When legislators stood in the House of Assembly last December to debate the Economic Substance legislation there was a fear that this requirement that was imposed by the European Union calling for companies incorporated in the Territory to show a physical presence here might cause an exodus from the financial services sector. While there are positive opportunities that might arise from this substance requirement the discovery that some Singapore companies are trying to lure BVI companies away gives credence to the fear.
The Economic Substance requirement is a response to OECD’s global Base Erosion and Profit Shifting. The Territory complied by passing the Economic Substance (Companies and Limited Partnerships) Act, 2018, which came into force in January this year and the outstanding draft Economic Substance Code (the Code) which was published by the BVI International Tax Authority (ITA) in April.
The crux of the matter is that this economic substance requirement is to be imposed on all BVI registered companies, and on all limited partnerships. These entities are now required to prove economic substance in the BVI for all relevant activities such as banking, insurance etc.
So far, the BVI has been valiantly pushing forward in this economic substance situation by being deemed compliant to date. However, it appears that some entities operating in Singapore are standing by, just in case some companies are unable to comply.
One such company is a firm called Rosemont SGP Pte Ltd based in Singapore. This company has since outlined an option specifically geared at BVI companies that wish to migrate. The company as part of its announcement said: “In Singapore it is possible to consider both the re-domiciliation of foreign entities to Singapore as well as the change of tax residence of a foreign entity to Singapore. Moving the tax residency from one jurisdiction to another is also an option, but needs to take into account the changes being implemented as a result of the OECD BEPs project. Consideration will need to be given to any relevant Double-Taxation Agreements.”
One of the options presented is for “a BVI company to become Singapore tax resident by applying for a resident status in Singapore.”
No Need to Leave - BVI Trust Companies Alleviating Client Worry
While it is still early to tell, it appears as if the fallout out from the economic substance requirement might not be as bad as it was earlier forecasted to be and this is because the financial service industry has risen to the occasion.
For instance both Vistra, a locally based globally expanded company that offers services in the establishment of a broad range of BVI trust and corporate structures and Harneys – one of the first trust service providers in the Territory have already gone ahead of the economic substance fray by simplifying the requirements for their clients with the use of a questionnaire – among other things.
Vistra on 17 July officially launched its Economic Substance Services and Solutions. This initiative – Vistra explained – commences with their specially prepared British Virgin Islands Economic Substance Classification Questionnaire. This questionnaire developed by Vistra’s in-house legal team is designed to help clients determine the classification of their BVI company as it applies to the substance legislation.
The company explained that the BVI Economic Substance Classification Questionnaire is an efficient and effective service for any BVI entity to gain clarity on their status. It was also noted that the questionnaire is supported by detailed analysis and tailored solutions.
Simon Filmer, Global Lead, Company Formation at Vistra, commented, “It is now mandatory for all BVI entities to comply with substance requirements and demonstrate good corporate governance. The first step to achieving these goals is to determine if one’s entity is in-scope or out of scope, and Vistra is ready to help make this classification process as simple, direct and effective as possible for our clients.”
Accordingly, this questionnaire is user-friendly, comprising a short list of questions for clients to fill in. “Based on the questionnaire submitted, Vistra’s subject matter experts will conduct a detailed analysis and produce a comprehensive report outlining obligations and concrete suggestions on next steps to ensure substance compliance. The entire process is quick and streamlined, offering clients the peace of mind required to ensure business as usual,” the company further explained.
It was also noted that Vistra is providing a comprehensive range of substance services for BVI entities, including legal opinions, full portfolio review and advisory services, lodgement with regulators, and in-jurisdiction substance services, where required.
Meanwhile, Harneys announced that it also has prepared a classification questionnaire for its clients to assist them with their economic substance needs. As part of its offer Harneys says it is providing clients with a user friendly interactive and intuitive online questionnaire with real time classification results.”
We learn something every day, and lots of times it’s that what we learned the day before was wrong.