Crypto-Asset Reporting Framework (CARF) in the BVI – how will it impact crypto businesses?

This update looks at the OECD¹’s Crypto-Asset Reporting Framework and key points for crypto-businesses to consider ahead of the new reporting requirements in the BVI.

Introduction

The OECD’s Crypto-Asset Reporting Framework (CARF) was published in June 2023². CARF aims to give greater global tax transparency in relation to cross-border crypto-asset³ activity, to ensure tax reporting and enhance tax compliance, as financial markets continue to evolve.

The British Virgin Islands (BVI) has committed to implementing CARF in 2027 for information exchanges in 2028. This means that legislation will be introduced in the BVI later this year, which will be effective in relation to the 2027 calendar year, and that BVI reporting crypto-asset service providers (CASPs) will be required to submit their first annual reports for the 2027 calendar year to the BVI International Tax Authority (ITA) in 2028.

Ahead of the new reporting requirements, CASPs and other crypto-asset businesses should assess whether CARF applies to their business so that, where applicable, they can comply with their reporting obligations.

The OECD’s updates to the Common Reporting Standard (CRS) were introduced in the BVI with effect from 1 January 2026 (known as “CRS2.0”). CRS2.0, which is intended to sit alongside CARF, includes:

• an expanded definition of “financial account” to include an account holding Specified Electronic Money Products⁴ or Central Bank Digital Currencies⁵ (CBDCs) for the benefit of a customer; and
• an expanded definition of “financial asset” to include relevant crypto-assets⁶.

In addition, an “investment entity”, being a category of a financial institution (FI), also now includes:

• an entity investing, administering or managing relevant crypto-assets on behalf of others (eg, fund managers); or
• where an entity is managed by another FI and its gross income is primarily attributable to investing, reinvesting or trading in relevant crypto-assets (eg, investment funds).

In practice, the above means that FIs for the purposes of CRS, such as BVI investment funds and BVI fund managers that may already be reporting information annually, should review their systems, policies and procedures to ensure that they can comply with the revised reporting standards and submit the necessary information for the 2026 calendar year to the ITA in May 2027. Crypto-asset businesses that do not already report under CRS and are unsure as to whether they may fall within scope should ensure that they take advice as soon as possible.

Whilst CARF will require reporting CASPs to report on crypto-asset transactions, CRS will require reporting FIs to report holdings of certain crypto-assets, electronic money products and CBDCs. CRS2.0 and CARF together will effectively result in tax-reporting, information exchange and associated compliance requirements (similar to that which already applies to banks and other traditional FIs) applying to certain service providers operating in the crypto space.

What is CARF?

CARF is a global tax transparency framework for the automatic exchange of tax-related information on crypto-asset transactions. It covers rules for implementation by jurisdictions that have committed (or will commit) to implement the framework and, like CRS, a schema for standard reporting and onward exchange of information to tax authorities in participating jurisdictions.

CARF focuses on reporting CASPs, who will be required to collect and report data on transactions, user identities and tax residences to the relevant tax authority. For BVI reporting CASPs, the relevant authority is the ITA.

There are three types of transactions (Relevant Transactions) that are reportable under CARF:

1. exchanges between relevant crypto-assets and fiat currencies;
2. exchanges between one or more forms of relevant crypto-assets; and
3. transfers⁷ (including reportable retail payment transactions) of relevant crypto-assets.

The new framework introduces significant new compliance obligations on in-scope CASPs, similar to those already imposed on banks and FIs under CRS and FATCA.

Scope of crypto-assets

Under CARF and CRS2.0, relevant crypto-asset means “any crypto-asset⁸ that is not a CBDC⁹, a Specified Electronic Money Product¹⁰ or any crypto-asset for which the reporting CASP has adequately determined that it cannot be used for payment or investment purposes.” This is a broad definition which would include cryptocurrencies, ERC-20 tokens, stablecoins, crypto-asset derivatives and tradeable NFTs.

Accordingly, CARF will not apply to:

• crypto-assets that cannot be used for payment or investment purposes (including, for example closed-loop crypto-assets that operate in a limited fixed network for exchange or redemption for specific goods or services and that are not transferable or exchangeable in an external secondary market);
• CBDCs; and
• certain electronic money products.

As noted above, reporting on CBDCs and certain electronic money products is covered by CRS2.0.

Who is a reporting CASP?

In-scope businesses

CASPs are operators in the crypto space whose business is to facilitate exchanges of crypto-assets for other crypto-assets or for fiat currency. A reporting CASP is broadly defined in CARF as any individual or entity that, as a business¹¹, provides a service effectuating exchange transactions¹² for or on behalf of customers¹³, including by acting as a counterparty or intermediary, to such exchange transactions, or by making available a trading platform.

Businesses that are likely to be affected by CARF include CASPs such as brokers, dealers, exchanges, trading platforms and operators of crypto-asset ATMs.

Whilst exchanges will be in-scope, any app or non-custodial platform that allows users to effectuate exchanges of crypto-assets would potentially also fall within scope as a trading platform.

Other in-scope businesses would include market makers taking a bid-ask spread as a transaction commission for their services and entities directly purchasing crypto-assets from an issuer to resell and distribute them to customers. Other intermediary businesses may also fall in scope if they provide a service effectuating exchange transactions for and on behalf of customers.

BVI reporting CASPs

Generally, a reporting CASP will need to report in the BVI where it is:

• tax resident in the BVI;
• incorporated in, or organised under the laws of the BVI and has legal personality, or an obligation to file tax returns or information to tax authorities, in the BVI;
• managed from the BVI; or
• has a regular place of business in the BVI.

A reporting CASP will also need to report in the BVI in relation to exchange or transfer transactions effectuated through a branch based in the BVI. However, CARF contains provisions aimed at avoiding duplicative reporting. In practice, this may mean that certain BVI reporting CASPs do not need to comply with reporting and due diligence obligations whether they are completed in a partner jurisdiction.

Token issuers and foundation companies

BVI token issuers that merely create and issue a crypto-asset should not generally be considered to be providing a “service effectuating exchange transactions” and therefore would not fall within scope as a reporting CASP. However, a token issuer that also operates as a trading platform or facilitates secondary trading, or a business that acquires tokens from an issuer for onward sale or distribution to customers, would likely fall within scope.

Cayman Islands foundation companies, which are often seen in structures involving BVI token issuers and are set up to carry out limited activities such as protocol maintenance, treasury management and making grants, are generally unlikely to carry out activities that effectuate exchange transactions as a service. However, whether they would be considered a reporting CASP will depend on the particular facts and the specific activities they conduct.

Investment funds

The typical activities of a BVI investment fund that invests in crypto-assets should not constitute a service effectuating exchange transactions since these activities do not permit the fund’s investor, to effectuate exchange transactions. However, the fund, as an FI, may be required to report its holdings in crypto-assets under CRS2.0.

What will reporting CASPs need to do?

Under CARF, BVI reporting CASPs must collect and annually report detailed information about customers and their transactions to the ITA. The ITA will, in turn, automatically exchange this data with tax authorities in other jurisdictions.

Similar to BVI reporting FIs under CRS and FATCA, BVI reporting CASPs will be required to:

• establish and implement written policies and procedures to identify customers and transactions that are reportable under CARF;
• obtain self-certifications from customers to determine their tax residency;
• carry out due diligence to identify reportable persons¹⁴ or controlling persons; and
• submit annual reports to the ITA.

Penalties will apply for failure to comply with the reporting obligations.

Will CARF affect crypto users?

For crypto users, the new requirements for reporting CASPs means that they may face additional compliance steps (for example, when onboarding with an exchange or CASP), periodic requests for updated tax information and use/access restrictions if they fail to provide accurate self-certifications to a reporting CASP. This, in turn, will make tax compliance a normal part for users at various points within the crypto ecosystem similar to that already seen in the traditional finance environment.

What practical steps should a crypto business take and when?

In order to be able to comply with the new requirements, relevant businesses should ensure that they have taken advice on their classification under CARF and whether they will be required to submit annual reports.

• Reporting CASPs should plan ahead now to:
  assess the impact of CARF on their business;
• monitor updates from the ITA;
• update internal systems, including IT systems and data management, to accommodate new reporting requirements, including procedures to identify customers and transactions that are reportable under CARF;
• ensure that customer due diligence procedures and policies and procedures are updated to reflect the new requirements and comply with the regulatory changes, as applicable;
• implement those policies and procedures in practice; and
• train employees that are responsible for the onboarding, and ongoing monitoring of, customers and transactions.

How can we help?

Mourant has a team of legal and governance services professionals who can help you with understanding and implementing your obligations under CRS and CARF.

Our services include:

• assisting entities with their classification to determine if they are, or will be, in scope of the reporting regimes;
• guiding and assisting BVI reporting entities with their reporting obligations;
• preparing, reviewing and updating policies and procedures;
• providing guidance on the effectiveness of due diligence/self-certification procedures; and
• providing online training to directors and management of in-scope entities.

To find out more, please get in touch with your usual Mourant contact or one of the key contacts on this page.