Bermuda

The Registrar of Companies (ROC) officially launched the Economic Substance Declaration Portal on 1 May 2020 to facilitate the submission of the economic substance declarations pursuant to the Economic Substance Act 2018 (Act).  The ROC has also prepared instructional video on setting up of accounts and preparation of declarations on the portal.  For details, please visit www.registrarofcompanies.gov.bm.

On 7 July 2020, the Minister of Finance issued the final revised guidance notes – general principles in relation to the Act.  The revisions include additional guidance on most relevant activities of shipping, insurance, banking, fund management, intellectual property, financing & leasing, distribution & service centre and headquarters.  The guidance notes also incorporate the ROC’s earlier clarification that a relevant activity would be considered as being carried on by an entity as a business where such entity earns any gross revenue from that relevant activity.

The ROC announced on 4 August 2020 that certain entities which have a fiscal year ending 31 December 2019 have not completed their annual economic substance declaration forms as required by the Act by 30 June 2020.  A notice to comply has been sent to each such entity to complete and submit the declaration form by 17 August 2020, failing which the ROC would conduct on-site inspections for compliance with economic substance requirements.  Relevant entities are advised to comply with the notice to avoid potential fines and penalties.

BVI

The BVI International Tax Authority (ITA) announced on 26 June 2020 that the Beneficial Ownership Secure Search system (BOSS) platform has integrated the Economic Substance Portal and has gone live for economic substance reporting.  Registered agents remain the only ones to have access to the portal and all declarations made on behalf of an entity must be done by the agents.  Data model description for the declaration was published by the ITA to provide more detail regarding the information to be collected.

The updated data model and relevant information can be found here.

The ITA has also confirmed that if an entity does not earn (gross) income from a relevant activity during the relevant financial period, it will not be specified as carrying on a relevant activity and therefore will have no filing obligation on the BOSS platform, save to declare that it is not carrying on any relevant activity.  The ITA further clarified that income applied to all relevant activities and not just to intellectual property business activity.

Cayman Islands

Following the release of the draft version 3.0 of the Economic Substance for Geographically Mobile Activities Guidance (Guidance Notes) for industry consultation in November 2019, the Cayman Islands Tax Information Authority (TIA) issued the long-awaited Guidance Notes on 13 July 2020.  The Guidance Notes reflect several significant developments, most notably the introduction of a circumvention prohibition and the inclusion of detailed sector-specific guidance in relation to each relevant activity.

The Guidance Notes clarify that the economic substance legislation requires all “entities” (rather than only “relevant entities”) to notify the TIA on whether they are relevant entities, carrying on relevant activities and tax resident outside of the Cayman Islands on an annual basis.  “Entities” include companies incorporated in the Cayman Islands, limited liability companies and limited liability partnerships registered in the Cayman Islands, and companies incorporated outside of the Cayman Islands but registered in the Cayman Islands.

The Guidance Notes introduce a circumvention and non-compliance regime and state that the TIA will monitor arrangements which appear to be circumvention mechanisms and will investigate cases where a person has entered into any arrangement the main purpose or one of the main purposes of which is to circumvent any obligation under the economic substance legislation.  An example given is that of an entity which seeks to manipulate or artificially suppress its income to circumvent substance requirements.

Whereas version 2.0 of the guidance provided sector-specific guidance only in relation to holding company business, intellectual property business and shipping business, the Guidance Notes provide such guidance on all nine types of relevant activities.  The Guidance Notes illustrate with examples the scope of each relevant activity, the core income generating activities and (where applicable) the permitted outsourcing of activities associated with such relevant activity.

Further details of the Guidance Notes can be accessed here.

On 11 August 2020, the International Tax Co-operation (Economic Substance) Regulations, 2020 came into force.  These regulations list the information required by the Cayman Islands Monetary Authority on an annual basis under section 7(4)(k) of the International Tax Co-operation (Economic Substance) Law (2020 Revision). ).  Some of the requisite information includes:

  • name,  address and jurisdiction of tax residence of the relevant entity’s immediate parent, ultimate parent and ultimate beneficial owner;
  • information on expenditure incurred by person who conducts core income generating activities for relevant activities on behalf of the relevant entity;
  • information on how the relevant entity monitors and controls the carrying out of its core income generating activities by another person;
  • the relevant entity’s financial statements or books of account for the relevant entity’s financial period;
  • information on employees who conduct core income generating activities for relevant activities; and
  • confirmation on number of board meetings held within and outside the Cayman islands.

A copy of the full list of requisite information is available here.

How Can Appleby Help?

All of the offshore jurisdictions in which Appleby operates have implemented legislation to require certain entities to maintain adequate levels of economic substance in the jurisdiction.  We are actively looking into the latest requirements and updates in order to provide precise advice to our clients.

Appleby and our affiliated group of companies, Appleby Global Services (AGS), are ready to assist with any economic substance queries and compliance requirements. Whilst Appleby offers legal expertise across the major offshore jurisdictions, AGS offers registered office, director and fiduciary services, as well as assistance in meeting statutory requirements in respect of record keeping, reporting and filing. We are pleased to offer our clients both legal advice and corporate solutions to meet your needs with a comprehensive and cost effective service.

Appleby has also introduced an online Economic Substance Entity Classification Questionnaire which leads you through a checklist to help you determine whether or not an entity is in scope of the economic substance regime of the relevant jurisdiction.  Find out more here.

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