Expanded Scope of Economic Substance Act
The Economic Substance Amendment Act 2021 was enacted on 30 June 2021, expanding the categories of entities that are now in scope of the Economic Substance Act. The amendments bring into scope all types of partnerships, including those partnerships that have not elected to have separate legal personality.
Previously, only those partnerships that elected to have separate legal personality were in scope of the economic substance requirements (in addition to Bermuda companies, permit companies and LLCs). However, with these amendments, all partnerships to which the Partnership Act 1902 applies, along with all limited partnerships, exempted partnerships and overseas partnerships (in each case, being partnerships that are carrying on a relevant activity) will now be required to satisfy the economic substance requirements, irrespective of whether such partnerships have elected separate legal personality.
For all partnerships formed on or after 1 July 2021, and which are carrying on or expect to carry on a relevant activity, the economic substance requirements will apply immediately. However, there is a six month transition period in place for those partnerships that were not previously in scope of the Economic Substance Act, but which were in existence on or before 30 June 2021. Such partnerships, if they are carrying on a relevant activity, will be subject to the economic substance requirements from 1 January 2022, and their first economic substance declaration will be filed in respect of relevant financial periods ending on or after 31 December 2022.
Allowance has also been made for those partnerships that are entirely Bermudian-owned and operated. Any local partnership carrying on a relevant activity, being a partnership that is not registered as an exempted partnership, is not part of an MNE Group (as such term is defined in the Economic Substance Act) and which carries on business only in Bermuda, will be subject to reduced economic substance requirements.
These changes are in line with evolving international requirements in relation to the economic substance standard, with all comparable jurisdictions, including the Cayman Islands, British Virgin Islands and the Channel Islands, implementing similar changes to their respective economic substance legislative frameworks (to the extent applicable).
If you have any questions regarding the expanded scope of the economic substance requirements, or for further information or support, please contact a member of our team.
Carey Olsen's economic substance services
Along with providing advice on the implications of economic substance legislation for specific businesses, we can conduct audits on existing structures, procedures and documents to help identify and remedy any gaps or issues that could prevent compliance with economic substance requirements. Learn more about our Taxation and Economic Substance services.