Recent changes have been made to the record keeping and record retention obligations of all BVI companies and limited partnerships with the enactment of the Mutual Legal Assistance (Tax Matters) (Amendment) Act 2012, and the Partnership (Amendment) Act 2012 (the “Reforms”).
The Reforms came into effect from the date of assent on 12 November 2012, and were introduced in response to recommendations contained in the Phase 1 Peer Review Report on the BVI produced by the Global Forum on Transparency and Exchange of Information for Tax Purposes (the “Report”), published in August 2011.
The Report had noted, among other things, that in the BVI there was an absence of any legal obligation on BVI companies to retain underlying documentations (particularly accounts) relating to transactions, and that there was no specific requirement in the BVI on maintaining records and underlying documentation for the desired minimum period of five years. A five year period is considered essential for the operation of an effective mutual legal assistance regime for tax matters.
Prior to the enactment of the new legislative reforms, the main record keeping requirement for BVI companies was in section 98 of the BVI Business Companies Act 2004 (the “BC Act”), requiring that a BVI company keep records that: (a) are sufficient to show and explain the company’s transactions; and (b) will, at any time, enable the financial position of the company to be determined with reasonable accuracy. Section 98 has not been changed at all through the Reforms.
In direct response to the observations in the Report, the Reforms have introduced a requirement that BVI companies and limited partnerships are now required to keep “records and underlying documentation” at the offices of their registered agent in the BVI, or at such other places (whether within or outside the BVI) as determined by the directors of the company or general partners of the limited partnership. Where the records and underlying documentation are kept in a place other than the original place for which the registered agent has been notified, there is now a requirement to inform the registered agent of the new place within fourteen days.
Further, there is now a requirement for “records and underlying documentation” to be retained for a minimum period of five years (from the date of completion of a transaction, or termination of business relationship, to which the records and underlying documentation relate). Unfortunately, there is little guidance at present regarding what comprises “records and underlying documentation“, although accounts of a company or limited partnership are expressly included. Hopefully this will be addressed in subsequent amendments.
The records and underlying documentation that are retained must be sufficient to show and explain the transactions of the company/limited partnership’s transactions and to enable a proper evaluation of the company/limited partnership’s financial position.
The observation of industry representatives in the BVI is that the Reforms do not impose an additional duty to produce accounts/ financial statements on BVI companies and limited partnerships beyond what is already contained in section 98 of the BC Act or any other BVI legislation, however the Reforms do work to strengthen the requirement of BVI companies and limited partnerships to retain records that they have produced.
The Partnership (Amendment) Act 2012 also introduces a new regime to facilitate the registration of a BVI limited partnership with an additional foreign character name (emulating reforms recently made through the BVI Business Companies (Amendment) Act 2012), and requires the general partners of a BVI limited partnership to maintain at the offices of the limited partnership’s registered agent, or at such other place (whether within or outside the BVI), a register recording the name and address, amount and dates of contribution of each partner (as well as the date and amount of payment relative to a partner’s contribution).
The Reforms operate to ensure that BVI companies and limited partnerships adhere to global compliance standards. The BVI Government, in introducing the Reforms, again expressly raised the importance of the BVI, as a significant international financial centre, playing its role in fostering cooperation with international organisations assessing the jurisdiction from time to time, in order to ensure global financial stability. For this reason, the Reforms are welcomed.