We previously wrote of the new Economic Substance (ES) requirements for the BVI here –
I previously mentioned that onshore is the new offshore. But are we seeing the creation of 3 groupings?
1. The USA including the USVI
2. Post-Brexit London plus the Channel Islands and Switzerland
3. Singapore standing alone in Asia
Returning to the Caymans, legislation in the Cayman Islands provides economic substance requirements for
certain Cayman-based entities (including certain foreign companies registered
under the Cayman Companies Law (2018)) that are engaged in certain “relevant
The economic substance requirements apply if the subject entity:
Islands core-income generating activities
Is directed and
managed in an appropriate manner from the Cayman Islands, and
Conducts certain operating
functions in Cayman adequately (expenditure, physical presence, full-time
employees or other personnel in the Cayman Islands)
entities” include Cayman companies, limited liability companies (LLCs), and
limited liability partnerships (LLPs) and certain foreign companies registered
under the Cayman Companies Law (2018). Limited partnerships and investment
funds and Cayman entities that are not centrally managed and controlled from
Cayman and that are tax resident outside of Cayman are not considered to be
relevant entities and are not included in the scope of the legislation.
Entities with tax residency outside of the Cayman territory must provide
certain supporting documentation (e.g., a tax residency certificate or letter
from foreign tax authority) as evidence.
of subject entities include:
Financing and leasing
service centre business
Again, the definition
of relevant activities does not include an investment fund business.
A failure to comply
with the economic substance requirements can be subject to penalties ($10,000
in year one, and $100,000 in year two) and to a possible “strike off” of the
Cayman entity for continued failures.