The Cayman Islands (‘Cayman’) International Tax Co-operation (Economic Substance) Law, 2018 (‘Law’) and  International Tax Co-operation (Economic Substance) (Prescribed Dates) Regulations, 2018 (‘Regulations’) came into force on 1 January 2019. Official Guidance Notes are expected in early 2019 to set out how the new regime will work. Here we consider what steps Cayman entities should be taking to find out if the Law and Regulations apply to them and, if so, whether they carry out the core income generating activities defined in the Law for their business.

As expected, the Cayman Islands (‘Cayman’) International Tax Co-operation (Economic Substance) Law, 2018 (‘Law’) came into force on 1 January 2019. The Law was published in the Cayman Gazette on 27 December 2018 at the same time as the International Tax Co-operation (Economic Substance) (Prescribed Dates) Regulations, 2018 (‘Regulations’) which set the dates from which a relevant entity must satisfy the economic substance requirement in relation to a relevant activity. Guidelines are expected to be published early in 2019.
What is economic substance?
To meet the ‘Economic substance’ requirement, a Cayman company or other entity must be carrying out substantial business activity which is related to the line of business that the entity conducts in Cayman. For more information on the international standard to which this new legislation relates, please see our earlier pieces Cayman economic substance legislation expected to be in force by 1 January 2019 and Cayman Government Advisory on OECD Substantial activity requirements.
When do entities have to satisfy the economic substance requirement?
Under the Regulations, the date from which a relevant entity shall satisfy the economic substance test in relation to a relevant activity shall be either:

-    1st July 2019 for relevant entities in existence before 1 January 2019; or
-    Commencement of relevant activity for relevant entities which came into existence after 1 January 2019.

How is the requirement enforced?
Under the Regulations, a relevant entity that is carrying on a relevant activity and is required to satisfy the economic substance test shall prepare and submit a report (‘Report’) to the Tax Information Authority (‘TIA’) (or a person the TIA designates to act on its behalf). This report will enable the TIA to determine whether the entity satisfies the economic substance test. The report must be submitted no later than twelve months after the last day of the end of each financial year of the relevant entity commencing on or after 1 January, 2019.
What goes into the Report?
The Report must be in the form approved by the Authority and the requirements of what it needs to include are set out in the Law. Among other things, the Report must include information such as the type of relevant activity conducted by the relevant entity with details of matters such as the number of employees and their qualifications, the income and expenses of the relevant entity and a declaration that it satisfies the economic substance requirement under the Law. 
What should Cayman entities do now?
Whilst the legislation was still in the form of a Bill, the Cayman Financial services industry body, Cayman Finance, encouraged its members to familiarise themselves with the new rules and once it was passed into law recommended that they take Cayman legal advice on how the Law will affect them and their clients. 
Are these new rules?
The legislation relates to a global standard which also affects all of Cayman’s main competitor jurisdictions. The legislation allows Cayman to meet its obligations as a member of the Organisation for Economic Co-operation and Development (‘OECD’) Base Erosion and Profit Shifting (‘BEPS’) Inclusive Framework (‘Framework’) – the body which sets the global tax standard regarding structures that aim to attract profits in jurisdictions in which they do not conduct real economic activity. It also helps Cayman with respect to the EU List of Non-Cooperative Jurisdictions for Tax Purposes by enabling it to fulfil its commitment to the EU to have legislation in place by 31 December 2018.
Solomon Harris
Solomon Harris has many years’ experience in the preparation of all types of Cayman investment and advising on new investment vehicles. We are able to assess and advise on regulatory or legal issues which may affect those vehicles contact Solomon Harris Partner Richard Addlestone or Senior Associate Tom Wright.
Disclaimer
The information contained in this article is necessarily brief and general in nature and does not constitute legal advice. Appropriate legal or other professional advice should be sought for any specific matter.

The Stamp Duty (Amendment) Law, 2018 (‘Law’) came into effect on 19 December 2018 introducing Stamp Duty on ‘Linked Property Transactions’ from 31 December 2019. For more information on what constitutes a linked property transaction, please see our briefing entitled Welcome delay in change to Cayman Islands Stamp Duty law gives developers another year before Stamp Duty increase.

In a significant alteration to draft legislation, the Cayman Islands Stamp Duty (Amendment) Law 2018 (‘Law') allows developers with planning permission in place by 30 June 2019 to have a year to take advantage of the pre-existing regime for stamp duty on ‘linked property transactions’, provided they enter into their contracts before 31 December 2019.

UPDATE: For the current position on stamp duty and linked property transactions see our piece: What is the new stamp duty position on linked transactions?

The Cayman Islands (‘Cayman’) Legislative Assembly is scheduled to debate The International Tax Co-operation (Economic Substance) Bill (‘Bill’), 2018 in December 2018. The Bill proposes “a law to provide for an economic substance test to be satisfied by certain entities; and for incidental and connected purposes” and is expected to be passed into Law and ready to take effect by 1 January 2019. Guidelines are expected to be published early in 2019.
What is economic substance?
To meet the ‘Economic substance’ requirement, a Cayman company or other entity must be carrying out substantial business activity which is related to the line of business that the entity conducts in Cayman.

The Cayman Islands Monetary Authority (‘CIMA’) has published amendments (‘Amendments’) to its December 2017 Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands. The following is a brief overview of the principal changes.

Legal 500 has released its 2019 Caribbean Guide, and partners Laura Hatfield and Ian Jamieson have been named as leading individuals. Attorney, Rob Humphries, has been named as a next generation lawyer.

Solomon Harris merged with Bedell Cristin earlier in the year, and the firm has achieved rankings in five of the Cayman categories: Real Estate, Insurance/Reinsurance, Dispute Resolution, Corporate and Commercial and Investment Funds.

In time to help fund Anti-Money Laundering (‘AML’) Officers meet the 31 December 2018 deadline for regulated funds to notify the Cayman Islands Monetary Authority (‘CIMA’) of their appointment of AML Officers, CIMA has published answers to Frequently Asked Questions (‘FAQs’) on matters relating to forms (‘MLO-154-99’) which need to be completed on CIMA’s Regulatory Enhanced Electronic Forms Submission (‘REEFS’) Portal. The forms relate to all AML Officers which are: Money Laundering Reporting Officer (‘MLRO’), Deputy Money Laundering Reporting Officer (‘DMLRO’) and the Anti-Money Laundering Compliance Officer (‘AMLCO’).

The Cayman Islands Monetary Authority (‘CIMA’) has published its 2018 Edition of its Regulatory Handbook and its Appendices, as well as the latest editions of and amendments to guidance notes and Rules.

New Regulatory Handbook

Published in the Cayman Islands Gazette on 3 December 2018 is the new November 2018 edition of the Regulatory Handbook Volume 1 which replaces the August 2017 version.  The Regulatory Handbook – Appendices 1 replaces the February 2017 version.  CIMA’s Regulatory Handbook sets out the policies and procedures CIMA, its committees and officers must follow in performing CIMA’s regulatory and co-operative function and gives specific information on matters such as CIMA’s approach to supervision, supervisory returns and AML procedures. 

At a business briefing on 14 November 2018, representatives of the Cayman Islands Government (‘CIG’) stated that the Cayman Islands (‘Cayman’) Data Protection Law 2018 would not come in to force in January 2019, as previously advised, but would be delayed until September 2019. This is confirmed on the Cayman Ombudsman website.

The Cayman Islands (‘Cayman’) Government (‘CIG’) has issued an Industry Advisory that the Organisation for Economic Co-operation and Development (‘OECD’) has confirmed that it had extended the ‘substantial activities’ requirement to ‘no or only nominal tax’ jurisdictions in its Base Erosion and Profit Shifting (‘BEPS’) Inclusive Framework (‘Framework’). The move is to prevent business activity avoiding the Substantial Activities Requirements which apply to all preferential regimes for geographically mobile income by relocating to a zero-tax jurisdiction. (Consult the new global standard on substantial activities in no or only nominal tax jurisdictions at www.oecd.org/tax/beps/resumption-of-application-of-substantial-activities-factors.pdf .)

The Cayman Islands Government has good news for those Caymanians looking to buy their first homes in the Cayman Islands. The changes to stamp duty in The Stamp Duty (Amendment) Bill 2018 (‘Bill’) propose significant increases in the thresholds for stamp duty concessions to help ease the financial burden on first-time Caymanian property buyers.

If the Bill is passed without amendment, Caymanians will be able to take advantage of these new concessions from 1 January 2019. 

UPDATE: When the Bill became The Stamp Duty (Amendment) Law, 2018, there was a significant alteration in wording which allows developers with planning permission in place by 30 June 2019 to have a year to take advantage of the pre-existing regime for stamp duty on ‘linked property transactions’, provided they enter into their contracts before 31 December 2019. For more information, please see our piece Welcome delay in change to Cayman Islands Stamp Duty law gives developers another year before Stamp Duty increase. For the current position on stamp duty and linked property transactions see our piece: What is the new stamp duty position on linked transactions?

Those looking to benefit from the favourable stamp duty treatment facilitated by developers who offer property in the Cayman Islands as part of a land purchase and development contract package will need to act quickly if they want to beat the changes proposed in The Stamp Duty (Amendment) Bill 2018 (‘Bill’). To take advantage of the current arrangements you will need to enter into these contracts by no later than 31 December 2018. Developers who have previously sought to utilise the current law as part of their offering to potential buyers will also need to take note of the proposed changes.

UPDATE: When the Bill became The Stamp Duty (Amendment) Law, 2018, there was a significant alteration in wording which allows developers with planning permission in place by 30 June 2019 to have a year to take advantage of the pre-existing regime for stamp duty on ‘linked property transactions’, provided they enter into their contracts before 31 December 2019. For more information, including what constitutes a linked property transaction, please see our piece Welcome delay in change to Cayman Islands Stamp Duty law gives developers another year before Stamp Duty increase. For the current position on stamp duty and linked property transactions see our piece: What is the new stamp duty position on linked transactions?

The Cayman Islands (‘Cayman’) Government has published in the Cayman Gazette eighteen new bills with proposals for new legislative measures. Some are to address criminal measures such as stalking and gambling, others such as those on Stamp Duty will be of general interest and there are five proposals which affect regulation of non-profits, banking groups, disclosure of beneficial ownership information and its exchange with other jurisdictions for limited liability partnerships. We will cover several of these new Bills in detail in later pieces, but for the moment these are the proposed changes in summary.

On 19 October the Financial Action Task Force (‘FATF’) published its revised Recommendations for international standards on combating money laundering and the financing of terrorism and proliferation. The revision amends FATF's Recommendation on New Technologies (Regulation 15) and adds two new definitions to the Glossary: ‘Virtual Assets’ and ‘Virtual Asset Service Provider’. FATF’s definition of 'Virtual Assets' in the standard covers virtual currencies, but also extends to cover the fact that anything can be tokenized as an asset and transferred on a blockchain or other digital peer to peer format. The standard also covers virtual asset service providers, i.e. a crypto currency exchange.

At the beginning of October 2018 the European Securities Management Authority (‘ESMA’) published several new Question and Answer (‘Q&A’) documents which will be of interest to those in the funds industry.

The Cayman Islands Court of Appeal (‘CICA’) has allowed a Cayman Islands (‘Cayman’) mutual fund to bring claims in the New York courts for gross negligence and fraud against three entities (‘the Affiliates’) affiliated with Argyle’s Cayman auditors (‘BDO’). This was despite express contractual terms of engagement of BDO restricting dispute resolution to mediation or arbitration and a clause giving Cayman courts exclusive jurisdiction.

The Cayman Islands Monetary Authority (‘CIMA’) has published a new Regulatory Policy - Licensing Mutual Fund Administrators (‘the Policy’) which sets out the criteria CIMA will apply in licensing mutual fund administrators.
When does the Policy apply?
The Policy states that CIMA must give prior approval to anyone wanting to conduct Mutual Fund Administration (‘MFA’) in or from within the Cayman Islands (‘Cayman’). The Policy sets out how CIMA will assess those who apply to do so, although it will also apply: the Mutual Fund Administrators Licence (Applications) Regulations 2001 (the ‘Regulations’); the Anti-Money Laundering Regulations (2017 Revision) (‘AML Regulations’); the Guidance Notes on the Prevention and Detection of Money Laundering and Terrorist Financing in the Cayman Islands (the ‘AML Guidance Notes’); and any other law, policy or statement of guidance which is relevant to the application.

Before the new Cayman Islands (‘Cayman’) Beneficial Ownership Register (‘BOR’) went live, the Cayman Islands Government (‘CIG’) completed a security enhancement and had the air-gapped platform independently evaluated to check for any deficiencies. The result was circulated in an Industry Advisory dated 9 October 2018, confirming that the non-public beneficial ownership platform (‘BOP’) was assessed as secure, with no deficiencies in the air-gapped system.

In a notification dated 24 September 2018 the Cayman Islands Monetary Authority (‘CIMA’) has extended the deadline set for regulated funds to notify it of the appointment of Anti-Money Laundering Officers (‘AML Officers’) from 30 September 2018 to 31 December 2018. This extension applies to the notification requirement only and regulated funds must still appoint their AML Officers by 30 September 2018.

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