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The Cayman Islands Department for International Tax Cooperation ("DITC") has issued an industry advisory regarding developments in relation to economic substance requirements. Our advisory with an overview of the economic substance requirements can be viewed here.
Legislative developments
The Cayman Islands is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting ("BEPS") and, along with all OECDcompliant jurisdictions with no or nominal tax, including Bermuda, the British Virgin Islands, Guernsey and Jersey, enacted economic substance legislation on 1 January 2019 in response to OECD BEPS requirements.
The economic substance legal framework of these jurisdictions is now being reviewed at OECD level as planned, with the outcome of the review being subject to a formal approval procedure by the OECD BEPS Inclusive Framework, which is expected to take several weeks. Once feedback has been received, the DITC will issue an industry advisory that will set out the next steps in relation to any legislative changes and further guidance, including sector-specific guidance and examples.
Updated notification process
The DITC has confirmed that economic substance notifications ("ES Notifications") for all potentially "relevant entities" will be via the General Registry and, in terms of timing, will be a prerequisite to filing an annual return on or before 31 January 2020. It is intended that the information will be collected on a smart form such that entities will only be required to answer questions relevant to their circumstances. Where an entity claims an exemption (whether as a domestic company, an investment fund or due to being tax resident outside the Cayman Islands), information to validate the claim will need to be provided. Notes on how to complete the notification will be issued by the DITC and it is anticipated that the system will be online in Q4 2019.
Updated reporting process
The DITC expects its economic substance portal ("ES Portal") will be ready to start receiving economic substance reports by mid-2020. A user guide will be published in advance of the ES Portal launch.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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