Cayman Islands proposes economic substance tax rules for offshore business

The Cayman Islands on December 6 proposed new “economic substance” requirements for foreign businesses in an effort to stave off blacklisting by the European Union and meet its commitments as a member of the OECD-led “Inclusive Framework on BEPS.”

 

The new Cayman Islands tax rules were developed with extensive input from the financial services industry, government regulators, the OECD, and the European Union, the government said.

 

“Since January this year, many representatives from more than 15 financial services and commerce associations, as well as government stakeholders outside of the Ministry of Financial Services, have participated in this consultation. This breadth allowed government to ensure that our legislation is appropriate for both financial services, and local business,” said Cayman Islands Minister of Financial Services, the Hon. Tara Rivers.

 

The proposal applies to Cayman companies that are not tax resident in another country that carry on banking, insurance, fund management, headquarters, distribution and service centers, financing or leasing business, financing or leasing businesses, shipping, holding companies, or intellectual property activities.

 

Under the bill, those businesses would need to undertake business activity in the Cayman Islands to be considered tax resident there. Such activity includes incurring adequate operating expenditure within the island and having physical presence, such as maintaining a place of business and having full-time employees or other personnel with appropriate qualifications. The activities may be outsourced to a local service provider. Companies must also conduct board meetings on the island that meet set requirements.

 

The draft bill is scheduled for debate in the Caymans Legislative Assembly later this month and is expected to be passed to take effect by January 1, 2019, trade group Cayman Finance said.

 

“Cayman and its service providers are used to constantly evolving to meet global requirements and we are confident that this latest development will be no different. We anticipate that our sophisticated clients will adapt as required and take this in their stride,” Cayman Finance said.

 

 

The EU substance requirements are are patterened after rules agreed to by the OECD-led “Inclusive framework on BEPS,” a coalition of 123 countries, including all OECD and G20 countries, of which the Cayman Islands is a member.

 

The new Cayman Islands bills are The Companies (Amendment) (No. 2) Bill, 2018; The Local Companies (Control) (Amendment) Bill, 2018; and The International Tax Co-Operation (Economic Substance) Bill, 2018.

 

According to statistics complied by Cayman Finance, the number of companies registered in the Cayman Islands reached all-time high this year, with 106,291 companies active on the Cayman Islands General Registry as of September 30, 2018.