The economic substance laws and regulations remain in place so it is still important to consider whether entities are within scope and, if they are, to ensure compliance.  But in the light of the pandemic a number of jurisdictions have provided guidance on how to comply while travel restrictions remain in place.

Economic substance requirements prior to COVID-19

The economic substance regimes (ES Regime) of the British Overseas Territories and the Crown Dependencies vary slightly between the jurisdictions, but share certain core concepts:

  • The ES Regime applies to certain entities (those with separate legal personalities) and not others (limited partnerships without legal personality and trusts);
  • Certain entities are expressly exempted (including those that are tax resident outside of the jurisdiction);
  • The ES Regime applies only where those entities engage in relevant activities, being banking, insurance, fund management, distribution and service centres, headquarters, financing and leasing, intellectual property, shipping and acting as a holding company.

To meet the economic substance test, in-scope entities must:

  1. conduct core income-generating activity in the jurisdiction in question;
  2. be directed and managed in an appropriate manner in the jurisdiction;
  3. have an:
    • adequate amount of operating expenditure incurred in the jurisdiction;
    • adequate physical presence (including maintaining a place of business or plant, property and equipment) in the jurisdiction; and
    • adequate number of full-time employees or other personnel with appropriate qualifications in the jurisdiction.

Outsourcing of core income-generating activities within each jurisdiction is permitted and counts towards satisfying the substance requirements so long as the relevant entity is able to monitor and control the carrying out of that activity by that other person.

The ES Regime imposes a more stringent test for economic substance on intellectual property businesses and a less stringent one on pure equity holding companies.

COVID-19 Changes to Economic Substance Requirements


The Registrar of Companies (RoC) has advised that it will take circumstances surrounding COVID-19 into account when assessing compliance with the ES Regime pursuant to the Economic Substance Act 2018, and the principles set out in the applicable Guidance Notes.   The RoC may therefore take into account situations where meetings or other similar compliance measures are not possible due to necessary travel or quarantine restrictions.  Entities should keep careful records of all such circumstances, and should continue in good faith to ensure their ongoing compliance with the ES Regime.


On 18 March 2020, the British Virgin Islands’ International Tax Authority (ITA) issued a press release to the effect that it does not currently propose to make any changes to previously announced deadlines.  However, the ITA intends to adopt a reasonable and practical approach where legal entities are obliged to make adjustments to their operating practices in order to mitigate the threats from COVID-19 and the ITA will not seek to prejudice those entities which temporarily adjust their normal operating practices so as to mitigate the threats of the COVID-19 outbreak.

Any arrangements that are put in place would be temporary and persons are therefore urged to continue to make every effort to comply with all requirements (including filing deadlines) except where the practical and reasonable approach is necessary to manage the threat of the outbreak.

On 27 March 2020, the ITA issued a follow-up press release providing further particulars that should be borne in mind with respect to economic substance, repeating the above-stated reminder that any arrangements that are put in place would only be temporary:

  • Where possible, recourse should be had to the appointment of alternate directors in the BVI in order to meet substance requirements;
  • All directors do not have to attend Board meetings in the BVI – only as many as required to make the meeting quorate (given social distancing protocols, virtual meetings may be preferred);
  • Not all Board meetings need to be held in the BVI – only those related to core income generating activities;
  • Where it is still not possible to have a Board meeting in the BVI or to meet some other substance requirement due to restrictions (whether in the BVI or otherwise) due to the COVID-19 outbreak, then entities are urged to retain documentation to be able to support such claims for the applicable periods of time affected;
  • Individual requests should be made to the ITA for any extension of time within which to comply with Notices, along with any supporting evidence.


As a result of the annual return extension for companies, the deadline for Economic Substance Notification (ESN) filings is now 30 June 2020. Note, that the ESN submission will remain a prerequisite for companies successfully filing an annual return.

With respect to economic substance (ES) requirements, the Department for International Tax Cooperation (DITC) has acknowledged that COVID-19 may impact travel in 2020, which may in turn affect the ability of some entities to hold their board of directors meetings in Cayman during the year. The DITC has noted that the “directed and managed” requirement is only one element of the ES test, and whilst travel restrictions may be taken into consideration on a case-by-case basis when determining whether an entity has passed or failed the ES test, the DITC has been clear in pointing out that this consideration would impact on 2020 reports, which are due in 2021.


Board Meetings and Economic Substance Requirements Guidance was circulated by Guernsey International Business Association (GIBA) on 16 March 2020 in relation to what local companies need to do to operate in light of the restrictions on travel, reductions in numbers of face to face meetings and the possibility of persons needing to self-isolate and yet still comply with their obligations under the ES Regime. GIBA consulted with the Guernsey Society of Chartered and Certified Accountants and the Guernsey Revenue Service to create this guidance (GIBA Guidance).

The GIBA Guidance states that companies should maintain and retain relevant records that show what their policy was in respect of the restrictions on travel for company officers and the period of time for which that policy was in place.  This will ensure that such companies can demonstrate where COVID- 19 restriction measures prohibited the company from holding an adequate number of board meetings in the island or required meetings to be temporarily be held virtually, such as via conference call, video conferencing, Skype or similar.  It should be noted that the normal protocols for such meetings should be observed as far as possible, and revert back to normal as soon as the threat from the outbreak recedes.

The GIBA Guidance also notes that businesses should give consideration to the ability to appoint alternative directors on island who can attend meetings and thereby address any short–term practical difficulties arising from COVID-19.

The States of Guernsey is launching a loan guarantee scheme to provide additional financial support to local businesses facing disruption as a result of the COVID-19 outbreak.

The scheme has been established in coordination with the Governments of Jersey and the Isle of Man and will be operated through clearing banks who lend to local businesses in Guernsey.

Isle of Man

No formal guidance has been issued on the subject of economic substance.  Companies that are “relevant sector companies” (as that term is defined in Part 6A of the Income Tax Act 1970) continue to be subject to the ES Regime under that Act, but if COVID-19 restriction measures affect any such company’s ability to comply in full with the ES Regime, it would be prudent for the company to follow the GIBA Guidance (summarised above under “Guernsey”).

The Isle of Man Government has made a number of reliefs available to businesses operating in the Isle of Man and individual residents on account of Covid-19, including the deferral of VAT payments.

The Isle of Man Government is also launching a loan guarantee scheme to provide additional financial support to local businesses facing disruption as a result of the COVID-19 outbreak.

The scheme has been established in coordination with the Governments of Jersey and Guernsey and will be operated through clearing banks who lend to local businesses in the Isle of Man.


Where companies’ operating practices have to be adjusted to compensate for the COVID-19 outbreak, the Comptroller will not determine under Article 6, Taxation (Companies- Economic Substance) (Jersey) Law 2019, that a company has failed the economic substance test.  Where a company incorporated in another jurisdiction has been tax resident on the basis of control and management in Jersey, and the Comptroller considers that any changes dictated by COVID-19 are temporary, then this will not disturb the determination of corporate tax residence from that prevailing before this outbreak.  This treatment will only apply to adjustments to the normal operating practices, and to the extent required to mitigate the threats from this outbreak. More information can be found here.

The Government of Jersey has made a number of reliefs available to businesses operating in Jersey and individual residents on account of COVID-19 including the postponement of GST payments and recognition of exceptional circumstances affecting the residence of individuals.

The States of Jersey is also launching a loan guarantee scheme to provide additional financial support to local businesses facing disruption as a result of the COVID-19 outbreak.

The scheme has been established in coordination with the Governments of Guernsey and the Isle of Man and will be operated through clearing banks who lend to local businesses in Jersey.


The Financial Services Commission will show flexibility towards licencees which may face challenges in meeting their forthcoming reporting obligations including regulatory filings, on a case by case basis.


No announcements have yet been made specific to economic substance requirements in the context of COVID-19.  However, the Financial Services Authority has strongly encouraged licensees to adopt all recommended measures for modified working arrangements and restrictions on the movement of people.


Most of the jurisdictions in which Appleby operates have taken significant steps to mitigate the practical problems in achieving economic substance compliance that COVID-19 has caused globally.  However, companies must continue in good faith to ensure their ongoing compliance with the ES Regime to the extent possible and should carefully and comprehensively record any instances where compliance is made impossible due to travel restrictions and social distancing measures.  Any exceptional measures that are taken in response to COVID-19 should revert back to normal as soon as possible.

Appleby is here to help if you need more information or assistance in ensuring compliance during these exceptional times.

Key contacts

David Clark

Partner: Bermuda, BVI

T +1 441 298 3583
E Email David

Garry Manley

Partner: Isle of Man

T +44 (0)1624 647 638
E Email Garry

Sally Penrose

Partner, Head of Regulatory: Bermuda

T +1 441 298 3286
E Email Sally

Andrew Weaver

Partner: Jersey

T +44 (0)1534 818 230
E Email Andrew

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