The Economic Substance Law in the Cayman Islands (“Cayman”) came into force on 1 January 2019. It created a regime for Economic Substance (“ES”) notification and returns, with annual notification and reporting obligations on both relevant Cayman registered entities (”Entities”) and overseas companies conducting “relevant activity” (“Relevant Activity”) in Cayman. Various 2019 and 2020 deadlines for compliance were extended due to the COVID pandemic, but those affected must meet the new deadlines or incur late filing penalties and penalties for each day the failure continues.
What Entities does this affect?
The Cayman Entities affected include all legal persons that are registered with the Cayman General Registry i.e. companies of all kinds and limited partnerships. It also affects entities which are registered outside Cayman but conduct Relevant Activity i.e. any entity other than domestic companies, investment funds and entities tax resident outside Cayman.
What is Relevant Activity?
Relevant Activity includes:
- banking business;
- distribution and service centre business;
- financing and leasing business;
- fund management business;
- headquarters business;
- holding company business;
- insurance business;
- intellectual property business; or
- shipping business; but does not include investment fund business.
What are the ES obligations?
Annual notification using the Economic Substance Notice ("ESN") is required. Those affected can submit their ESNs via Corporate Administration Platform ("CAP") or Cayman Business Portal ("CBP") (as the case may be). Notification is required as a prerequisite to filing an Annual Return.
What are the extended deadlines?
|
ES REPORTING DEADLINES |
| Period End Date (for purposes of the ES Return) | ES Obligation | Deadline |
| 31 December 2019 – 30 April 2020 | ES Return (all except IP businesses) | 30 April 2021 |
| 1 May 2020 – onwards | ES Returns | 12 months after the period end date |
| 31 December 2019 – 29 February 2020 | ES Return with Type Income: Relevant Activity – IP Business and Form for Entity Tax Resident in Another Jurisdiction (TRO) | 28 February 2021 |
| 1 March 2020 – onwards | ES Return with Type Income: Relevant Activity – IP Business and Form for Entity Tax Resident in Another Jurisdiction (TRO) | 12 months after the period end date |
How were the deadlines extended?
Entities Tax Resident in another jurisdiction
For those entities which are claiming to be tax resident in another jurisdiction, regardless of which relevant activity is being carried on, the deadlines for submitting the Form for Entity Tax Resident in Another Jurisdiction (“TRO”) are:
- 28 February 2021, for entities reporting on a financial year (i.e. period) ending any time between 31 December 2019 and 29 February 2020 (both dates inclusive); or
- 12 months after the period end date, for entities reporting on a period ending from 1 March 2020 onwards.
Economic Substance Return
- Where the entity’s relevant activity is Intellectual Property (“IP”) Business
for relevant entities which are carrying on any of the relevant activities except IP business, the deadlines are:
28 February 2021, for relevant entities reporting on a period ending any time between 31 December 2019 and 29 February 2020 (both dates inclusive);
12 months after the period end date, for entities reporting on a period ending from 1 March 2020 onwards. - Where the entity’s relevant activity is not IP Business
for relevant entities which are carrying on any of the relevant activities except IP business, the deadlines are:
30 April 2021, for reporting on a period ending any time between 31 December 2019 and 30 April 2020 (both dates inclusive); or
12 months after the period end date, for reporting on a period ending from 1 May 2020 onwards.
Who runs the Cayman ES regime?
The Department for International Tax Cooperation ("DITC") is responsible for administering the Cayman economic substance regime. It is a department of the Cayman Ministry of Financial Services & Home Affairs and the body responsible for all of the Cayman legal frameworks for international cooperation in tax matters. It also carries out the functions of the Tax Information Authority, the Cayman competent authority under international agreements.
Can this be done online?
Online information on how to complete and file the relevant forms is available on the DITC website. This gives details of the regime, underlying legislation. It also provides guidance, sample forms and gives helpful practice points on using the DITC Portal. The ES practice points are updated regularly and there are useful News and Updates available in the Bulletin. Questions relating to Economic Substance may be emailed to CaymanESPortal@gov.ky.
Would you like advice or assistance?
Bedell Cristin Cayman Partners Laura Hatfield or Andrew Miller can help you to understand what you need to do to notify your Economic Substance reporting status and to comply with requirements to report on your economic substance in the Cayman Islands.
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