price may vary depending on the type of activity

***depending on the activity of the company, in some occasions, may be covered by outsourcing management services

Schedule B:

Jurisdictions listed in the EU tax heaven blacklist as of 17 October 2019:

· American Samoa

· Belize

· Fiji

· Guam

· Oman

· Samoa

· Trinidad and Tobago

· US Virgin Islands

· Vanuatu