ALERT: Loss of offshore tax protections

Recent legislative changes to virtually all offshore jurisdictions have shone a spotlight on mounting liabilities for professional accountants, lawyers and tax advisers regarding tax planning for clients.

Significant amendments to legislation have significantly impacted current and historical corporate formation, company maintenance regimes and related operating costs in these jurisdictions.

Professional advisors must prevent imminent exposure of clients (and themselves) by fully understanding the changing global landscape for those offshore domiciles that are now embedded within new ESR regulations.

The Guardian: British Virgin Islands commits to public register of beneficial owners

Advisors who have recommended any BVI-like offshore structures are faced with the prospect of law suits and potentially enormous costs resulting from these newly revised tax allocations that are now applied to “Ultimate Beneficial Owners (UBOs)” of the ‘previously planned’ structures.

Many tax plans have included an element of “offshore holdings” typically involving what has become known as a “Tax Haven”. These so-called tax havens are currently under attack, having been effectively torpedoed by economically failing (or failed) nations around the world led by the OECD and North America.

Facing increasing economic challenges in recent years, developed nations have introduced new organizational structures to effectively stamp out tax havens worldwide. Utilizing concepts of “economic substance” and “non-erosion of the national tax base” and utilizing the blunt instrument of the US dollar, Western governments have effectively coerced offshore jurisdictions to enact significant amendments to local legislation.

The new regulations no doubt drastically impact corporate formation and company maintenance regimes that have become popular for their favorable tax advantages.

Advisors who are recommending (or have previously recommended) offshore structures face potential law suits and related liabilities when these revised tax allocations are applied to UBOs of ‘previously planned’ structures.

Professional advice given to a client (paid or unpaid) is the basis of a contractual relationship between the client and the advisor to provide accurate and effective advice.

It is therefore, necessary and fundamental that all professional advisors fully appreciate the changed (and changing) landscape and become fully aware of possible liabilities embedded within the new ESR regulations that will make noncompliant reporting a further stepping stone for intrusive future and retroactive reassessment.

To prevent unavoidable exposure for UBO clients and related advisors, see below and refer to the article entitled the “BVI is Sinking” and do not delay in taking immediate remedial action.

On 31 May 2020, the BVI International Tax Authority (the ITA) officially implemented 3 amendments to BVI’s Economic Substance Laws that came into effect on 1 January 2019.

Amendments to The Beneficial Owner Secure Search (BOSS) System Act, 2017 were enforced on 1 October 2019 Under Section 16 of Economic Substance (Companies and Limited Partnerships) Act, 2018 (the ESA). The BOSS Act sets out the laws/guidelines on the use of a secure search system that facilitates the effective and efficient storage and retrieval of beneficial owner information for all corporate and legal entities using the system. Thus, The BOSS Act is relevant to the reporting requirements under the ESA.

Impact for Hong Kong Companies

Companies are advised to carry out an internal review to ascertain if the entity is caught by the economic substance rules and especially on whether the entity is:

  • carrying on any of the relevant activities in an affected overseas jurisdiction, and if so;
  • whether the entity is considered tax resident outside of the overseas jurisdiction

If caught by the economic substance rules, carry out remedial measures such as:

  • revising the corporate group’s operational and legal structure, and/or
  • wind down the overseas entities, if feasible, to fall outside of the scope of the Act

Migrate your company

This process normally takes several days, depending on the destination and availability of required documents. We stand ready to assist you with your needs in relation to migrating your overseas registered company.

Economic Substance Requirements in Bermuda, the British Virgin Islands and the Cayman Islands

Economic Substance Requirements in the BVI, Samoa, Bermuda and the Cayman Islands

Economic Substance Form

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Economic Substances in Overseas Jurisdictions

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