Economic Substance in the Marshall Islands

The Marshall Islands, following the lead of other offshore jurisdictions such as Bermuda, the British Virgin Islands and the Cayman Islands, has introduced an economic substance regime effective 1 January 2019 in response to the work of the OECD and the European Union on fair taxation. The legislation has since been twice amended and supplemented by guidelines which were last updated in January 2020.

The guidelines provide some clarity to the international business community in interpreting the regulations, especially for shipping and pure holding companies, with further clarification provided on the launch of the reporting portal on 1 July 2020.  We have provided an updated overview.

Economic Substance Requirements in the BVI

The Economic Substance (Companies and Limited Partnerships) Act, 2018 came into force on 1 January 2019 requiring British Virgin Islands companies and limited partnerships that are tax resident and carrying out ‘Relevant Activities’ to demonstrate economic substance. The new legislation, which applies to existing and new BVI entities, was introduced to address the concerns of the EU Code of Conduct Group and the OECD Forum on Harmful Tax Practices regarding economic substance.

This summary replaces our original release of 11 January 2019 and updates from 31 May 2019 and 16 July 2019 (respectively) to provide a consolidated overview of the key aspects of the legislation and guidance.

Economic Substance Legislation in the British Virgin Islands

BVI ITA issues final Economic Substance Rules – The ITA has now published the final version of the Code which has been renamed Rules (and Explanatory Notes) on Economic Substance (the Rules). The content of the Rules is broadly the same as the draft Code, but it includes a number of amendments following feedback to the BVI Government from industry stakeholders and the EU Code of Conduct Group. The amendments also take into account legislative updates to the Beneficial Ownership Secure Search System Act, 2017 (the BOSS Act) which were made to enable use of the BOSS system to accept the economic substance filings by the registered agents.

Economic Substance – an overview and comparison summary of requirements

In response to increasing pressure from the EU and the OECD, and to avoid being placed on the EU Council’s list of non-cooperative jurisdictions for tax purposes, each of Bermuda, BVI and Cayman have introduced economic substance legislation (ES Legislation) effective 1 January 2019 to satisfy such requirements.

The ES Legislation varies slightly by jurisdiction based on differences between each jurisdiction’s economies, legal framework and understanding and interpretation of the EU and OECD’s expectations. Marbury has prepared a brief comparison and overview relating to the similarities and differences in respect of each of Bermuda, BVI and Cayman Islands for your reference.

Economic Substance Requirements in the Cayman Islands

This summary replaces our previous releases of 21 December 2018 and 11 March 2019 and provides an updated overview of the key aspects of the legislation by outlining steps to identify which Cayman entities are in scope and how to achieve compliance.