The Deadline for filing the first Economic Substance Law Annual Report for Cayman companies is 31 December 2020

Relevant activities are Insurance Business, Fund Management Business, Finance and Leas-ing Business, Headquarters Business, Shipping Business, Banking Business, Intellectual Property Business, Holding Company Business, and Distribution and Service Centre Business and each relevant entity is required to satisfy the ES Test by preparing and submitting to the Cayman Tax Information Authority (“TIA”) an annual report containing prescribed information for the purpose of the TIA’s determination of whether the ES Test has been satisfied in relation to that relevant activity. The TIA will make the assessment as to whether the ES Test has been satisfied within twelve (12) months after the last day of the end of each financial year commencing on or after 1 January 2019 based on the evidence provided by the relevant entity.

A relevant entity with a financial year of 1 January 2019 to 31 December 2019 will be required to submit its first annual report to the TIA on or before 31 December 2020. 

In determining whether or not a relevant entity satisfies the ES Test for any financial year with re-spect to its relevant activities, the TIA will take a “principles-based approach”. If the TIA determines that a relevant entity has failed to satisfy the ES Test for a financial year it shall issue a notice to the relevant entity notifying the relevant entity of such determination, giving the reasons, directing any action to be taken to satisfy the ES Test and advising of the relevant entity’s right to appeal.

The TIA will impose a penalty of US$12,500 on a relevant entity for failing to satisfy the ES Test or US$125,000 if it is not satisfied in the subsequent financial year after the initial notice of failure. Following failure after two consecutive years the Cayman Islands Grand Court may make an order requiring the relevant entity to take specified action to satisfy the ES Test or an order that the relevant entity is defunct or to be struck off.

We have a dedicated team of lawyers that can offer in-depth legal analysis, advice and guidance on all aspects of the ES Law regime including reporting to the TIA before 31 December 2020 and look forward to advising you as the 31 December 2020 deadline approaches.

For specific advice on the Economic Substance Law regime and compliance, please contact your usual Loeb Smith attorney or any of:

E: gary.smith@loebsmith.com
E: elizabeth.kenny@loebsmith.com
E: vivian.huang@loebsmith.com
E: santiago.carvajal@loebsmith.com

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