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Economic Substance Entity Classification Questionnaire - Cayman Islands
Please answer the following questionnaire to initially classify an Entity for the purpose of Economic Substance.
Section 1 - Entity Type
Type of Entity
Exempted Company
A foreign company incorporated outside of the Cayman Islands and registered under the Cayman Islands Companies Law (as revised)
Limited Liability Company (LLC)
Limited Liability Partnership (LLP)
Other
The Entity is not within scope of the Economic Substance regime by virtue of its type.
The Entity is of a type that may fall under the Economic Substance regime in the Cayman Islands. It will be necessary to continue with the analysis.
Is the Entity a "domestic" company, being one which is:
carrying on business in Cayman under s. 4(1) of the Local Companies (Control) Law;
or
carrying on business in Cayman under section 3(a) of the Trade and Business Licensing Law;
or
registered as a not-for-profit registered under section 80 of the Companies Law?
Yes
No
The Entity is out of scope of the Economic Substance regime because it is a domestic entity and thereby exempt.
The Entity is not exempted from the Economic Substance regime by virtue of being a domestic Cayman Islands entity. It is necessary to continue the analysis.
Is the Entity an Investment Fund?
Yes
No
Unsure
The Entity is out of scope of the Economic Substance regime because it is an Investment Fund and thereby exempt.
The Entity is not exempted from the Economic Substance regime by virtue of being an Investment Fund. It is necessary to continue the analysis.
In order to determine whether the Entity is exempted by virtue of being an Investment Fund as defined in the legislation, it will be necessary for us to obtain full information on the structure and day-to-day business activities of the Entity. Please
click here
to book a call with one of our legal experts.
Section 2 - Tax Residence
Is the Entity tax resident outside of the Cayman Islands?
Yes
No
Can the Entity produce evidence of tax residence outside of Cayman in any of the following ways:
Entity has Tax Information Number (TIN)
Entity has a tax residence certificate and income tax return
Entity has proof of assessment of payment of a corporate income tax liability on its gross income arising in the Islands from a relevant activity
Entity can provide evidence of its designation as a "disregarded entity" for U.S. income tax purposes.
Yes
No
Entities that are tax resident outside of the Cayman Islands and are able to produce proof that they are subject to taxation on income relating to their Cayman Islands relevant activities are not in scope of the Economic Substance regime. However, consideration should be given to whether an Economic Substance regime exists in the jurisdiction of tax residence.
Entities that are tax resident outside of the Cayman Islands and are able to produce proof that they are subject to taxation on income relating to their Cayman Islands relevant activities are not in scope of the Economic Substance regime.
You have indicated that the Entity is tax resident outside of the Cayman Islands but evidence in the specified form is not available. The Economic Substance regime contains some flexibility about the form of proof that may be accepted by the authorities.
It will be necessary to take legal advice, and possibly tax advice in the relevant jurisdiction. Please
click here
to book a call.
If you would like to continue with the analysis on the basis that the Entity cannot prove tax residence outside of the Cayman Islands,
click here
.
Section 3 - Relevant Activities
Does the Entity carry on banking business
, as defined in the Banks and Trusts Companies Law (2018 Revision)?
Yes
No
Unsure
Your responses indicate that the Entity is a Relevant Entity carrying on the Relevant Activity of Banking business and therefore in scope of the Economic Substance regime. To meet the economic substance test, the Entity must:
(1) conduct core income-generating activity in relation to that relevant activity in the Cayman Islands;
(2) be directed and managed in an appropriate manner in the Cayman Islands in relation to that activity;
(3) having regard to the level of relevant income derived from the relevant activity carried out in the Islands –
(i) have an adequate amount of operating expenditure incurred in the Islands;
(ii) have adequate physical presence (including maintaining a place of business or plant, property and equipment) in the Cayman Islands; and
(iii) have an adequate number of full-time employees
or
other personnel with appropriate qualifications in the Cayman Islands.
Outsourcing of core income-generating activities within the jurisdiction is permitted and counts towards satisfying the substance requirements so long as the relevant entity is able to monitor and control the carrying out of that activity by that other person.
Core Income-Generating Activities
The core income-generating activities for an Entity conducting banking business are:
(i) raising funds, managing risk including credit, currency and interest risk;
(ii) taking hedging positions;
(iii) providing loans, credit or other financial services to customers;
(iv) managing capital and preparing reports or returns, or both, to investors or the Cayman Islands Monetary Authority, or both.
Appropriate Management and Direction
A Relevant Entity is being directed and managed in an appropriate manner if:
(a) its board of directors, as a whole, has the appropriate knowledge and expertise to discharge its duties as a board of directors;
(b) meetings of the board of directors are held in the Cayman Islands at adequate frequencies given the level of decision making required;
(c) during a meeting of the board of directors described in paragraph (b), there is a quorum of directors present in the Cayman Islands;
(d) the minutes of the meetings of the board of directors described in paragraph (b) record the making of strategic decisions of the relevant entity at the meeting; and
(e) the minutes of all meetings of the board of directors and appropriate records of the relevant entity are kept in the Cayman Islands.
What constitutes an adequate number of meetings in the Cayman Islands will depend on the relevant activities of the Entity. However, it is generally expected that the majority of board meetings will be held in Cayman. It is also expected that even for companies with a minimal level of activity there will be at least one meeting of its board of directors per year.
Adequacy
"Adequate" means as much or as good as necessary for the relevant requirement or purpose. What is adequate for each Relevant Entity will depend on the particular facts of the entity and its business. Adequacy will be measured against the level of relevant income derived from the Relevant Activity. It is expected that relevant entities fully licensed to carry on regulated banking business in Cayman will already generally be operating in the Islands with adequate resources and expenditure, as a meaningful local footprint is a prerequisite to the issuance of this type of banking licence.
Interpretation of Terms
The information provided above includes certain terms that are defined in the legislation or expanded upon in supplemental materials, and others that are legal terms of art that may not directly reflect their ordinary meaning. The correct interpretation of these terms is essential to ensuring that the analysis is accurate. For that reason, legal advice should be taken on the legislation and its application to your particular business.
Actions to Take
We recommend that you
click here
to book a call with one of our legal experts.
You should also be aware that our affiliated group of companies, Appleby Global Services (
AGS
) in Bermuda, Cayman, Jersey and Isle of Man, stands ready to assist with economic substance compliance matters. AGS offers registered office, director and fiduciary services, as well as assistance in meeting statutory requirements in respect of record keeping, reporting and filing. We are pleased to offer our clients both legal advice and corporate solutions to meet your needs in a single cost-effective and joined-up service.
Does the Entity carry on distribution and service centre business
, meaning either or both of the following (a) purchasing from an entity in the same Group
(i) component parts or materials for goods; or (ii) goods ready for sale, and reselling such component parts, materials or goods outside the Islands; or (b) providing services to an entity in the same Group in connection with the business outside the Islands (but does not include any activity included in any other relevant activity except holding company business)?
Yes
No
Unsure
Your responses indicate that the Entity is a Relevant Entity carrying on the Relevant Activity of distribution and service centre business and therefore in scope of the Economic Substance regime. To meet the economic substance test, the Entity must:
(1) conduct core income-generating activity in relation to that relevant activity in the Cayman Islands;
(2) be directed and managed in an appropriate manner in the Cayman Islands in relation to that activity;
(3) having regard to the level of relevant income derived from the relevant activity carried out in the Islands –
(i) have an adequate amount of operating expenditure incurred in the Islands;
(ii) have adequate physical presence (including maintaining a place of business or plant, property and equipment) in the Cayman Islands; and
(iii) have an adequate number of full-time employees
or
other personnel with appropriate qualifications in the Cayman Islands.
Outsourcing of core income-generating activities within the jurisdiction is permitted and counts towards satisfying the substance requirements so long as the relevant entity is able to monitor and control the carrying out of that activity by that other person.
Core Income-Generating Activities
The core income-generating activities for an Entity conducting distribution and service centre business are:
(i) transporting and storing goods, components and materials;
(ii) managing stocks;
(iii) taking orders;
(iv) providing consulting or other administrative services.
Appropriate Management and Direction
A Relevant Entity is being directed and managed in an appropriate manner if:
(a) its board of directors, as a whole, has the appropriate knowledge and expertise to discharge its duties as a board of directors;
(b) meetings of the board of directors are held in the Cayman Islands at adequate frequencies given the level of decision making required;
(c) during a meeting of the board of directors described in paragraph (b), there is a quorum of directors present in the Cayman Islands;
(d) the minutes of the meetings of the board of directors described in paragraph (b) record the making of strategic decisions of the relevant entity at the meeting; and
(e) the minutes of all meetings of the board of directors and appropriate records of the relevant entity are kept in the Cayman Islands.
What constitutes an adequate number of meetings in the Cayman Islands will depend on the relevant activities of the Entity. However, it is generally expected that the majority of board meetings will be held in Cayman. It is also expected that even for companies with a minimal level of activity there will be at least one meeting of its board of directors per year.
Adequacy
"Adequate" means as much or as good as necessary for the relevant requirement or purpose. What is adequate or appropriate for each relevant entity will depend on the particular facts of the entity and its business. Adequacy will be measured against the level of relevant income derived from the Relevant Activity. No guidance has yet been given to explain what might be adequate for a distribution and service centre business, so an in-depth and fact specific review will be required.
Interpretation of Terms
The information provided above includes certain terms that are defined in the legislation or expanded upon in supplemental materials, and others that are legal terms of art that may not directly reflect their ordinary meaning. The correct interpretation of these terms is essential to ensuring that the analysis is accurate. For that reason, legal advice should be taken on the legislation and its application to your particular business.
Other Relevant Activities
It is not uncommon for an Entity to undertake more than one Relevant Activity. For example, an entity conducting distribution and service centre business may also be conducting headquarters business
, financing and leasing business
or intellectual property business
. Where an Entity conducts more than one Relevant Activity, the applicable economic substance test will have to be met in respect of each one.
Actions to Take
We recommend that you
click here
to book a call with one of our legal experts.
You should also be aware that our affiliated group of companies, Appleby Global Services (
AGS
) in Bermuda, Cayman, Jersey and Isle of Man, stands ready to assist with economic substance compliance matters. AGS offers registered office, director and fiduciary services, as well as assistance in meeting statutory requirements in respect of record keeping, reporting and filing. We are pleased to offer our clients both legal advice and corporate solutions to meet your needs in a single cost-effective and joined-up service.
Does the Entity carry on finance and leasing business
, being 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?
Yes
No
Unsure
Your responses indicate that the Entity is a Relevant Entity carrying on the Relevant Activity of financing and leasing business and therefore in scope of the Economic Substance regime. To meet the economic substance test, the Entity must:
(1) conduct core income-generating activity in relation to that relevant activity in the Cayman Islands;
(2) be directed and managed in an appropriate manner in the Cayman Islands in relation to that activity;
(3) having regard to the level of relevant income derived from the relevant activity carried out in the Islands –
(i) have an adequate amount of operating expenditure incurred in the Islands;
(ii) have adequate physical presence (including maintaining a place of business or plant, property and equipment) in the Cayman Islands; and
(iii) have an adequate number of full-time employees
or
other personnel with appropriate qualifications in the Cayman Islands.
Outsourcing of core income-generating activities within the jurisdiction is permitted and counts towards satisfying the substance requirements so long as the relevant entity is able to monitor and control the carrying out of that activity by that other person.
Core Income-Generating Activities
The core income-generating activities for an Entity conducting financing and leasing business are:
(i) negotiating or agreeing funding terms;
(ii) identifying and acquiring assets to be leased;
(iii) setting the terms and duration of financing or leasing;
(iv) monitoring and revising financing or leasing agreements and managing risks associated with such financing or leasing agreements.
Appropriate Management and Direction
A Relevant Entity is being directed and managed in an appropriate manner if:
(a) its board of directors, as a whole, has the appropriate knowledge and expertise to discharge its duties as a board of directors;
(b) meetings of the board of directors are held in the Cayman Islands at adequate frequencies given the level of decision making required;
(c) during a meeting of the board of directors described in paragraph (b), there is a quorum of directors present in the Cayman Islands;
(d) the minutes of the meetings of the board of directors described in paragraph (b) record the making of strategic decisions of the relevant entity at the meeting; and
(e) the minutes of all meetings of the board of directors and appropriate records of the relevant entity are kept in the Cayman Islands.
What constitutes an adequate number of meetings in the Cayman Islands will depend on the relevant activities of the Entity. However, it is generally expected that the majority of board meetings will be held in Cayman. It is also expected that even for companies with a minimal level of activity there will be at least one meeting of its board of directors per year.
Adequacy
"Adequate" means as much or as good as necessary for the relevant requirement or purpose. What is adequate or appropriate for each relevant entity will depend on the particular facts of the Entity and its business. Adequacy will be measured against the level of relevant income derived from the Relevant Activity. No guidance has yet been given to explain what might be adequate for a financing and leasing business, so an in-depth and fact specific review will be required.
Interpretation of Terms
The information provided above includes certain terms that are defined in the legislation or expanded upon in supplemental materials, and others that are legal terms of art that may not directly reflect their ordinary meaning. The correct interpretation of these terms is essential to ensuring that the analysis is accurate. For that reason, legal advice should be taken on the legislation and its application to your particular business.
Other Relevant Activities
It is not uncommon for an Entity to undertake more than one Relevant Activity. For example, an entity conducting financing and leasing business may also be conducting headquarters business
, distribution and service centre business
or intellectual property business
. Where an Entity conducts more than one Relevant Activity, the applicable economic substance test will have to be met in respect of each one.
Actions to Take
We recommend that you
click here
to book a call with one of our legal experts.
You should also be aware that our affiliated group of companies, Appleby Global Services (
AGS
) in Bermuda, Cayman, Jersey and Isle of Man, stands ready to assist with economic substance compliance matters. AGS offers registered office, director and fiduciary services, as well as assistance in meeting statutory requirements in respect of record keeping, reporting and filing. We are pleased to offer our clients both legal advice and corporate solutions to meet your needs in a single cost-effective and joined-up service.
Does the Entity carry on fund management business
, being the business of managing securities as set out in paragraph 3 of Schedule 2 to the Securities Investment Business Law (2015 Revision)
carried on by a relevant entity licensed or otherwise authorised to conduct business under that Law for an investment fund?
Yes
No
Unsure
Your responses indicate that the Entity is a Relevant Entity carrying on the Relevant Activity of fund management business and therefore in scope of the Economic Substance regime. To meet the economic substance test, the Entity must:
(1) conduct core income-generating activity in relation to that relevant activity in the Cayman Islands;
(2) be directed and managed in an appropriate manner in the Cayman Islands in relation to that activity;
(3) having regard to the level of relevant income derived from the relevant activity carried out in the Islands –
(i) have an adequate amount of operating expenditure incurred in the Islands;
(ii) have adequate physical presence (including maintaining a place of business or plant, property and equipment) in the Cayman Islands; and
(iii) have an adequate number of full-time employees
or
other personnel with appropriate qualifications in the Cayman Islands.
Outsourcing of core income-generating activities within the jurisdiction is permitted and counts towards satisfying the substance requirements so long as the relevant entity is able to monitor and control the carrying out of that activity by that other person.
Core Income-Generating Activities
The core income-generating activities for an Entity conducting fund management business are:
(i) taking decisions on the holding and selling of investments;
(ii) calculating risks and reserves;
(iii) taking decisions on currency or interest fluctuations and hedging positions;
(iv) preparing reports or returns, or both, to investors or the Cayman Islands Monetary Authority, or both.
Appropriate Management and Direction
A Relevant Entity is being directed and managed in an appropriate manner if:
(a) its board of directors, as a whole, has the appropriate knowledge and expertise to discharge its duties as a board of directors;
(b) meetings of the board of directors are held in the Cayman Islands at adequate frequencies given the level of decision making required;
(c) during a meeting of the board of directors described in paragraph (b), there is a quorum of directors present in the Cayman Islands;
(d) the minutes of the meetings of the board of directors described in paragraph (b) record the making of strategic decisions of the relevant entity at the meeting; and
(e) the minutes of all meetings of the board of directors and appropriate records of the relevant entity are kept in the Cayman Islands.
What constitutes an adequate number of meetings in the Cayman Islands will depend on the relevant activities of the Entity. However, it is generally expected that the majority of board meetings will be held in Cayman. It is also expected that even for companies with a minimal level of activity there will be at least one meeting of its board of directors per year.
Adequacy
"Adequate" means as much or as good as necessary for the relevant requirement or purpose. What is adequate for each Relevant Entity will depend on the particular facts of the Entity and its business. Adequacy will be measured against the level of relevant income derived from the Relevant Activity. It is expected that relevant entities licensed to carry on regulated fund management business will already generally be operating in the Cayman Islands with adequate resources and expenditure, as a meaningful local footprint is a prerequisite to the issuance of most licences. Those Entities that are otherwise authorised to carry on business under the Securities Investment Business Law will need to undertake an in-depth review of their structures.
Interpretation of Terms
The information provided above includes certain terms that are defined in the legislation or expanded upon in supplemental materials, and others that are legal terms of art that may not directly reflect their ordinary meaning. The correct interpretation of these terms is essential to ensuring that the analysis is accurate. For that reason, legal advice should be taken on the legislation and its application to your particular business.
Actions to Take
We recommend that you
click here
to book a call with one of our legal experts.
You should also be aware that our affiliated group of companies, Appleby Global Services (
AGS
) in Bermuda, Cayman, Jersey and Isle of Man, stands ready to assist with economic substance compliance matters. AGS offers registered office, director and fiduciary services, as well as assistance in meeting statutory requirements in respect of record keeping, reporting and filing. We are pleased to offer our clients both legal advice and corporate solutions to meet your needs in a single cost-effective and joined-up service.
Does the Entity carry on headquarters business
, being the business of providing any of the following services to an entity in the same 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 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)?
Yes
No
Unsure
Your responses indicate that the Entity is a Relevant Entity carrying on the Relevant Activity of headquarters business and therefore in scope of the Economic Substance regime. To meet the economic substance test, the Entity must:
(1) conduct core income-generating activity in relation to that relevant activity in the Cayman Islands;
(2) be directed and managed in an appropriate manner in the Cayman Islands in relation to that activity;
(3) having regard to the level of relevant income derived from the relevant activity carried out in the Islands –
(i) have an adequate amount of operating expenditure incurred in the Islands;
(ii) have adequate physical presence (including maintaining a place of business or plant, property and equipment) in the Cayman Islands; and
(iii) have an adequate number of full-time employees
or
other personnel with appropriate qualifications in the Cayman Islands.
Outsourcing of core income-generating activities within the jurisdiction is permitted and counts towards satisfying the substance requirements so long as the relevant entity is able to monitor and control the carrying out of that activity by that other person.
Core Income-Generating Activities
The core income-generating activities for an Entity conducting headquarters business are:
(i) taking relevant management decisions;
(ii) incurring expenditures on behalf of group entities;
(iii) co-ordinating group activities.
Appropriate Management and Direction
A Relevant Entity is being directed and managed in an appropriate manner if:
(a) its board of directors, as a whole, has the appropriate knowledge and expertise to discharge its duties as a board of directors;
(b) meetings of the board of directors are held in the Cayman Islands at adequate frequencies given the level of decision making required;
(c) during a meeting of the board of directors described in paragraph (b), there is a quorum of directors present in the Cayman Islands;
(d) the minutes of the meetings of the board of directors described in paragraph (b) record the making of strategic decisions of the relevant entity at the meeting; and
(e) the minutes of all meetings of the board of directors and appropriate records of the relevant entity are kept in the Cayman Islands.
What constitutes an adequate number of meetings in the Cayman Islands will depend on the relevant activities of the Entity. However, it is generally expected that the majority of board meetings will be held in Cayman. It is also expected that even for companies with a minimal level of activity there will be at least one meeting of its board of directors per year.
Adequacy
"Adequate" means as much or as good as necessary for the relevant requirement or purpose. What is adequate or appropriate for each relevant entity will depend on the particular facts of the Entity and its business. Adequacy will be measured against the level of relevant income derived from the Relevant Activity. No guidance has yet been given to explain what might be adequate for a headquarters business, so an in-depth and fact specific review will be required.
Interpretation of Terms
The information provided above includes certain terms that are defined in the legislation or expanded upon in supplemental materials, and others that are legal terms of art that may not directly reflect their ordinary meaning. The correct interpretation of these terms is essential to ensuring that the analysis is accurate. For that reason, legal advice should be taken on the legislation and its application to your particular business.
Other Relevant Activities
It is not uncommon for an Entity to undertake more than one Relevant Activity. For example, an entity conducting headquarters business may also be conducting distribution and service centre business
, financing and leasing business
or intellectual property business
. Where an Entity conducts more than one Relevant Activity, the applicable economic substance test will have to be met in respect of each one.
Actions to Take
We recommend that you
click here
to book a call with one of our legal experts.
You should also be aware that our affiliated group of companies, Appleby Global Services (
AGS
) in Bermuda, Cayman, Jersey and Isle of Man, stands ready to assist with economic substance compliance matters. AGS offers registered office, director and fiduciary services, as well as assistance in meeting statutory requirements in respect of record keeping, reporting and filing. We are pleased to offer our clients both legal advice and corporate solutions to meet your needs in a single cost-effective and joined-up service.
Does the Entity carry on insurance business
, as defined in Insurance Law, 2010?
Yes
No
Unsure
Your responses indicate that the Entity is a Relevant Entity carrying on the Relevant Activity of Insurance business and therefore in scope of the Economic Substance regime. To meet the economic substance test, the Entity must:
(1) conduct core income-generating activity in relation to that relevant activity in the Cayman Islands;
(2) be directed and managed in an appropriate manner in the Cayman Islands in relation to that activity;
(3) having regard to the level of relevant income derived from the relevant activity carried out in the Islands –
(i) have an adequate amount of operating expenditure incurred in the Islands;
(ii) have adequate physical presence (including maintaining a place of business or plant, property and equipment) in the Cayman Islands; and
(iii) have an adequate number of full-time employees
or
other personnel with appropriate qualifications in the Cayman Islands.
Outsourcing of core income-generating activities within the jurisdiction is permitted and counts towards satisfying the substance requirements so long as the relevant entity is able to monitor and control the carrying out of that activity by that other person.
Core Income-Generating Activities
The core income-generating activities for an Entity conducting insurance business are:
(i) predicting or calculating risk or oversight of prediction or calculation of risk;
(ii) insuring or re-insuring against risk;
(iii) preparing reports or returns, or both, to investors or the Cayman Islands Monetary Authority, or both.
Appropriate Management and Direction
A Relevant Entity is being directed and managed in an appropriate manner if:
(a) its board of directors, as a whole, has the appropriate knowledge and expertise to discharge its duties as a board of directors;
(b) meetings of the board of directors are held in the Cayman Islands at adequate frequencies given the level of decision making required;
(c) during a meeting of the board of directors described in paragraph (b), there is a quorum of directors present in the Cayman Islands;
(d) the minutes of the meetings of the board of directors described in paragraph (b) record the making of strategic decisions of the relevant entity at the meeting; and
(e) the minutes of all meetings of the board of directors and appropriate records of the relevant entity are kept in the Cayman Islands.
What constitutes an adequate number of meetings in the Cayman Islands will depend on the relevant activities of the Entity. However, it is generally expected that the majority of board meetings will be held in Cayman. It is also expected that even for companies with a minimal level of activity there will be at least one meeting of its board of directors per year.
Adequacy
"Adequate" means as much or as good as necessary for the relevant requirement or purpose. What is adequate for each Relevant Entity will depend on the particular facts of the entity and its business. Adequacy will be measured against the level of relevant income derived from the Relevant Activity. It is expected that relevant entities licensed to carry on insurance business in the Cayman Islands will already generally be operating in the Cayman Islands with adequate resources and expenditure, as a meaningful local footprint is a prerequisite to the issuance of most banking licences. Insurance businesses who are not licensed to carry out local business will need to undertake an in-depth analysis.
Interpretation of Terms
The information provided above includes certain terms that are defined in the legislation or expanded upon in supplemental materials, and others that are legal terms of art that may not directly reflect their ordinary meaning. The correct interpretation of these terms is essential to ensuring that the analysis is accurate. For that reason, legal advice should be taken on the legislation and its application to your particular business.
Actions to Take
We recommend that you
click here
to book a call with one of our legal experts.
You should also be aware that our affiliated group of companies, Appleby Global Services (
AGS
) in Bermuda, Cayman, Jersey and Isle of Man, stands ready to assist with economic substance compliance matters. AGS offers registered office, director and fiduciary services, as well as assistance in meeting statutory requirements in respect of record keeping, reporting and filing. We are pleased to offer our clients both legal advice and corporate solutions to meet your needs in a single cost-effective and joined-up service.
Does the Entity carry on shipping business
, being any of the following activities involving the operation of a ship anywhere in the world other than in the territorial waters of the Islands or between the 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?
Yes
No
Unsure
Your responses indicate that the Entity is a Relevant Entity carrying on the Relevant Activity of shipping business and therefore in scope of the Economic Substance regime. To meet the economic substance test, the Entity must:
(1) conduct core income-generating activity in relation to that relevant activity in the Cayman Islands;
(2) be directed and managed in an appropriate manner in the Cayman Islands in relation to that activity;
(3) having regard to the level of relevant income derived from the relevant activity carried out in the Islands –
(i) have an adequate amount of operating expenditure incurred in the Islands;
(ii) have adequate physical presence (including maintaining a place of business or plant, property and equipment) in the Cayman Islands; and
(iii) have an adequate number of full-time employees
or
other personnel with appropriate qualifications in the Cayman Islands.
Outsourcing of core income-generating activities within the jurisdiction is permitted and counts towards satisfying the substance requirements so long as the relevant entity is able to monitor and control the carrying out of that activity by that other person.
Core Income-Generating Activities
The core income-generating activities for an Entity conducting shipping business are:
(i) managing crew (including hiring, paying and overseeing crew members) (includes compliance with the Maritime Labour Convention, 2006 by either a ship owner or a private seafarer recruitment and placement service);
(ii) overhauling and maintaining ships (includes procuring and/or overseeing the overhauling and/or maintenance of ships);
(iii) overseeing and tracking deliveries (includes tracking package and cargo deliveries as part of the business services of the vessel);
(iv) determining what goods to order and when to deliver them, organising and overseeing voyages (includes carrying out these activities by an agent or manager).
Appropriate Management and Direction
A Relevant Entity is being directed and managed in an appropriate manner if:
(a) its board of directors, as a whole, has the appropriate knowledge and expertise to discharge its duties as a board of directors;
(b) meetings of the board of directors are held in the Cayman Islands at adequate frequencies given the level of decision making required;
(c) during a meeting of the board of directors described in paragraph (b), there is a quorum of directors present in the Cayman Islands;
(d) the minutes of the meetings of the board of directors described in paragraph (b) record the making of strategic decisions of the relevant entity at the meeting; and
(e) the minutes of all meetings of the board of directors and appropriate records of the relevant entity are kept in the Cayman Islands.
What constitutes an adequate number of meetings in the Cayman Islands will depend on the relevant activities of the Entity. However, it is generally expected that the majority of board meetings will be held in Cayman. It is also expected that even for companies with a minimal level of activity there will be at least one meeting of its board of directors per year.
Adequacy
"Adequate" means as much or as good as necessary for the relevant requirement or purpose. What is adequate or appropriate for each relevant entity will depend on the particular facts of the Entity and its business. Adequacy will be measured against the level of relevant income derived from the Relevant Activity.
Interpretation of Terms
The information provided above includes certain terms that are defined in the legislation or expanded upon in supplemental materials, and others that are legal terms of art that may not directly reflect their ordinary meaning. The correct interpretation of these terms is essential to ensuring that the analysis is accurate. For that reason, legal advice should be taken on the legislation and its application to your particular business.
Actions to Take
We recommend that you
click here
to book a call with one of our legal experts.
You should also be aware that our affiliated group of companies, Appleby Global Services (
AGS
) in Bermuda, Cayman, Jersey and Isle of Man, stands ready to assist with economic substance compliance matters. AGS offers registered office, director and fiduciary services, as well as assistance in meeting statutory requirements in respect of record keeping, reporting and filing. We are pleased to offer our clients both legal advice and corporate solutions to meet your needs in a single cost-effective and joined-up service.
Does the Entity carry on intellectual property business
, being the business of holding, exploiting or receiving income from intellectual property assets?
Note that this term does not apply to a business which owns intellectual property merely as an adjunct to its business.
Yes
No
Unsure
Your responses indicate that the Entity is a Relevant Entity carrying on the Relevant Activity of Intellectual Property business and therefore in scope of the Economic Substance regime. To meet the economic substance test, the Entity must:
(1) conduct core income-generating activity in relation to that relevant activity in the Cayman Islands;
(2) be directed and managed in an appropriate manner in the Cayman Islands in relation to that activity;
(3) having regard to the level of relevant income derived from the relevant activity carried out in the Islands –
(i) have an adequate amount of operating expenditure incurred in the Islands;
(ii) have adequate physical presence (including maintaining a place of business or plant, property and equipment) in the Cayman Islands; and
(iii) have an adequate number of full-time employees
or
other personnel with appropriate qualifications in the Cayman Islands.
Outsourcing of core income-generating activities within the jurisdiction is permitted and counts towards satisfying the substance requirements so long as the relevant entity is able to monitor and control the carrying out of that activity by that other person.
Note that if the Entity conducts "high risk intellectual property business" the test is more stringent and there is a stronger evidentiary threshold. "High risk intellectual property business" means an intellectual property business carried on by an entity that –
(i) did not create the intellectual property in an intellectual property asset that it holds for the purposes of its business,
(ii) acquired the intellectual property asset -
(A) from an entity in the same Group; or
(B) in consideration for funding research and development by another person situated in a country or territory other than the Islands; and
(iii) licences the intellectual property asset to one or more entities in the same Group or otherwise generates income from the asset in consequence of activities (such as facilitating sale agreements) performed by entities in the same Group;
Core Income-Generating Activities
The core income-generating activities for an Entity conducting IP Business are:
(i) where the intellectual property asset is a (A) patent or an asset that is similar to a patent research and development; or (B) non-trade intangible (including a trademark), branding, marketing and distribution;
(ii) in exceptional cases except if the relevant activity is a high risk intellectual property business, other core income generating activities relevant to the business and the intellectual property assets which may include - (A) taking strategic decisions and managing (as well as bearing) the principal risks related to development and subsequent exploitation of the intangible asset generating income; (B) taking the strategic decisions and managing (as well as bearing) the principal risks relating to acquisition by third parties and subsequent exploitation and protection of the intangible asset; (C) carrying on the underlying trading activities through which the intangible assets are exploited leading to the generation of income from third parties.
As mentioned above, an Entity carrying out high risk intellectual property business will face a more stringent test and higher evidentiary burden.
Appropriate Management and Direction
A Relevant Entity is being directed and managed in an appropriate manner if:
(a) its board of directors, as a whole, has the appropriate knowledge and expertise to discharge its duties as a board of directors;
(b) meetings of the board of directors are held in the Cayman Islands at adequate frequencies given the level of decision making required;
(c) during a meeting of the board of directors described in paragraph (b), there is a quorum of directors present in the Cayman Islands;
(d) the minutes of the meetings of the board of directors described in paragraph (b) record the making of strategic decisions of the relevant entity at the meeting; and
(e) the minutes of all meetings of the board of directors and appropriate records of the relevant entity are kept in the Cayman Islands.
What constitutes an adequate number of meetings in the Cayman Islands will depend on the relevant activities of the Entity. However, it is generally expected that the majority of board meetings will be held in Cayman. It is also expected that even for companies with a minimal level of activity there will be at least one meeting of its board of directors per year.
Adequacy
"Adequate" means as much or as good as necessary for the relevant requirement or purpose. What is adequate for each Relevant Entity will depend on the particular facts of the entity and its business. Adequacy will be measured against the level of relevant income derived from the Relevant Activity.
A relevant entity carrying on high risk IP business is presumed not to meet the test, even if there are Cayman Islands CIGA relevant to the business and the IP assets being carried out in the Islands, unless the relevant entity can demonstrate that there was a high degree of control over the development, exploitation, maintenance, enhancement and protection of the intangible assets, exercised by an adequate number of full-time employees with the necessary qualifications that permanently reside and perform their activities within the Islands. There is a high evidentiary threshold.
Interpretation of Terms
The information provided above includes certain terms that are defined in the legislation or expanded upon in supplemental materials, and others that are legal terms of art that may not directly reflect their ordinary meaning. The correct interpretation of these terms is essential to ensuring that the analysis is accurate. For that reason, legal advice should be taken on the legislation and its application to your particular business.
Other Relevant Activities
It is not uncommon for an Entity to undertake more than one Relevant Activity. For example, an entity conducting intellectual property business may also be conducting distribution and service centre business
, financing and leasing business
or headquarters business
. Where an Entity conducts more than one Relevant Activity, the applicable economic substance test will have to be met in respect of each one.
Actions to Take
We recommend that you
click here
to book a call with one of our legal experts.
You should also be aware that our affiliated group of companies, Appleby Global Services (
AGS
) in Bermuda, Cayman, Jersey and Isle of Man, stands ready to assist with economic substance compliance matters. AGS offers registered office, director and fiduciary services, as well as assistance in meeting statutory requirements in respect of record keeping, reporting and filing. We are pleased to offer our clients both legal advice and corporate solutions to meet your needs in a single cost-effective and joined-up service.
Does the Entity carry on holding company business
, defined as "pure equity holding business", i.e. holding only equity participations in other entities and earning only dividends and capital gains?
Yes
No
Unsure
Your responses indicated that the Entity is a Relevant Entity carrying on pure equity holding company business. Such businesses are within the scope of the Economic Substance regime, but are subject to a reduced economic substance test which is satisfied if the Entity confirms that:
(a) it has complied with all applicable filing requirements under the Companies Law (as revised); and
(b) it has adequate human resources and adequate premises in the Islands for holding and managing equity participations in other entities.
A pure equity holding company maintaining a registered office in the Cayman Islands with a registered office service provider may be able to satisfy the reduced substance requirements where it is passively holding interests in other entities, depending on the level and complexity of activity required to operate its business. A pure equity holding company is not required to be directed and managed in the Cayman Islands. If the Entity is not passive, we strongly recommend that you contact us for bespoke advice. It may be that the standard economic substance test will apply to the Entity, or it may be that the Entity is not a pure equity holding company at all, and may therefore be out of scope of the economic substance requirements entirely.
Interpretation of Terms
The information provided above includes certain terms that are defined in the legislation or expanded upon in supplemental materials, and others that are legal terms of art that may not directly reflect their ordinary meaning. The correct interpretation of these terms is essential to ensuring that the analysis is accurate. For that reason, legal advice should be taken on the legislation and its application to your particular business.
Actions to Take
We recommend that you
click here
to book a call with one of our legal experts.
You should also be aware that our affiliated group of companies, Appleby Global Services (
AGS
) in Bermuda, Cayman, Jersey and Isle of Man, stands ready to assist with economic substance compliance matters. AGS offers registered office, director and fiduciary services, as well as assistance in meeting statutory requirements in respect of record keeping, reporting and filing. We are pleased to offer our clients both legal advice and corporate solutions to meet your needs in a single cost-effective and joined-up service.
Although the Entity is of a type that could be within the scope of the legislation, your responses indicate that the business does not carry on a Relevant Activity and on that basis compliance with the Economic Substance regime is not required. Please note, however, that this conclusion depends on your responses being accurate in all respects, which we have not been able to verify. We caution that the information provided above includes certain terms that are defined in the legislation or expanded upon in supplemental materials, and others that are legal terms of art that may not directly reflect their ordinary meaning. The correct interpretation of these terms is essential to ensuring that the analysis is accurate. For that reason, legal advice should be taken on the legislation and its application to your particular business.
Actions to Take
We recommend that you
click here
to book a call with one of our legal experts.
You should also be aware that our affiliated group of companies, Appleby Global Services (
AGS
) in Bermuda, Cayman, Jersey and Isle of Man, stands ready to assist with economic substance compliance matters. AGS offers registered office, director and fiduciary services, as well as assistance in meeting statutory requirements in respect of record keeping, reporting and filing. We are pleased to offer our clients both legal advice and corporate solutions to meet your needs in a single cost-effective and joined-up service.
You have selected "Unsure" for one or more answers in Section 3.
In order to determine whether the Entity carries out the relevant activity, it will be necessary for us to obtain full information on day-to-day business activities of the entity and consider the Entity's core income-generating activities.
Actions to Take
We recommend that you
click here
to book a call with one of our legal experts.
You should also be aware that our affiliated group of companies, Appleby Global Services (
AGS
) in Bermuda, Cayman, Jersey and Isle of Man, stands ready to assist with economic substance compliance matters. AGS offers registered office, director and fiduciary services, as well as assistance in meeting statutory requirements in respect of record keeping, reporting and filing. We are pleased to offer our clients both legal advice and corporate solutions to meet your needs in a single cost-effective and joined-up service.
Investment Fund
×
An
"investment fund"
is defined as 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 investors or operates (but not an entity that is itself the ultimate investment held), but does not include a person licensed under the Banks and Trust Companies Law or the Insurance Law, or a person registered under the Building Societies Law or the Friendly Societies Law.
Tax Residency
×
The Entity will be regarded as tax resident outside of the Cayman Islands if the entity is subject to corporate income tax on all of its relevant Cayman income by virtue of its tax residence, domicile or any other criteria of a similar nature in that other jurisdiction. In the event that the Entity is a "disregarded entity" for U.S. income tax purposes, and has a U.S. corporation as its parent, the Entity will be considered tax resident outside of the Cayman Islands if satisfactory evidence is provided.
Banking Business
×
Banking business is defined in s.2 of the Banks and Trust Companies Law (2018 Revision) as "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".
Group
×
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 securities exchange.
Managing Securities
×
Managing securities is defined in Paragraph 3 of Schedule 2 of the Securities and Investment Business Law (2019 Revision) as "managing securities belonging to another person in circumstances involving the exercise of discretion."
Insurance Business
×
Insurance business is defined in section 2 of the Insurance Law, 2010 (as amended) as "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."
Seafarers
×
The employment of seafarers solely to crew vessels owned by the ship-owner does not constitute functioning as a private seafarer recruitment and placement service.
Intellectual Property Assets
×
Intellectual property assets are defined as including copyrights, design rights, patents and trademarks.
Distribution and Service Centre Business
×
Distribution and service centre business means either or both of the following (a) purchasing from an entity in the same Group
1
(i) component parts or materials for goods; or (ii) goods ready for sale, and reselling such component parts, materials or goods outside the Islands; or (b) providing services to an entity in the same Group in connection with the business outside the Islands (but does not include any activity included in any other relevant activity except holding company business).
1
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 securities exchange.
Headquarters Business
×
Headquarters business is the business of providing any of the following services to an entity in the same Group
1
: (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 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).
1
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 securities exchange.
Financing and Leasing Business
×
Finance and leasing business is 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.
Intellectual Property Business
×
Intellectual property business is the business of holding, exploiting or receiving income from intellectual property assets
1
. Note that this term does not apply to a business which owns intellectual property merely as an adjunct to its business.
1
Intellectual property assets are defined as including copyrights, design rights, patents and trademarks.