Appleby experts can assist you to consider and assess the impact of these regulations in your applicable jurisdiction and will be able to guide you through the questions set out below.

Whilst the Substance Regulations are effective, not all jurisdictions have issued guidance notes yet. Below is a table of our affected jurisdictions showing the current status. This will be updated as and when the status changes:

Jurisdiction

Primary Legislation

Regulations

General Guidance Notes

Bermuda

British Virgin Islands

N/A

Pending

Cayman Islands

Guernsey

Isle of Man

 √

 √

Jersey

 √

What is the Background to the Economic Substance Regulations?

The Council of the EU adopted a resolution on a Code of Conduct for business taxation, the aim of which was counteracting the effects of zero tax and preferential tax regimes around the world.

In 2017 the Code of Conduct Group (Code Group) investigated the tax policies of both EU member states and third countries, assessing:

  • tax transparency;
  • fair taxation; and
  • implementation of anti–BEPS measures (The OECD’s project on Base Erosion and Profit Shifting).

Following assessment by the Code Group, each non-EU relevant jurisdiction (which includes Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Isle of Man and Jersey) was required to address the Code Group’s concerns about ‘economic substance’.

The governments in each of these jurisdictions have been working closely with the Code Group to ensure that those concerns are adequately addressed. As a result of this engagement, new laws and regulations have been adopted in each jurisdiction (Substance Regulations).

Which entities are subject to the Substance Regulations?

The scope of the Substance Regulations varies from jurisdiction to jurisdiction. As a first step, clients should take an inventory of all their entities in the affected jurisdictions and make note of the type of company, LLC or partnership and how they are taxed. Appleby can then give specific advice on whether or not the Substance Regulations will apply.

Are your In-Scope Entities conducting a Relevant Activity?

An in-scope entity will only be required to meet the economic substance test if it carries on a relevant activity.  The relevant activities in each jurisdiction are:

  • banking;
  • insurance;
  • fund management;
  • financing and leasing;
  • headquarters;
  • shipping;
  • distribution and service centres;
  • holding entity; and
  • intellectual property.

What are the Economic Substance requirements?

An entity (other than a holding entity, and entities that conduct intellectual property business, for which there are different criteria) conducting a relevant activity will satisfy the economic substance requirements if:

  • it is managed and directed in the jurisdiction;
  • core income generating activities (CIGA) are undertaken in the jurisdiction in relation to the relevant activity;
  • it maintains adequate physical premises in the jurisdiction;
  • there are adequate employees in the jurisdiction with suitable qualifications;
  • there is adequate expenditure incurred in the jurisdiction in relation to the relevant activity; and
  • it files a confidential economic substance report each year with the applicable authority in its jurisdiction which will assist the authority in assessing compliance.

The Substance Regulations also set out the circumstances where the above activities may be outsourced.

Latest Updates

Bermuda

Click here to view the latest Economic Substance update from Bermuda.

British Virgin Islands

Click here to view the latest Economic Substance update from the British Virgin Islands.

Cayman Islands

Click here to view the latest Economic Substance update from the Cayman Islands.

Guernsey

Click here to view the latest Economic Substance update from Guernsey.

Isle of Man

Click here to view the latest Economic Substance update from the Isle of Man.

Jersey

Click here to view the latest Economic Substance update from Jersey.

Key contacts

Cameron Adderley

Managing Partner: Hong Kong

T +852 2905 5790
E Email Cameron

David Clark

Partner: Bermuda, BVI

T +1 441 298 3583
E Email David

Tim Faries

Managing Partner: Bermuda

T +1 441 298 3216
E Email Tim

Andrew Jowett

Partner: BVI

T +1 284 393 5316
E Email Andrew

Garry Manley

Partner: Isle of Man

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

Sally Penrose

Partner: Bermuda

T +1 441 298 3286
E Email Sally

Steven Rees Davies

Partner: Bermuda

T +1 441 298 3296
E Email Steven

Robert Varley

Partner: BVI

T +1 284 393 5337
E Email Robert

Andrew Weaver

Partner: Jersey

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

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