Increased Enforcement Actions Regarding Cayman Islands Economic Substance

In 2024, there has been a sharp increase in the number of enforcement actions initiated by the Cayman Islands Tax Information Authority (“TIA”) and fines levied against relevant entities (such as Cayman Islands exempted companies) for breaches of the economic substance test (“ES Test”) under the International Tax Co-operation (Economic Substance) Act (Revised) (the “ES Act”). Penalty notices have been issued by the TIA for, among other infractions, failure to conduct core income generating activities (“CIGAs”) in the Cayman Islands, failure to have adequate physical presence and personnel in the Cayman Islands and failure to file an Economic Substance Return (“ESR”) within the statutory deadline, being within 12 months of the financial year end of the relevant entity.