The Cayman Islands has revised its economic substance rules so that it now applies to all entities operating in the jurisdiction and not just 'relevant entities'.
So far, local companies, investment funds or entities that were tax-resident outside of the Cayman Islands were not under the scope of the economic substance regulation introduced earlier this year. From now on, the economic substance law applies to all entities registered with the general registry.
This extension of scope means that many Cayman Islands-domiciled entities are now being asked by their Cayman Islands registered office service providers to complete the appropriate forms, stating whether they are carrying on a relevant activity and, if so, whether they are a relevant entity. The notification deadline is provisionally set for March 2020.
It remains the case that Cayman will maintain its position as an attractive option for international financial planning"
A relevant entity - carrying on a relevant activity - is required to satisfy an economic substance test and is also required to prepare and submit to the Cayman Tax Information Authority a report for the purpose of the Authority's determination whether the economic substance test has been satisfied.
"It remains the case that Cayman, as a tax neutral, internationally recognised and economically stable jurisdiction will maintain its position as an attractive option for international financial planning," Christian Victory, partner at law firm Appleby said.
They are "a meaningful commitment to absorbing the new global regime, applicable to all reputable and familiar financial centres, in a sensible and practical way", he added.
Investment fund businesses are not included in the scope of the legislation, and nor are any entity through which an investment fund directly or indirectly invests or operates.
The Cayman Islands government has also recently published a Bill to supplement the economic substance law. The Bill includes the ability for the Tax Information Authority (TIA) to impose a fine where a relevant entity that is required to satisfy the economic substance test fails to prepare and submit to the TIA its annual report within the specified time - the proposed penalty is CI$5,000 with an additional penalty of CI$500 for each day the breach continues.
It also introduces a general anti avoidance rule.