Tag Archives: Economic substance regime

Most clients are now relatively familiar with the Cayman Islands Economic Substance regime requiring real economic substance for certain entities (known and ‘Relevant Entities’) carrying or certain activities (known as ‘Relevant Activities’).

Our firm’s previous article on the introduction of the International Tax Co-operation (Economic Substance) Act (the ‘ES Law’) can be found here.

The recent enactment of the International Tax Co-operation (Economic Substance) (Amendment of Schedule) Regulations, 2021 (‘ES Regulations’) on 29 June 2021 has now expanded the scope of the ES Law to include the following entities in the definition of Relevant Entities:-

• A partnership (as defined under s.3 of the Partnership Act (a Revised)) except where the partnership is a local partnership;
• An exempted limited partnership (as defined under s.2 of the Exempted Limited Partnership Act (as Revised)); and
• A foreign limited partnership registered in the Cayman Islands under s.42 of the Exempted Limited partnership Act (as Revised)) (together with the other types of partnerships referenced above hereinafter referred to as the ‘Partnerships‘).

Based on this expansion of the definition of Relevant Entities it should now be noted that any Partnerships carrying on a Relevant Activity will now need to have the requisite economic substance in the Cayman Islands, be able to pass the Economic Substance Test (the “ES Test”) and make the necessary annual Economic Substance filings.

Albeit for the above a Partnership will not be a Relevant Entity and will not be required to pass the ES Test if it is:

• an investment fund or an entity through which an investment fund directly or indirectly invests or operates;
• tax resident outside of the Cayman Islands; or
• a local partnership (where two persons or more carry on a business in common with a view of profit that is not part of an MNE Group (for tax purposes) and such partnership is only carrying on business in the Cayman Islands.

Compliance Timeline

The International Tax Co-operation (Economic Substance) (Prescribed Dates) (amendment) Regulations have introduced a transition period for compliance.

Partnerships formed on or after 1 July 2021 will be required to meet the ES Test from the date on which they commence their Relevant Activities. Partnerships formed prior to 1 July 2021 must satisfy the Test from 1 January 2022.

Partnerships operating as investment funds and partnerships tax resident outside of Cayman will only need to submit the usual ES Notification the Authority.

Key Contact:

Peter de Vere (Head of Corporate and Commercial)
pdevere@hsmoffice.com
Tel: +1 345 815 7360