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Economic Substance

Economic Substance

Economic Substance legislation came into effect in the Crown Dependencies and Overseas Territories on 1 January 2019.

What does this mean?

These regulations require entities with tax residence and income in impacted jurisdictions to evidence adequate local resources, facilities and control over income generating activities. Impacted jurisdictions are Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Isle of Man, Jersey (and from 2020, Mauritius).

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How can we help?

WestBayFG has significant experience in gathering and reporting company data and we are uniquely placed to help our clients understand and respond to the new legislation. Our assessment of substance determination is a staged approach and, based on the outcome of each stage, we are able to react accordingly.

These stages are outlined below:

  • Is the entity in question in scope of the new law?

We will determine if an entity is a Cayman relevant entity, subject to this new law AND whether it conducts any relevant activities. Should this analysis be positive, a substance test will follow.

  • Does the entity meet the substance requirements?

WestBayFG will perform a substance test on entity in scope, which may include a request for additional information from clients. The substance requirements differ depending on the type of relevant activity the entity performs. Our tests include a gap-analysis versus the requirements for adequate control, people, facilities and expenditure. Should the substance test not be met, enhanced substance or restructuring may be required.

  • How can the entity enhance its substance?

Clients whose entity does not meet the substance requirements will be required to add substance or restructure the entity. For standard structures, solutions may be straightforward including additional directors, leasing office space and outsourcing activities to a Cayman service provider.