British Virgin Islands ITA Issues New Economic Substance Rules: UAE Removed from No-Tax Jurisdiction List

On April 2, the British Virgin Islands’ International Tax Authority (ITA) released Version 4 of its Rules on Economic Substance (ES), which supersedes the previous version issued in February 2023. The most significant update in the new ES Rules concerns Rule 5, wherein the United Arab Emirates (UAE) has been removed from the list of jurisdictions without a corporate income tax system.

The ES requirements in the BVI do not apply to entities classified as non-resident for economic substance legislation purposes. According to the Economic Substance (Companies and Limited Partnerships) Act, a non-resident entity is defined as one that is tax resident in a jurisdiction outside the BVI and not listed on Annex 1 of the EU list of non-cooperative jurisdictions for tax purposes.

Under the new ES Rules, an entity cannot be considered tax resident in a jurisdiction that lacks a corporate income tax system. With the introduction of a corporate income tax system in the UAE for financial periods beginning on or after June 1, 2023, a BVI entity can now assert tax residency in the UAE for financial periods starting from that date. The entity must provide relevant evidence, as specified in Rule 3 of the new ES Rules, to support such a claim. Any tax residency claim in the UAE for financial periods prior to June 1, 2023, will be rejected.

Anguilla, Bahamas, Bahrain, Barbados, Bermuda, Cayman Islands, and the Turks & Caicos Islands remain listed as jurisdictions without a corporate income tax system under the new ES Rules. Consequently, a BVI entity cannot be recognized as tax resident in any of these jurisdictions for the purposes of the ES Act.

By fLEXI tEAM