There were significant legislative and regulatory developments on economic substance in the offshore jurisdictions in the past 2 to 3 years. As economic substance classification, requirements and guidance notes have largely been finalised by now, a few updates remain to be made on the reporting procedures and deadlines in the last quarter.
As part of the Registrar of Companies' project to introduce a new online registry system for all corporate filings and fee collections, the Registry updated the annual declaration forms applicable to companies, partnerships and limited liability companies in December 2020. These forms have been amended to include a description of standardised business activity, relevant activity and financial year end. The amended forms came into effect on 15 December 2020 for all new registrations, and all declarations due by 31 January 2021 would have been submitted in the new format.
In the last issue, we reported on the requirements relating to submission of economic substance returns and forms via a new electronic portal maintained by the Department for International Tax Cooperation (DITC). The portal is now available and also accepts registration from outsource service providers. The DITC has confirmed that entities are able to submit economic substance notifications (ESNs) for the financial year commencing in 2020, with the submission of ESNs remaining a prerequisite to filing annual returns. Entities that wish to file their ESNs in advance of dissolving or winding up during the 2021 financial year may do so via the portal.
In addition to the ESN, a relevant entity carrying on a relevant activity is required to submit an economic substance return (ES Return) to the Tax Information Authority. ES Returns must be made within 12 months after the end of each financial year of the relevant entity commencing on or after 1 January 2019, but the reporting deadlines applicable for this first year have been extended 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 for 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|
Updated versions of the sample ES Returns and form for entity tax resident in another jurisdiction can be accessed here.
Lastly, effective 3 December 2020, the International Tax Co-operation (Economic Substance) Law was amended by substituting the word "Act" for "Law" in its title pursuant to the Citation of Acts of Parliament Act, 2020. Such re-naming applies to each Cayman Islands enactment that was a Law before 3 December 2020.
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.