The Cayman Islands International Tax Co-operation (Economic Substance) Law has deep implications for the funds sector in Cayman, says Christian Victory of Appleby.
The Cayman Islands is an early adopter of the Common Reporting Standard, compliant with the US Foreign Account Tax Compliance Act (FATCA) and a leading jurisdiction on tax transparency. Anti-money laundering and anti-terrorist financing legislative regimes meet the highest international standards, and the Cayman Islands commitment to compliance is unwavering.
The Cayman Islands government and financial services industry together have a long history of working closely and cooperatively with key intergovernmental organisations to ensure that the Cayman Islands regulatory framework remains sound. One of these intergovernmental groups, the EU Code of Conduct Group, assessed the tax policies of a number of countries, including the Cayman Islands, in 2017. Following assessment by the group, Cayman was included in a list of Jurisdictions required to address the group's concerns regarding "economic substance".
Like its counterparts in BVI, Bermuda, Guernsey, Jersey and the Isle of Man, the government of the Cayman Islands worked closely with the Code of Conduct Group to ensure that those concerns were adequately addressed. As a result of that engagement, a law to provide for an economic substance test, namely The International Tax Co-operation (Economic Substance) Law, 2018 of the Cayman Islands (ES Law), and related Regulations came into force on January 1, 2019 with additional Regulations and Guidance issued on February 22, 2019.
The ES Law requires certain entities incorporated or registered in the Cayman Islands and carrying on specified activities to have "adequate substance" in the Cayman Islands. One of the specified activities, and the focus of this article, is fund management business.
Originally published in Cayman Funds Magazine, March 2019.
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