December 2023 filing deadline
A relevant entity carrying out one or more relevant activities (as described below) must demonstrate that there is a sufficient nexus between their business activities and the Cayman Islands, and maintain substance in the Cayman Islands by satisfying the economic substance test (ES Test).
As part of complying with the ES Test, all relevant entities are also required to file an economic substance return (ES return) with the Tax Information Authority (TIA) within twelve months following the last day of their financial year end.
This means that entities with a financial year end of 31 December are required to file their ES return by 31 December 2023 for their 2022 financial year in order to demonstrate compliance with the ES Test.
January 2024 filing deadline
All legal entities domiciled or registered in the Cayman Islands are required to file an economic substance notification (ESN) to the TIA by 31 January each calendar year irrespective of whether or not they are a relevant entity conducting a relevant activity during their previous financial year. The ESN is filed with the General Registry and is a prerequisite to filing an entity’s annual return.
Appleby and Appleby Global Services can guide you through this process to help ensure you are fully compliant with all economic substance compliance obligations including reporting requirements.
The test for determining whether or not an entity is subject to the ES Test is as follows:
- an entity must be a relevant entity; and
- that entity must be carrying on one or more relevant activities.
A relevant entity means any of the following entities:
- ordinary company;
- limited liability company;
- limited liability partnership and exempted limited partnership;
- Cayman Islands registered foreign company; and
- Cayman Islands registered foreign limited partnership.
A relevant activity means one or more of the following nine relevant activities:
- banking business;
- distribution and service centre business;
- financing and leasing business;
- fund management business;
- headquarters business;
- holding company business;
- insurance business;
- intellectual property business; and
- shipping business.
The ES Test requires a relevant entity conducting a relevant activity:
- to conduct core income generating activities in relation to that relevant activity in the Cayman Islands;
- be directed and managed in an appropriate manner in the Cayman Islands in relation to that relevant activity; and
- having regard to the level of relevant income derived from the relevant activity carried out in the Cayman Islands
- incur an adequate amount of operating expenditure in the Cayman Islands;
- have a physical presence (e.g., place of business, property and equipment) in the Cayman Islands; and have an adequate number of full-time employees or other personnel with appropriate qualifications in the Cayman Islands.
The TIA Economic Substance Guidance for Geographically Mobile Activities (version 3.2 July 2022) (available here) contains sector specific guidance on the practical application of the ES Test to the various types of relevant activities.
Consequence of breach
Under the ES Act, a breach of the economic substance requirements permits the TIA to take enforcement action against an entity which may result in the TIA imposing a financial penalty and/or requiring remediation action against the entity responsible for the breach. The TIA has published standalone economic substance enforcement guidelines (available here) which sets out, amongst others, the TIA’s processes for commencing enforcement action through the imposition of financial penalties for non-compliance with the Economic Substance Regime.
How Appleby and Appleby Global Services can help
ES return: we can prepare and file the ES return with the TIA following receipt of all required information and supporting documentation (e.g., financial statements) to ensure this important filing obligation is satisfied and no financial penalties against your entity are imposed.
ESN: we can also prepare and file the ESN via the General Registry for new and existing clients where Appleby Global Services provides registered office services. All Cayman Islands entities (incorporated, established or foreign registered) must file this ESN irrespective of whether or not they are subject to the ES Test.
Economic substance analysis and compliance: Appleby’s regulatory and risk advisory practice group can provide tailored legal advice and guidance specific to your business in order to comply with economic substance requirements.
 The term “adequate” shall mean “as much or as good as necessary for the relevant requirement or purpose”.
 The term “appropriate” shall mean “suitable or fitting for a particular purpose, person, occasion”.