March 2020 - An interim review of the economic substance rules in Bermuda, the Cayman islands and the BVI

In December 2018, Bermuda, Cayman Islands and the BVI, along with many other jurisdictions with low or zero rate of corporate income tax, passed legislations that introduced increased economic substance requirements for certain entities.

The legislations are designed to meet the requirements outlined by the European Union’s (“EU’s”) intergovernmental Code of Conduct Group (“CoCG”) on Business Taxation, which are aimed at jurisdictions with low or zero rate of corporate income tax.

The Organization for Economic Co-operation and Development (“OECD”) had also issued a document entitled “Resumption of Application of Substantial Activities Factor to No or only Nominal Tax Jurisdictions” (the “OECD document”) in November 2018.

In February 2020, the BVI International Tax Authority (“ BVI-ITA”), responsible for implementing, monitoring and enforcing the economic substance regime, issued revised Rules on Economic Substance in the Virgin Islands ( the” BVI Rules” ). The Rules were originally published in October 2019 to replace its initial guidance. The revised Rules address comments received from BVI practitioners and the feedback from the EU and OECD.

In September and October, 2019, the Cayman Department of International Tax Co-operation (“Cayman DITC”) released a number of notification resources, and in November, 2019, the Cayman DITC released revised and enhanced guidance on the economic substance requirements that apply to entities in the jurisdiction.

Similarly, the rules on Bermuda were also evolved, leading to the latest Economic Substance Regulations , and together with the Economic Substance Act ( 2018), called the Economic Substance Law in Bermuda. Guidance Notes on the general principles relating to economic substance requirements in Bermuda were published on 24 December 2019 (“Bermuda ES Guidance”)

Mazars observed that the relevant activities which are applicable to its clients are mostly on holding business, fund management business, finance and leasing business and intellectual property (IP) business. This tax newsletter would therefore focus on entities engaging in these relevant activities. Please refer to our July 2019 tax newsletter as to what are the relevant activities and the covered entities which would be subject to the economic substance requirement rules.

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