Economic Substance Requirements In The Cayman Islands

Overview

As a result of the OECD'S global Base Erosion and Profit Shifting ("BEPS") initiative and the EU Code of Conduct Group substance requirements modelled on BEPS Action 5, the Cayman Islands has enacted The International Tax Co-operation (Economic Substance) Law, 2018 (the "ES Law") and issued related Regulations and Guidance Notes. Similar legislation has been introduced in numerous jurisdictions, including the Channel Islands and the British Virgin Islands.

Under the ES Law, certain vehicles formed or registered in the Cayman Islands are required to have economic substance in the Cayman Islands. The requirement to show economic substance is primarily aimed at preventing what is called "base erosion and profit shifting". This constitutes, in the OECD's view, the artificial shifting of profits to places where there is little or no economic activity or taxation. The ES Law seeks to remedy the OECD's concerns by requiring relevant entities to have sufficient