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Days of shelf companies and dummy directors could be over

Feb 18 2019 16:30

The days of using shelf companies and dummy directors are numbered and it is important that overseas investors make sure their financial structures are done properly after SA tax advice has been obtained, according to Coreen van der Merwe, managing director of Sovereign Trust SA.

She says the British Virgin Islands (BVI) has implemented the Economic Substance (Companies and Limited Partnerships) Act 2018 which came into effect on 1 January 2019.

The act applies to all BVI legal entities which are carrying on one or more 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; or
  • Distribution and service centre business.

The effect of the act is that, if a BVI legal entity is carrying on one or more of these relevant activities, the legal entity will have to demonstrate to the BVI International Tax Authority that it has satisfactory economic substance in the BVI.

The economic substance requirements necessitate that the relevant activity be directed and managed from within the BVI and that the core income generating activity is also carried out within the BVI.

The economic substance requirements will not apply to a BVI legal entity which is a tax resident for tax purposes in a jurisdiction outside of the BVI provided that the jurisdiction is not on the European Union's list of non-cooperative jurisdictions for tax purposes.

All BVI legal entities which fall within the scope of the act will have to disclose to the BVI International Tax Authority on an annual basis the required information to demonstrate compliance with the economic substance requirements.

Existing legal entities are required to comply with the act by 30 June 2019 and to meet the reporting obligations by the 30 June 2020. For new legal entities (incorporated or formed on or after the 1st of January 2019), compliance with the act applies immediately.

However, the new legal entity will have one year from incorporation or formation to comply with the reporting obligations.

It is expected that other jurisdictions like Guernsey will follow suit.

overseas investment

investments  |  money  |  offshore investment
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