Tax reporting update benefits local businesses

The International Tax Authority (ITA) has introduced a new certification process to relieve certain entities, particularly local companies, from specific reporting requirements, with a focus on simplifying obligations under the economic substance regime.

Economic substance pertains to the activities and operations that demonstrate a company’s genuine business presence in the Virgin Islands.

In a recent public notice, the ITA announced that, with the International Tax Authority (Amendment) Act, 2023 (ITA Act), local companies can now directly apply for exclusion. According to the amendment, a local company is defined as any company or limited partnership residing for tax purposes in the Virgin Islands and obtaining a certificate of exclusion from the Authority.

For a company to be considered “resident for tax purposes,” it must demonstrate to the Authority that it has no tax liabilities outside the Virgin Islands.

The benefits of obtaining exclusion certification are substantial. Previously, local companies, regardless of size and business operations, were required to involve a Registered Agent (RA) to report ITA-related matters. The exemption now allows companies to skip these rigorous reporting requirements through registered agents and focus solely on meeting the ITA’s outlined criteria during the exclusion process.

The ITA said reporting requirements are typically designed for international entities, demanding extensive information. However, approval for exclusion upon application is not guaranteed, as the legislation mandates a case-by-case review, ensuring that each entity’s unique circumstances are considered.

Established by the International Tax Authority Act, Revised Edition 2020, the ITA plays a crucial role in cross-border tax matters affecting the Virgin Islands. Currently overseeing various regimes such as Common Reporting Standards (CRS), the Foreign Account Tax Compliance Act (FATCA), Country by Country Reporting (CBCr), and Economic Substance (ES), the ITA aims to proactively manage the impact of these matters on the region.

While the ITA is not a regulator, entities must register and annually file information under the regimes it manages. This certification initiative marks a positive step toward easing reporting obligations for local companies and fostering a more streamlined and efficient reporting process in the territory.