Legislation in the Cayman Islands provides economic substance requirements for certain Cayman-based entities (including certain foreign companies registered under the Cayman Companies Law (2018)) that are engaged in certain “relevant activities.”
The economic substance requirements apply if the subject entity:
Cayman-based “relevant entities” include Cayman companies, limited liability companies (LLCs), and limited liability partnerships (LLPs) and certain foreign companies registered under the Cayman Companies Law (2018). Limited partnerships and investment funds and Cayman entities that are not centrally managed and controlled from Cayman and that are tax resident outside of Cayman are not considered to be relevant entities and are not included in the scope of the legislation. Entities with tax residency outside of the Cayman territory must provide certain supporting documentation (e.g., a tax residency certificate or letter from foreign tax authority) as evidence.
“Relevant activities” of subject entities include:
Again, the definition of relevant activities does not include an investment fund business.
A failure to comply with the economic substance requirements can be subject to penalties ($10,000 in year one, and $100,000 in year two) and to a possible “strike off” of the Cayman entity for continued failures.
Read a February 2019 report [PDF 105 KB] prepared by the KPMG member firm in the Cayman Islands
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.