Cayman Islands economic substance test

Cayman Islands Economic Substance Requirements

To establish if the Cayman Islands economic substance requirements will apply to an entity in respect of any financial year of the entity commencing in 2019 or later, please answer the questions in the panel below.

This tool has been developed in response to the International Tax Co-Operation (Economic Substance) Law, 2018 (as varied by the Regulations, the "Law"), the International Tax Co-Operation (Economic Substance) (Prescribed Dates) Regulations, 2018, the International Tax Co-Operation (Economic Substance) (Amendment of Schedule) Regulations, 2019 and the International Tax Co-Operation (Economic Substance) (Amendment of Schedule) (No. 2) Regulations, 2019 (together, the "Regulations"), and the related guidance published on 30 April 2019 (as amended on 17 September 2019). It is therefore subject to any changes, further guidance, the form of annual return and any supporting legislation being published. It is also intended only to be used as a quick reference guide and not as a substitute for professional advice.

For advice on any specific circumstances, please contact a member of our Cayman Islands economic substance team.

Is the entity any of the following?

  • a Cayman Islands incorporated company?
  • a Cayman Islands limited liability company (LLC)?
  • a registered Cayman Islands limited liability partnership (LLP)?
  • a company incorporated outside of the Cayman Islands and registered in the Cayman Islands as a foreign company?

Is the entity one of the following?

Click on the boxes below for a summary definition.

  • A DOMESTIC COMPANY

    A “domestic company” is a company that is not part of an MNE Group and is:

    (a) only carrying on business in the Cayman Islands and which complies with section 4(1) of the Local Companies (Control) Law (2019 Revision) or section 3(a) of the Trade and Business Licensing Law (2019 Revision); or

    (b) a company incorporated in the Cayman Islands and limited by guarantee or is a not-for-profit association (referred to respectively in section 9 or 80 of the Companies Law (2018 Revision)).

    MNE Group means any Group that includes two or more enterprises for which the tax residence is in different jurisdictions or includes an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction; and  Group means a collection of enterprises related through ownership or control such that it is either required to prepare Consolidated Financial Statements for financial reporting purposes under applicable accounting principles or would be so required if equity interests in any of the enterprises were traded on a public exchange.

     

  • AN INVESTMENT FUND

    An “investment fund” means an entity whose principal business is the issuing of investment interests to raise funds or pool investor funds with the aim of enabling a holder of such an investment interest to benefit from the profits or gains from the entity's acquisition, holding, management or disposal of investments and includes any entity through which an investment fund directly or indirectly invests or operates (but not an entity that is itself the ultimate investment held), but does not include a person licenced under the Banks and Trust Companies Law (2018 Revision) or the Insurance Law, 2010, or a person registered under the Building Societies Law (2014 Revision) or the Friendly Societies Law (1998 Revision).

  • AN ENTITY THAT IS TAX RESIDENT OUTSIDE OF THE CAYMAN ISLANDS

    An entity is generally tax resident outside of the Cayman Islands if it is subject to tax in another jurisdiction by reason of its domicile, residence or any other criteria.

Is the entity engaged in a relevant activity?

A "relevant activity" means any one or more of the following:

Click on the boxes below for a summary definition of each relevant activity.

  • BANKING BUSINESS

    An entity engages in "banking business" where it is in the business of receiving (other than from a bank or trust company) and holding on current, savings, deposit or other similar account money, which is repayable by cheque or order and may be invested by way of advances to customers or otherwise (cf. section 2 of the Banks and Trust Companies Law (2018 Revision)).

  • INSURANCE BUSINESS

    An entity engages in "insurance business" where it is in the business of accepting risks by effecting or carrying out contracts of insurance, whether directly or indirectly, and includes running-off business including the settlement of claims (cf. section 2 of the Insurance Law, 2010).

  • FUND MANAGEMENT BUSINESS

    An entity engages in "fund management business" where it is in the business of managing securities as set out in paragraph 3 of Schedule 2 to the Securities Investment Business Law (2019 Revision) and is a relevant entity licensed or otherwise authorised to conduct business  under that law for an investment fund.

  • FINANCING AND LEASING BUSINESS

    An entity engages in "financing and leasing business" where it is in the business of providing credit facilities for any kind of consideration to another person but does not include financial leasing of land or an interest in land, banking business, fund management business or insurance business.

  • HEADQUARTERS BUSINESS

    An entity engages in "headquarters business" where it is in the business of providing any of the following services to an entity in the same corporate group:

    (a) the provision of senior management;

    (b) the assumption or control of material risk for activities carried out by any of those entities in the same corporate group; or

    (c) the provision of substantive advice in connection with the assumption or control of risk referred to in paragraph (b),

    but does not include banking business, financing and leasing business, fund management business, intellectual property business, holding company business or insurance business.

  • HOLDING COMPANY BUSINESS

    An entity engages in "holding company business" when it is a pure equity holding company. 

    A “pure equity holding company” means a company that only holds equity participations in other entities and only earns dividends and capital gains.

  • SHIPPING BUSINESS

    An entity engages in "shipping business" where it conducts any of the following activities involving the operation of a ship anywhere in the world other than in the territorial waters of the Cayman Islands or between the Cayman Islands:

    (a) the business of transporting by sea, passengers or animals, goods or mail for a charge;

    (b) the renting or chartering of ships for the purpose described in paragraph (a);

    (c) the sale of travel tickets and ancillary ticket related services connected with the operation of a ship;

    (d) the use, maintenance or rental of containers, including trailers and other vehicles or equipment for the transport of containers, used for the transport of anything by sea; or

    (e) the functioning as a private seafarer recruitment and placement service, 

    but does not include a holding company business or the owning, operating or chartering of a pleasure yacht.

     

  • DISTRIBUTION AND SERVICE CENTRE BUSINESS

    An entity engages in "distribution and service centre business" where it conducts the business of either or both of the following:

    (a) purchasing from an entity in the same corporate group:

        (i) component parts or materials for goods; or

        (ii) goods ready for sale, and reselling such component parts, materials or goods outside the Cayman Islands;

    (b) providing services to an entity in the same corporate group in connection with the business outside the Cayman Islands,

    but does not include any activity included in any other relevant activity except holding company business.

  • INTELLECTUAL PROPERTY BUSINESS

    An entity engages in "intellectual property business" where it conducts the business of holding, exploiting or receiving income from intellectual property assets.

    An “intellectual property asset” is an intellectual property right including a copyright, design right, patent and trademark.

Is the relevant activity carried on by the entity that of a pure equity holding company only?