Knowledge

New rules on economic substance came into effect on 1 January 2019 in the BVI, Cayman Islands, Guernsey and Jersey. Our experts have put their heads together and come up with the following top tips for any company incorporated, registered or tax resident in one of those islands. In the BVI and Cayman Islands certain types of partnership are also subject to the new rules. These tips apply to them too:

• don't assume that the new rules apply to the company; early indicators suggest that fewer than half of all companies registered in the islands will be within scope;
• think about how the company supervises and monitors any service providers who are performing relevant activities for the company. Is the activity taking place in the island, is it documented and are you doing enough?
• think about the company's core income generating activities (CIGA). Do any of them take place outside of the island? If so, can it be done by the company in the island or delegated to a service provider in the island? Can the activity be discontinued, hived off or modified so that it falls outside of scope? If a material part of the CIGA is carried on elsewhere, should the company's tax residence be moved to that jurisdiction? 
• consider whether the income the company receives from relevant activities genuinely reflects the CIGA taking place in the island. If not, then this is a clear sign that changes will be needed;
• if your corporate services provider (CSP) has not already been in touch, ask them what they are doing in response to the new substance rules. Will they be assessing the company for substance compliance?
• check your service agreement with the CSP. Assuming the substance rules apply to the company, you will want the services to include certain substance-specific items such as provision of manpower, access to premises and additional reporting. Will there be any additional cost?
• when it comes to board meetings, does there need to be a change in policy or board composition? A majority of meetings should take place in the island, with a quorum of directors physically present (but not necessarily resident) in the island. Where a decision forms part of the company's CIGA (e.g. management decisions for a headquarters company or investment decisions for a fund management company) a majority of those making the decision, whether at board or committee level, should be physically present in the island;
• before any changes are made in response to the substance rules, check whether they are compliant with the company's articles and any shareholders' agreement; if not, these documents may need to be amended; and
• if in doubt, seek professional advice from your lawyers and accountants.