Economic substance requirements in the British Virgin Islands


The British Virgin Islands (BVI) government has enacted legislation that will require certain BVI entities carrying on specified activities to have ‘adequate substance’ in the BVI. Any relevant entity that may be impacted by this legislation will wish to monitor these developments closely.


As an early adopter of the Common Reporting Standard and FATCA compliant, the BVI is recognised as a jurisdiction committed to tax transparency. The BVI anti-money laundering and anti-terrorist financing legislative regime meets or exceeds international standards and the BVI government and financial services industry have worked closely with intergovernmental organisations to maintain a sound regulatory framework.

In 2017 the EU Code of Conduct Group (the Code Group) assessed the tax policies of a range of jurisdictions, including the BVI. Following this assessment, the BVI was included in a list of jurisdictions which were required to address the Code Group’s concerns about ‘economic substance’. Like their counterparts in the Cayman Islands, Bermuda, Guernsey, Jersey and Isle of Man, the government of the BVI has been working closely with the Code Group to ensure that such concerns are adequately addressed. As a result of this engagement, the Economic Substance (Companies and Limited Partnerships) Act, 2018 (the Act), has been enacted, coming into force on 1 January 2019.


The Act applies to all “legal entities” carrying on “relevant activities”, other than non-resident companies, non-resident limited partnerships and limited partnerships which have elected not to have legal personality.

Legal entities are defined as being BVI companies and limited partnerships, and foreign companies and foreign limited partnerships registered in the BVI under the BVI Business Companies Act, 2004 or the Limited Partnerships Act, 2017.

A non-resident company or non-resident limited partnership is a company or limited partnership which is resident for tax purposes in a jurisdiction outside the BVI (except for jurisdictions which have been included on the EU list of non-cooperative jurisdictions).

The effect is that the economic substance requirements are to be imposed on all legal entities carrying on “relevant activities” unless they can demonstrate that they are tax-resident elsewhere. A legal entity is subject to the economic substance requirements if it conducts any of the following “relevant activities”:

• banking business

• insurance business

• fund management business

• finance and leasing business

• headquarters business

• shipping business

• holding business

• intellectual property business

• distribution and service centre business.

Each of the above activities is defined in the Act, and we expect that further guidance will be issued to assist in determining if a particular entity is carrying on a relevant activity.

The Economic Substance Test

Each legal entity which is not tax resident outside the BVI (other than 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) must, in relation to any relevant activity, carry out defined core income-generating activities in the BVI and demonstrate economic substance by reference to the following criteria, having regard to the nature and scale of the relevant activity:

1. the relevant activity being directed and managed in the BVI;

2. adequate numbers of suitably qualified employees who are physically present in the BVI (whether or not employed by the relevant legal entity or by another entity and whether on temporary or long-term contracts);

3. adequate expenditure incurred in the BVI;

4. appropriate physical offices or premises in the BVI; and

5. where the relevant activity is intellectual property business and requires the use of specific equipment, the equipment is located in the BVI.

Outsourcing of core income generating activities is permitted in certain circumstances.

Holding companies are required to meet a reduced test for economic substance, while at the other end of the scale, intellectual property companies will face more onerous requirements. There will not be a ‘one size fits all’ approach.

Obligations to Provide Information and Automatic Disclosure

All legal entities must provide information to enable the competent authority (the International Tax Authority in the BVI) to monitor whether the relevant entity is carrying on relevant activities and, if so, whether it is complying with the economic substance requirements. The information will be integrated into the BVI’s existing Beneficial Ownership Secure Search (BOSS) system which obliges registered agents in the BVI to keep up to date information on beneficial ownership and allows competent authorities to search the database. The new regime requires legal entities to submit information in relation to any relevant activities on an annual basis which can be analysed by competent authorities and used as a basis for a risk based investigation and enforcement of economic substance requirements.

Automatic notification will be made to the “relevant overseas competent authority” in respect of a relevant legal entity which:

(1) is found to be in breach of the economic substance requirements;

(2) carries on “IP relevant activity” in certain circumstances; or

(3) claims to be tax resident in a jurisdiction outside the BVI.


Penalties are imposed both for failure to provide required information, and for operating a legal entity in breach of the economic substance requirements, which may include fines, imprisonment and/or strike-off.

The revised Cyprus Investment Program (“CIP”).

The Cyprus Investment Program offers to any successful applicant the opportunity to receive the Cyprus naturalization while it remains one of the most attractive of its kind.

The program has been revised since its publication and all changes apply to any applications submitted after May 15th, 2019.

The detailed description of the changes is set out below:

1. Compulsory donation of €75,000 to the “Foundation for Research and Innovation” to promote the creation of an entrepreneurial innovation ecosystem, which can be waived if the applicant:

a. invests at least €75,000 in a certified, by the Ministry of Finance, Innovative Business or Social Welfare Company,

b. invests at least 20% of the total required investment to a company that is operating in the primary or secondary sector of the Cyprus economy or in the field of education, research and technology, renewable sources of energy or health.

2. Compulsory contribution of €75,000 the “Cyprus Land Development Corporation”; for the implementation of affordable housing projects in Cyprus.

3. The total investment in residential property including the purchase of a permanent residence, shall be at least €2,500,000.

4. Investments in the Shipping sector will be reviewed and approved jointly by the Ministry of Finance and the Ministry of Shipping on specific measurable criteria.

5. Investments in the Cyprus Registered Alternative Investment Funds (AIFs) as well as investments up to €200,000 in the Cyprus Stock Exchange’s secondary market will also be taken into consideration for the CIP.

6. Residential units used for the purposes of the CIP, as well as any investments in residential units under the “Investment in Immovable Property, Land Development and Infrastructure Projects” criterion qualify for private residence in the Republic of Cyprus, if at least one of these housing units worth at least €500,000. This is applicable if the total value of the 3 investments, including the private residence, is at least €2.5 million.

7. The applicant is required to maintain the investments for 5 years minimum from the date of naturalization.

8. Government bonds are not included in the investment options anymore. 

9. The applicant must be a holder of Schengen visa to have the possibility to apply for naturalization.

10. Any applicant who applied for citizenship in any other EU member and has been rejected, will not be permitted to acquire the Cypriot citizenship.