The new legislation that government is now rushing to pass by the end of December in order to keep off the European Union’s (EU) blacklist of tax haven jurisdictions will create challenges for some local financial services providers, Premier and Minister of Finance Dr D Orlando Smith has warned.
Under this proposed legislation, companies and limited partnerships who are registered ‘tax residents’ of the BVI will be introduced to a number of requirements in an area known as ‘economic substance’.
When a financial services provider can prove that the taxes it pays to the BVI are the result of earnings that were generated through “real economic activity” within the territory, that company is said to have achieved economic substance. In other words, proof that an offshore company is paying taxes in the BVI because it largely does its work and earns its profits in/from the BVI.
Below are the requirements of the BVI’s proposed legislation on economic substance.
In commenting on the proposed legislation, which was drafted by two tax law experts from the UK, Premier Smith said: “The Government has engaged closely with EU officials over the last 18 months to understand and address the concerns that have been raised and has consulted on a regular basis with representatives of the financial services industry. Dialogue with the industry will continue to ensure smooth implementation of the new requirements.”
“The Government recognises that the legislation will create challenges for some companies and limited partnerships. The BVI is not alone in facing these challenges. But in every challenge, there is an opportunity and the government will engage closely with the BVI’s international business and financial services sector to ensure that the jurisdiction continues to provide services that benefit the global economy,” he added.
The Premier hopes to introduce the Bill to the House of Assembly when it next sits on December 13. He further hopes the legislation will be approved and becomes law by December 31, 2018 – the deadline set by the European Union.
The BVI will be added to the EU’s dreaded ‘blacklist’ and subjected to diplomatic sanctions if it does not have these laws in place by the mandated time.
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