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The Ministry of Financial Services division of the Cayman Islands government has on 29 June 2021 announced that following Cabinet approvals regulations will extend the economic substance regime to partnerships.
The Ministry of Financial Services division of the Cayman Islands government has on 29 June 2021 announced that following Cabinet approval, the International Tax Co-operation (Economic Substance) (Amendment of Schedule) Regulations, 2021 and the International Tax Co-operation (Economic Substance) (Prescribed Dates) (Amendment) Regulations, 2021 are now published and will take effect on 30 June 2021.
The International Tax Co-operation (Economic Substance) (Amendment of Schedule) Regulations, 2021 expand the economic substance regime by bringing in scope general partnerships, limited partnerships, exempted limited partnerships and foreign limited partnerships.
As a result, as of 30 June 2021 all types of partnerships will be legally required to notify the Tax Information Authority (the “TIA”) of their operations in the jurisdiction.
If a partnership is conducting relevant economic substance activity, it will also need to submit an annual return. While investment funds, local partnerships (such as businesses that fall under the Trade and Business Licensing Act) and partnerships verified by TIA as tax resident outside of Cayman will be required to notify with TIA, they will not be required to file an annual return.
The International Tax Co-operation (Economic Substance) (Prescribed Dates) (Amendment) Regulations, 2021 specifies that partnerships formed on and after 1 July 2021 are obligated to meet economic substance requirements from the date on which they commence the relevant activity. Partnerships formed prior to 1 July 2021 must satisfy the economic substance test from 1 January 2022.
Both regulations support the legislative framework for economic substance, which came into effect in January 2019. The new regulations are part of Cayman's response to the EU's tax good governance initiative, specifically its November 2020 request to all 2.2 jurisdictions to extend economic substance requirements to all partnerships by 30 June 2021.
In conjunction with the regulations, the Tax Information Authority will issue an appendix to the economic substance guidance.
Please contact Chris Humphries or Jon McLean should you have any questions regarding your partnership.
Please read our Economic Substance Guidance Note.