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.

NOTE - Definitions used in this piece have been updated. For more information please refer to links in our piece Cayman issues Industry Advisory on Economic Substance Regulations and Guidance v2.0.

Are these rules just for Cayman?
No. The legislation is being introduced so Cayman can meet its obligations as one of the 123 jurisdictions who are members of the Organisation for Economic Co-operation and Development (‘OECD’) Base Erosion and Profit Shifting (‘BEPS’) Inclusive Framework (‘Framework’). Cayman has been a member of the Inclusive Framework since 2017.
What is the Inclusive Framework?
The Inclusive Framework sets the global tax standard regarding structures that aim to attract profits in jurisdictions in which they do not conduct real economic activity. For more information see our earlier piece Cayman Government Advisory on OECD Substantial activity requirements .
Will this affect other jurisdictions?
Yes, as this is a global standard. 
How does this help Cayman with respect to the EU List of Non-Cooperative Jurisdictions for Tax Purposes?
This proposed legislation will help Cayman fulfil its commitment to the EU to have legislation in place by 31 December 2018.
What should we do now?
The Cayman Financial services industry body, Cayman Finance, is encouraging members to familiarise themselves with the Bill and to take Cayman legal advice on what the new law means for them and their clients once the Law has been passed and the Guidelines published on how the Law will operate in practice. They say: “We anticipate that our sophisticated clients will adapt as required and take this in their stride. It is worth noting that all of Cayman’s main competitor jurisdictions are in a similar position as BEPS Inclusive Framework members.”
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.
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.


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