The Cayman Islands, along with many other jurisdictions, has been required by the OECD to introduce economic substance requirements. This briefing explains what these requirements mean for the Cayman Islands and how to determine if a Cayman Islands entity is subject to the requirements imposed by the Substance Law.

The briefing looks at the following aspects of the economic substance requirements in the Cayman Islands:

Economic Substance Legislation

The Cayman Islands, along with many other jurisdictions, has been required by the OECD to introduce economic substance requirements. Framework legislation to meet the requirements, the International Tax Co-operation (Economic Substance) Law, 2018 (Substance Law), was introduced in December 2018. The new substance rules have been amended by regulations on 22 February 2019 and 30 April 2019 including amendments to reflect feedback from the OECD.

Guidance Notes

The Substance Law is supplemented by guidance notes (Guidance Notes) issued by the Tax Information Authority of the Cayman Islands (TIA). Version 2.0 of the Guidance Notes was issued in conjunction with the 30 April changes to the Substance Law, providing affected entities with guidance on the practical steps they must take to comply with the economic substance test set out in the Substance Law.

Relevant Entities

The Substance Law applies to the following Relevant Entities:

  • Cayman Islands companies and limited liability companies (other than domestic companies)
  • Cayman Islands limited liability partnerships
  • Foreign companies registered in the Cayman Islands


  • Investment funds (including vehicles through which they invest)
  • Entities tax resident outside the Cayman Islands

Relevant Activities

The economic substance requirements only apply to the following Relevant Activities carried on by Relevant Entities:

  • banking business
  • distribution and service centre business
  • financing and leasing business
  • fund management business
  • headquarters business
  • holding company business
  • insurance business
  • intellectual property business
  • shipping business

Economic Substance Test

If a Relevant Entity is carrying on a Relevant Activity, it must:

  • carry on in the Cayman Islands all core income generating activities in respect of that Relevant Activity;
  • be directed and managed in an appropriate manner in the Cayman Islands in relation to that Relevant Activity; and
  • with regard to the income generated from the Relevant Activity, have incurred adequate operating expenditure, have an adequate physical presence and an adequate number of employees or other personnel with appropriate qualifications in the Cayman Islands.

An abbreviated test applies to pure equity holding companies, while a presumption of non-compliance applies to a Relevant Entity that carries on high risk intellectual property business.


Relevant Entities will be required to report annually to the TIA whether they have carried on a Relevant Activity. A Relevant Entity that is carrying on a Relevant Activity must file a report with the TIA for the purpose of the TIA determining whether that Relevant Entity has satisfied the economic substance test in respect of the relevant financial year. Reporting will start in 2020 for financial years that commenced in 2019.


For Relevant Entities existing prior to 1 January 2019, the requirement to comply with the economic substance test comes into effect from 1 July 2019. For Relevant Entities incorporated, formed or registered (as applicable) after 2018, the requirement applies from the date such entity commences a Relevant Activity.

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.