Summary of economic substance requirements in Bermuda, BVI, and Cayman
Updated: Mar 10, 2020
First published by the Hong Kong Lawyer, July 2019.
New regulations in Bermuda, the British Virgin Islands (BVI) and the Cayman Islands came into force at the start of 2019 which require certain entities carrying on specific types of business to demonstrate adequate economic substance in that jurisdiction. New laws and regulations (Substance Regulations) have been adopted in each jurisdiction in response to concerns expressed by the Council of the European Union about the absence of clear general legal substance requirements for entities doing business in and through these jurisdictions.
WHICH ENTITIES ARE SUBJECT TO THE SUBSTANCE REGULATIONS?
The scope of the Substance Regulations varies from jurisdiction to jurisdiction. As a first step, clients should take an inventory of all their entities in the affected jurisdictions and make note of the type of company, LLC or partnership and how they are taxed. BVI and Cayman entities may be able to claim exemption on the basis that they are tax resident in another jurisdiction, but such exemption is not currently available to Bermuda entities.
ARE YOUR IN-SCOPE ENTITIES CONDUCTING A RELEVANT ACTIVITY?
An in-scope entity will only be required to meet the economic substance test if it carries on a relevant activity.
The relevant activities in each jurisdiction are:
financing and leasing;
distribution and service centres;
and intellectual property.