The Economic Substance (Companies and Limited Partnerships) Act, 2018 (“ESA”) became effective in the BVI on 1 January 2019. It was always anticipated by the industry that the legislation would be updated to address issues that have arisen since its inception and accordingly the recent changes to the legislation have come as no surprise.

The update to the legislation provides two key amendments:

• The inclusion of limited partnerships without legal personality within the regime – previously such partnerships were not caught.
• An express carve out of “investment fund business” – this clarifies that such funds are not carrying on a relevant activity where it is the only activity.

Limited partnerships

Limited partnerships without legal personality were previously not caught by the regime. The update means that all limited partnerships (including foreign limited partnerships) registered in the BVI now fall within scope of the ESA and an analysis of the activities of each limited partnership will be required to determine whether a relevant activity is being conducted and the requirements that need to be met as a result of conducting such relevant activity.

As mentioned, this change has been telegraphed for some time and when dealing with clients, we have advised that, at best, this was likely to be only a short-term solution to meeting the requirements under the regime and this has proved to be the case. We expect any impact to be quite limited.

The financial period for any limited partnership with no legal personality formed before 1 July 2021 must commence no later than 1 January 2022 For those formed after 1 July 2021, the financial period will commence on the date of the formation or registration of the limited partnership. The consequence of this is that even where a limited partnership without legal personality does not carry on a relevant activity for the purposes of economic substance, that limited partnership will still have to submit a negative return.

Investment funds

The industry in the BVI has consistently adopted the view that a legal entity operating as an “investment fund” will not be conducting a relevant activity, however, there remained a level of uncertainty around the position taken by the industry. The definition of “investment fund business” which has now been included in the legislation has removed any uncertainty and is a welcome validation of the industry’s position.

It is still possible for a legal entity that is an “investment fund” to be caught by the ESA if it is conducting a separate and distinct activity that falls within the definition of a relevant activity under the regime. Directors (and those controlling a legal entity) need to be mindful of the ESA requirements and ensure a determination is undertaken as to whether the entity is conducting activities other than investment business and act accordingly. If necessary, we can assist with a classification and any advice on the documentation that may be needed.

If you would like to know more about these changes, please contact Philippa O’Sullivan at philippa.osullivan@bga.law,  Barry Mitchell at barry.mitchell@bga.law, Calvin Crilly at calvin.crilly@bga.law or your usual contact at Bolder Group.