BVI Economic Substance (ES)
Here’s all related information to the types of entities and economic substance (ES) requirements in the British Virgin Islands (BVI), including which business activities require substance and which are exempt.
BVI Business Entities Overview
The most common types of entities in the BVI include:
| Entity Type | Key Features |
| BVI Business Company (BC) | Most commonly used; flexible, no corporate tax; can be used for holding assets, trading, IP, etc. |
| Segregated Portfolio Company (SPC) | Typically used in insurance or mutual funds; allows separation of assets and liabilities between portfolios. |
| Limited Partnership (LP) | Common for investment funds and joint ventures; requires a general partner and limited partners. |
| Limited Partnership with Legal Personality (LP with LP status) | Similar to LP but with separate legal personality; relevant for certain regulatory regimes. |
| Foreign Companies | Can register as a foreign company doing business in BVI. |
Economic Substance Requirements in BVI
Implemented under the Economic Substance (Companies and Limited Partnerships) Act, 2018, BVI entities must comply if they conduct “relevant activities”.
Relevant Activities That Require Economic Substance
Entities conducting any of the following must demonstrate economic substance in the BVI:
| Relevant Activity | Explanation |
| Banking Business | As defined under BVI law and licensed under the BVI Banks and Trust Companies Act. |
| Insurance Business | Companies licensed to conduct insurance business. |
| Fund Management Business | Managing mutual or investment funds, but not holding or marketing funds. |
| Finance and Leasing Business | Providing credit or financing (except for intra-group financing under certain conditions). |
| Headquarters Business | Providing senior management or administrative services to group entities. |
| Shipping Business | Involving the operation of ships, but not including ship ownership. |
| Holding Business | Passive holding of equity interests in other companies; this is subject to reduced substance requirements. |
| Intellectual Property Business (IP Business) | Holding or exploiting IP assets, especially high-risk IP. |
| Distribution and Service Centre Business | Providing goods or services to group companies abroad. |
Requirements for Substance
If an entity conducts a relevant activity, it must:
- Be directed and managed in the BVI (board meetings, decision-making, etc.).
- Have an adequate number of employees in the BVI.
- Incur adequate expenditure in the BVI.
- Have appropriate physical presence (premises) in the BVI.
- For IP Businesses, especially high-risk IP, the burden of proof is higher (including local R&D or control over decision-making).
Reduced Substance Requirements for Pure Equity Holding Entities
Companies that only hold equity participations in other entities and earn only dividends or capital gains are considered “pure equity holding entities”.
They must:
- Comply with corporate filing obligations.
- Have adequate employees and premises for holding activities.
However, they are not subject to the full substance tests applicable to other relevant activities.
Activities That Do NOT Require Economic Substance
Entities that do not engage in any of the nine relevant activities are not subject to ES requirements.
| Exempt Activities | Notes |
| Passive Investment Holding (non-equity) | E.g., holding bonds, commodities. |
| Real Estate Investment (outside BVI) | Unless structured as a holding business. |
| E-commerce and Online Sales |
Unless considered IP business or distribution/service centre business. |
| Consulting and Advisory | If not structured as a headquarters business or fund manager. |
| Trading (non-group company) | Trading with unrelated third parties may fall outside ES scope. |
| Ship ownership (without operation) | Owning a vessel but not operating it commercially. |
Reporting Requirements
All BVI companies and limited partnerships (with legal personality) must file an annual economic substance declaration via their registered agent.
If subject to ES, entities must submit a detailed substance report to the International Tax Authority (ITA).
Who Must Comply with ES Rules?
| Category | Substance Required? |
| Pure holding company | Yes (reduced requirements) |
| Active relevant activity (e.g., finance, IP) | Yes (full substance) |
| High-risk IP business | Yes (enhanced scrutiny) |
| No relevant activity | No ES requirement |
If you’re considering incorporating in the BVI and want to avoid ES obligations, structuring your company around non-relevant activities or as a pure holding entity may be advisable, with proper planning.
