Introduction To The Economic Substance Act In The BVI

Background and scope of application

Base erosion and profit shifting (BEPS) refers to tax planning strategies used by multinational enterprises that exploit gaps and mismatches in tax rules to avoid paying tax. To counter harmful tax practices and enhance transparency and substance, members of the OECD Inclusive Framework, including the British Virgin Islands, have introduced legal rules to impose the substance requirement on entities that are engaged in prescribed geographically mobile activities. In this regard, the Virgin Islands Economic Substance (Companies and Limited Partnership) Act, 2018 was enacted and came into force on 1st January 2019. [the ES Act]

The ES Act requires a legal entity (a company or a limited partnership) that conducts relevant activities, as defined under section 6 of the ES Act, during a financial period ¹ to comply with the economic substance requirements in relation to that activity.