Further to our previous update, the Guidance on Economic Substance for Geographically Mobile Activities (the "Guidance") supporting The International Tax Co-operation (Economic Substance) Law (2020 Revision) (as amended by relevant regulations, the "Economic Substance Law") was recently updated and now includes sector specific guidance.
Please click on the relevant activities listed below to view an activity specific client update.
- Fund management
- Financing and leasing
- Distribution and service centres
- Holding company
- Intellectual property
Economic Substance Notification
In preparation for the annual Economic Substance Notification process, clients should consider whether changes in either: (i) the Guidance; and / or (ii) the activities carried out by their Cayman Islands entity, may mean the classification of such entity (or any notification made in 2020) under the Economic Substance Law needs to be amended.
Economic Substance Return
As a reminder, the first return (the "ES Return") under the Economic Substance Law is due no later than 12 months after the last day of a relevant entity's financial year commencing on or after January 2019. This means, for example, that for a relevant entity with a 1 January to 31 December financial year that conducted a relevant activity during 2019, an ES Return must be submitted on or before 31 December 2020 in respect of its financial year 1 January 2019 to 31 December 2019.
In light of the revised registration regime under the Securities Investment Business Law (2020 Revision), Registered Persons conducting fund management business can regard 2020 as the first year of conducting relevant financial business. Accordingly, the submission of their ES Return in relation to that activity can be in 2021.
The Cayman Islands Department for International Tax Cooperation (the "DITC") has yet to make available the portal for purposes of the ES Return.
While the information required to be reported is set out under the International Tax Co-operation (Economic Substance) Regulations, 2020, the DITC expects to publish a template reporting form within the next few weeks.
With respect to relevant entities carrying on the relevant activity of a holding company, the DITC has indicated that the ES Return will elicit less information than with respect to other relevant activities, commensurate with the reduced economic substance test for this relevant activity. However, holding companies will be required to submit a copy financial statements or books of account for the relevant entity's financial year.
The DITC has indicated that depending upon when the portal is made available for ES Returns that it may grant filing extensions. However, this is subject to the DITC's information exchange obligations.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.