Cayman Islands Update on Economic Substance and AEOI

This advisory provides a round-up of recent updates to the economic substance and AEOI regimes arising from economic substance regulations published by the Cayman Islands Government, updated economic substance guidance issued by the Cayman Islands Tax Information Authority (“TIA”) and a bulletin published by the Department for International Tax Cooperation (“DITC”).

Economic substance regime extended to partnerships 

On 30 June 2021 the Cayman Islands Government published the International Tax Co-operation (Economic Substance) (Amendment of Schedule) Regulations, 2021 and the International Tax Co-operation (Economic Substance) (Prescribed Dates) (Amendment) Regulations, 2021 that expand the scope of the existing economic substance regime to encompass general partnerships, limited partnerships, exempted limited partnerships and foreign limited partnerships. 

We expect that most of our clients’ partnerships will fall within the exemption for investment funds and will not need to take any steps beyond filing an annual economic substance notification (“ES Notification”). Where Walkers Professional Services (“WPS”) is the registered office service provider for your entities, WPS and Walkers will work together to prepare ES Notification for your entities and contact you if further information is required.

Other exemptions are available for entities which are tax resident overseas, domestic companies or local partnerships. If an entity is not exempt and engages in one or more of nine “relevant activities”, it will need to file an annual return with the TIA. Our advisory overview of the economic substance regime can be viewed here. Partnerships formed on or after 30 June 2021 will need to satisfy the economic substance test from the date it starts carrying out a relevant activity. Partnerships already in existence prior to 30 June 2021, will not need to start satisfying the economic substance test until 1 January 2022.

Publication of Economic Substance Guidance v3.1 

On 2 July 2021 the TIA published Economic Substance Guidance version 3.1, which can be found on the Department for International Tax Cooperation website, to replace version 3.0. The key change is a new appendix containing guidance for partnerships.

Economic substance notifications 

The DITC posted an Updates Bulletin on 3 June 2021 advising industry that the ES Notification submission window for the financial year commencing in 2021 is open. This is primarily to facilitate entities who wish to submit their ES Notifications in advance of dissolving, winding up or deregistering during the financial year commencing in 2021. The ES Notification remains a prerequisite to filing an annual return (and should therefore be filed on or before 15 January 2022 in respect of an entity’s financial year commencing in 2021).

The economic substance investment fund exemption 

Where the investment fund exemption is stated on the ES Notification, the entity should provide its CIMA, GIIN or FI number. If the entity does not have a CIMA, GIIN or FI number, but another investment fund that directly or indirectly invests or operates through the entity has these numbers, the entity should check the relevant box on the ES Notification and input the CIMA, FI or IRS GIIN of that investment fund. The DITC intends to follow up with every registered office service provider that submitted ES Notifications for investment funds with this fact pattern.

AEOI reporting 

A reminder of the 2021 reporting obligations and deadlines is as follows: 

>> Registration (notification) - 30 April 2021  

>> 2019 & 2020 CRS and FATCA Reporting - 31 July 2021  

>> 2019 & 2020 CRS Filing Declaration - 31 July 2021  

>> 2019 & 2020 CRS Filing Declaration - 31 July 2021  

The DITC is not currently planning any extensions to the reporting deadline, and Financial Institutions (“FIs”) are encouraged to commence their reporting early. 

The CRS Filing Declaration and CRS Compliance Form are mandatory for all FIs with CRS reporting obligations, including Trustee Documented Trusts. Our advisory on these new requirements can be viewed here.

Correct classifications under AEOI and ES 

The DITC has reminded industry that each Cayman Islands entity must ensure it is correctly classified. The DITC intends to match AEOI notification data against other data sources, such as ES Notifications, CIMA licences/registrations, General Registry nature of business classifications and the IRS GIIN registration list. As legal definitions are not uniform across the various regimes, it is not always the case that classifications will apply across regimes. However, it is important to ensure that classifications are correct for each regime.

 

Cayman Islands Update on Economic Substance and AEOI - Lexology

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