Cayman Economic Substance: Deadline Fast Approaching
Relevant Entities conducting Relevant Activities (Fund Management being the most relevant here), must satisfy a three criteria economic test in relation to such fund management business. The criteria cover the following areas:
- being directed and managed in an appropriate manner in the Cayman Islands
- conducting certain core income generating activity in the Cayman Islands (“CIGA”) which, for fund management business includes:
- Taking decisions on the holding and selling of investments
- Calculating risk and reserves
- Taking decisions on currency or interest fluctuations and hedging positions
- Preparing reports or returns, or both, to investors or CIMA
- Ensuring it has adequate operating expenditure, physical presence and personnel in the Cayman Islands.
SIBL Annual Declaration
Fund Management falls under the Securities Investment Business Act in the Cayman Islands and requires Securities Investment Business Registered Persons to file an annual declaration form with CIMA by 15 January 2021.
The Economic Substance Notification (the “ESN”) is a prerequisite to filing the Annual Return with the Registrar of Companies and is due annually on 31 January. In order to be in good standing this must be filed by 31 March. The ESN is based on the financial year of the entity and not the calendar year.
The revised reporting deadlines for the Economic Substance Return (the “ES return”) with the Cayman Islands Tax Information Authority (“DITC”), which apply only for this first year, are as follows:
|Period End Date (for purposes of the ES Return)||ES Obligation||Deadline|
|31 December 2019 – 30 April 2020||ES Return (all except IP Business)||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 Entity Tax Resident in Another Jurisdiction
|28 February 2021|
|1 March 2020 – onwards||ES Return with Type Income:
Relevant Activity – IP Business and TRO
|12 months after the period end date|
The majority of the SIBL Registered Persons were registered with CIMA and therefore came into scope for Economic Substance on or after 1 January 2020, the first deadline for filing an ES return will therefore be 12 months after the period end, in most cases 31 December 2021.
The ES Return must disclose the income earned by the entity and also demonstrate how the entity has satisfied the three criteria economic test referenced above, including expenditure that can be attributable to CIGA conducted in the Cayman Islands. Please note that financial information/management accounts for the entity for the relevant period end must also be provided to the DITC along with the ES Return. The entity is also required to disclose whether it had physical presence in the Cayman Islands in terms of assets and employees or whether it uses an outsourced service provider.
For an entity that is using an outsourced solution for ES compliance, the outsourced service provider will typically complete filing of the ES Return on behalf of the entity.
The Waystone Solution
Waystone offers a comprehensive range of ESL services that allow Relevant Entities carrying on one or more Relevant Activities to comply with ESL. If you think you have an entity that may be impacted by ESL, Waystone will perform an initial evaluation of the entity and the scope of its operations to determine what the entity may need to do to comply with the ESL and how Waystone can help. There is no ‘one size fits all’ solution for economic substance requirements, and Waystone can provide the full range of (1) consultation (2) implementation and (3) operational services tailored specifically to your entity to fully meet economic substance requirements.
- a comprehensive suite of fund governance services, including Professional Independent Directors, Independent Representatives and corporate services
- notification and reporting
- certain banking trading and custody services
- accounting services
- administration and reception services
- physical office space and equipment
- full or part-time employees with the specific experience to assist with certain elements of CIGA, including detailed time sheets and payroll records.
Please reach out to your usual Waystone representative or contact us below to find out more about how we can assist you in becoming compliant.