Economic Substance (ES)

Date：2020/08/27

BVI, Cayman introduced ES regulations that requiring certain legal entities which carry on ‘relevant activities’ to demonstrate that they have adequate economic substance in that jurisdiction. Any company (or limited partnership with separate legal identity) that is registered or incorporated in that jurisdiction should be aware of this legislation and consider whether it is affected.

 

The relevant activities are:

• Banking business

• Insurance business

• Shipping business

• Fund management business

• Finance and leasing business

• Headquarters’ business

• Pure holding business (pure equity holding)

• Intellectual property business

• Distribution and service centre business

 

A holding company with other form of investment (eg bonds, Treasure Bill) will take the entity outside the definition of “Holding Business”.

Entities which are subject to the economic substance requirements (other than pure equity holding entities) must manage and direct the relevant activity and conduct core income-generating activity. They must also, taking into account the nature and scale of the relevant activity, show that they have an adequate level of employees and expenditure in that jurisdiction and appropriate physical offices or premises for the core income generating activity. It should be noted that outsourcing of the income generating activity is permitted in certain circumstances.

 

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