The Cayman Islands Government has passed legislation, with effect from 1 January 2019, requiring certain entities incorporated or registered in the Cayman Islands to maintain economic substance in the jurisdiction. We set out below a summary of the entities and activities which may be affected by this new legislation and of the resulting compliance issues that require consideration.
The International Tax Co-Operation (Economic Substance) Law, 2018 (the “ES Law”) was enacted in response to a scoping paper issued by the European Union’s Code of Conduct Group (Business Taxation) in June 2018 in respect of initiatives to combat global base erosion and profit shifting. The paper set out jurisdictional substance requirements that certain jurisdictions outside the EU must adopt. Similar legislation has been enacted in other major offshore jurisdictions.
The ES Law applies to a defined class of relevant entities. This includes Cayman Islands exempted companies, foreign companies that are registered in Cayman, as well as Cayman Islands LLCs and LLPs. Excluded from the defined relevant entities are (i) any entity whose business is centrally managed and controlled outside the Cayman Islands and which is tax resident outside the Cayman Islands, (ii) investment funds, including entities through which any such fund invests or operates, (iii) Cayman Islands companies limited by guarantee, and (iv) Cayman Islands not-for-profit companies.
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Cayman Islands – The International Tax Co-operation (Economic Substance) Law 2018