Cayman Islands – Economic News

We inform that the Cayman Islands has recently enacted the International Tax Cooperation (Economic Substance) Law, 2018, (“ES Law”) which came into force 1 January 2019. Guidance Notes to be issued by the Cayman Islands Tax Information Authority (“TIA”) are currently in circulation for consultation and it is anticipated that the Guidance Notes will be issued very shortly. This legislation affect any company, LLC or LLP registered or incorporated in the Cayman Islands and such entities will need to consider if its current activities falls within the scope of the ES law. If so, the entity will be required to take measures to ensure it complies with the Law for each relevant activity that it undertakes. It is possible for certain functions to be outsourced to a Cayman based Service Provider provided the entity is able to monitor and control the conduct to the function.

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What is the Economic Substance Test

Under the provisions of this ES Law, entities that carry on Relevant Activity are required to satisfy an Economic Substance (“ES”) test unless tax resident outside the Cayman Islands. Relevant Activities are:-

• Banking business
• Distribution and service centre business
• Financing and leasing business
• Fund management business
• Headquarters business
• Holding company business
• Insurance business
• Intellectual property business
• Shipping business

The ES test requires that a relevant entity:

(a) Conducts Cayman Islands core income generating activities (defined term) in relation to that relevant entity;
(b) Is directed and managed in an appropriate manner in the Islands in relation to that relevant activity; and
(c) Having regard to the level of relevant income derived from the relevant activity carried out in the Islands:-

(i)     Has adequate amount of operating expenditure incurred in the Islands;
(ii)    Has adequate physical presence (including maintaining a place of business or plant, property and equipment) in the Islands; and
(iii)   Has an adequate number of full time employees or other personnel’s with appropriate qualifications in the islands.

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Date by which Entities must Comply

The Act makes it incumbent upon all companies incorporated on or after 1 January 2019 to meet these requirements. Existing companies (companies incorporated prior to 1 January 2019) have until 1 July 2019 to comply.

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Holding Entities/Investment, Mutual Funds/Non-Tax Resident Companies

Pure equity holding companies are subject to a reduced ES test which is satisfied if the relevant entity confirms that:-

(a) It has complied with all applicable filing requirements under the Companies Law (2018 Revision); and
(b) It has adequate human resources and adequate premises in the islands for holding and managing equity participation in other entities.

It is anticipated that pure equity holding companies may engage its registered office service provided to satisfy these reduced substance requirements in the Islands where the pure equity holding company is passively holding equity interests in other entities.

Investment and Mutual Funds licensed or registered with CIMA will not be considered a relevant entity for ES purposes nor will entities that are tax resident outside the Islands by reason of its domicile, residence or any other criteria of a similar nature will not be a relevant entity for ES purposes. The Authority may require such non-tax resident entities to produce satisfactory evidence to substantiate its non-resident status. In the absence of evidence, an entity may be regarded as a relevant entity that is subject to ES Law.

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Reporting

From 2020, each entity will be required to declare their financial year and whether they are conducting Relevant Activities in their annual return. Relevant entities are required to provide in prescribed format (a portal is being developed) information to enable the TIA to determine each year if the ES requirements are being met. The timing of such returns will be confirmed when the Guidance Notes issue.

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Consequences of not meeting the ES requirements

If the Authority determines that an Entity has failed to meet its ES requirements, it shall issue a notice giving reasons, details regarding any penalty, directing action to be taken to satisfy the ES test and advising the entity of the right to appeal. It is anticipated that an initial fine of CI10,000 will apply followed by a subsequently larger fine of CI100,000 if the test is not satisfied in the subsequent financial year after the initial notice of failure.

The Authority shall also notify the Registrar of any failure to meet the ES requirements after 2 consecutive years. The Registrar shall then seek a Court Order to:-

1. Require the company to take specific action including comply with the ES law or
2. In the case of a relevant entity that is
a. a company that is registered under the Companies Law (2018 Revision), an order that it is a defunct company;
b. an LLC registered under the Limited Liability Companies Law (2018 Revision), an order that it is a defunct company; or
c. an LLP registered under the Limited Liability Partnership Law, 2017, an order that the LLP be struck off in accordance with section 31 of the Law as if it is an LLP that the Registrar has reasonable cause to believe is not carrying on business or is not in operation.

We will update you further upon receiving the finalised Guidance on the matter.

In the interim, we strongly urge you to familiarise yourself with the requirements under the ES Law, a copy of which may be downloaded
http://www.tia.gov.ky/pdf/Economic_Substance.pdf together with OECD and EU Reference Materials. Please seek appropriate legal and tax advice if deemed necessary.

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開曼群島 – 經濟實質法

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本公司通知如下：開曼群島政府最近已制定2018年國際稅賦合作（經濟實質）法（下稱「經濟實質法」），自2019年1月1日起實施。應由開曼群島稅務資訊管理局（下稱「稅資局」）頒布的遵循說明，目前正在進行集思廣益的意見蒐集，預期很快會頒布。上述法律將影響在開曼群島登記或設立的任何公司、有限責任公司或有限責任合夥企業，此等實體必須思考其目前業務是否屬於經濟
實質法的範疇內。若是，則該實體必須採取措施，確保其所經營的各項相關業務皆遵守經濟實質法。亦可將若干職務委外給予開曼群島的服務供應商，但該實體必須能夠監督及控管該職務的進行。

什麼是經濟實質檢查

依據經濟實質法的條款規定，經營相關業務的實體，除其為開曼群島境外稅務居民外，皆須通過經濟實質檢查。相關業務意指：-
• 銀行業務
• 經銷與服務中心業務
• 融資與租賃業務
• 基金管理業務
• 總部業務
• 控股公司業務
• 保險業務
• 智慧財產業務
• 航運業務

依據經濟實質檢查的規定，相關實體必須：

a. 經營與其有關在開曼群島產生核心收益的業務（定義用詞）；
b. 在開曼群島以適當方式主導及管理其相關業務；及
c. 根據其在開曼群島所經營相關業務所產生的相關收益水準而言：

(i) 在開曼群島產生足夠金額的營業費用；
(ii)在開曼群島擁有足夠的實體據點（包括維持一個營業場所或工廠、財產及設備等）；
(iii)在開曼群島聘僱具備適當資格的一定數量的全職員工或其他人員。

實體必須遵守法律的最後日期

在2019年1月1日當日或之後設立的所有公司，必須即刻遵守上述法律規定。既有公司（2019年1月1日之前設立的公司）則得自2019年7月1日起方須遵守。

控股實體/投資、共同基金/非稅務居民公司

法律對純實體控股公司實施較為寬鬆的經濟實質檢查，若相關實體確認下列事項，即視為通過經濟實質檢查：-

a. 相關實體已遵守公司法（2018年修改版）的所有申報規定；以及
b. 相關實體在開曼群島擁有足夠的人力及足夠的營業場所，使其得以持有及管理實體對其他實體的參與。

可預期地，在純實體控股公司被動持有實體對其他實體的股份時，純實體控股公司得提供其註冊辦公室服務，以便符合開曼群島寬鬆的經濟實質規定。

向開曼群島金融管理局（CIMA）申領執照或註冊登記的投資與共同基金，不被認為經濟實質法上的相關實體，且因其住所、居所或類似性質的任何其他標準而屬開曼群島境外稅務居民的實體，亦非經濟實質法上的相關實體。稅資局得要求非稅務居民的實體提出充分證據，證明其非稅務居民的身分。無證據者，實體可能被視為必須遵守經濟實質法的相關實體。

申報

自2020年起，每家實體必須在其年度申報書上聲明其會計年度及是否經營相關業務。相關實體必須以規定的格式（正在建立入口網站）提供資料，使稅資局得以每年斷定各實體是否遵守經濟實質法規。上述申報書的時間點，在遵循說明頒布時即可確定。

不符合經濟實質法規的後果

倘稅資局斷定某家實體未符合經濟實質法規，則其將發出一份通知，內容說明任何裁罰的理由及詳情、指示為通過經濟實質檢查所應採取的行為、及告知該實體得以上訴的權利。首次罰款預計應為開曼群島幣10,000元，在首次通知未遵守法規後次一會計年度仍未通過檢查者，後續將處以開曼群島幣100,000元的更高罰款。

連續兩年後，稅資局亦會將不遵守經濟實質法規的任何行為通知公司註冊處。
公司註冊處則將聲請法院命令：-

1. 要求該公司採取具體行為，包括遵守經濟實質法；或

2. 相關實體屬下列情形者，則依下列命令處理：

a. 相關實體是依公司法（2018年修改版）登記的公司，則命令該公司為已遭廢止的公司；
b. 相關實體是依有限責任公司法（2018年修改版）登記的有限責任公司，則
命令該公司為已遭廢止的公司；或
c. 相關實體是依2017年有限責任合夥企業法登記的有限責任合夥企業，則命令該公司已依該法第31條規定除名，猶如公司註冊處有合理理由認為，該公司未在經營業務或非營運中。

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本公司於接獲定版的遵循說明時，將向您提供進一步的更新資訊。

在此期間，本公司強烈建議您熟悉經濟實質法的條款規定，可自下列網站下載經濟實質法及經濟合作暨發展組織（OECD）與歐盟參考資料：
http://www.tia.gov.ky/pdf/Economic_Substance.pdf。必要時，請諮詢適當的法律及稅務專家意見。