The Cayman Islands government has released revised guidance on the economic substance requirements applying to entities in the jurisdiction.
The main revision is that the economic substance law now applies to all entities registered with the general registry. The original version applied only to 'relevant entities', defined in the International Tax Co-operation (Economic Substance) (Amendment) Bill, 2019 as an entity carrying on a relevant activity, and that is not a domestic company, an investment fund or an entity that is tax-resident outside of the Cayman Islands.
This extension of scope means that many Cayman Islands-domiciled entities are now being asked by their Cayman Islands registered office service providers to complete the appropriate forms, stating whether they are carrying on a relevant activity and, if so, whether they are a relevant entity. The notification deadline is provisionally set for March 2020.
Investment fund businesses are not included in the scope of the legislation, and nor are any entity through which an investment fund directly or indirectly invests or operates.
'While the draft guidance itself is restricted to local industry consultation only, the enhancements made reflect an intelligent and business minded response to industry input so far', commented Christian Victory, Partner at law firm Appleby. They are 'a meaningful commitment to absorbing the new global regime, applicable to all reputable and familiar financial centres, in a sensible and practical way', he said.
The Cayman government has also published a Bill to supplement the economic substance law, reflecting feedback received from the European Commission and OECD Forum on Harmful Tax Practices. It will allow the Cayman Islands Tax Information Authority to impose daily fines where an entity that is required to satisfy the economic substance test fails to prepare and submit its annual report on time.