The British Virgin Islands (BVI) recently issued the “Draft Rules for the Implementation of the Economic Substance Law”. The basic contents of the draft are as follows:

Draft Implementation Rules of the BVI Economic Substance Law

The British Virgin Islands (BVI) recently released the “Draft Rules for the Implementation of the Economic Substance Law”. The basic contents of the draft are as follows:

1. Applicable objects of the Economic Substance Law:
   Only local tax residents of BVI. Enterprises registered in the local area but status as tax residents of other countries can be exempted from application. If you claim to be a tax resident in other regions, you must submit a resident certificate, tax payment certificate, or approval notice, etc., as supporting documents. It is important to note that assuming that the company declares as a tax resident in area A, all relevant income generated by the BVI company must be declared in area A to qualify.
2. Limited to nine types of related activities:
   The BVI Economic Substance Law is not applicable to all companies, but companies that focus on 9 types of activities. Nine categories of related activities include group headquarters, sales and service centers, financing and leasing, fund management, banking, insurance, shipping, holding companies and the provision of intangible assets.
   In the definition of a pure holding company, the draft recognizes it as a “relevant entity that only holds equity investment and earns dividend income and capital gains only”; In other words, companies engaged in financial investments such as stocks, bonds, funds, etc., may be excluded from the scope of pure holding companies.
   For example, in the case of an individual or enterprise setting up a BVI company to engage in investment activities, if the BVI company invests in stocks and falls within the scope of a pure holding company, it needs to establish a substance in accordance with the lower economic substance requirements of a pure holding company. If a BVI company invests in other products such as bonds, real estate, etc., the company is not a pure holding company. If it does not fall into the other eight categories of related activities, it does not need to meet the economic substance requirements.
   In the current BVI economic substance-related regulations, there are many conceptual words, such as adequate, appropriate, and appropriate, without specifying the quantity or conditions; future implementation will be judged based on the size of the company and actual conditions of individual cases such as the actual activities.