Economic Substance Requirements in the Cayman Islands - June 2019
Following on from our initial briefing in May about new economic substance requirements for Cayman Islands entities, further regulations have been issued amending certain definitions in the legislation, as well as an updated version of the Guidance notes (available below) aligning with the regulations. The Cayman Islands Department of International Tax Co-operation (“DITC”) has also now issued an industry advisory regarding developments in relation to economic substance requirements.
The Cayman Islands, along with other jurisdictions which have introduced economic substance, are now in the process of having their legislation reviewed by the Organisation for Economic Co-operation and Development (“OECD”), with the outcome of the review being subject to a formal approval procedure by the OECD Base Erosion and Profit Shifting (“BEPS”) Inclusive Framework, which is expected to take several weeks. Once feedback has been received, the DITC will issue an industry advisory that will set out the next steps in relation to any legislative changes and further guidance, including sector-specific guidance and examples.
Notification and Reporting
It has been confirmed by the DITC that economic substance notifications for all potentially relevant entities will be made via the General Registry and, in terms of timing, will be separate from, but a prerequisite to, filing the usual General Registry annual return. It is intended that the information will be collected on a smart form, so that entities will only be required to answer questions relevant to their circumstances. Where an entity claims an exemption (whether as a domestic company, an investment fund or due to being tax resident outside the Cayman Islands), information to validate the claim will need to be provided. Notes on how to complete the notification will be issued by the DITC and it is anticipated that the system will be online in Q4 2019.
The DITC is presently developing its portal for economic substance reporting and it is expected that it will be ready to receive returns by mid-2020. The portal is being designed to conform to the OECD standard and to provide the DITC with the necessary tools for data collection, analysis and effective implementation of the economic substance requirements. A user guide will be published in advance of the portal launch.
Responsibility for compliance with the economic substance legislation rests with the directors of companies and the general partners of limited liability partnerships.
Our Cayman team can work with your local counsel to assess if your entity is a relevant entity carrying on relevant activity. Depending on the outcome of the assessment and the nature of the economic substance requirements that may apply, we can assist with complying with the requirements. If we provide director services to your entity, we will contact you with our proposed course of action.
Further updates will be provided when more information becomes available, but please do not hesitate to contact your usual Trident Trust representative or Louise MacDougall in our Cayman office with any questions you may have.