2 minute read 16 Apr 2019
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Economic substance: How to navigate regulatory change

By

EY Americas

Multidisciplinary professional services organization

2 minute read 16 Apr 2019

The European Union (EU) released a scoping paper in June 2018 to highlight how economic substance matters may impact several jurisdictions.

What is economic substance?

The local finance ministries of Bermuda, British Virgin Islands and Cayman Islands enacted economic substance legislation under the Organization for Economic Co-operation and Development (OECD) Action 5, effective 1 January 2019.

Per this draft legislation, entities incorporated in these islands are potentially within the scope of the rules if they carry on certain activities, generally described as “relevant activities.” These include banking, insurance and fund management, as well as holding companies, financing and leasing, distribution and service centers, shipping, headquarter companies and intellectual property businesses. Whether the rules apply will depend on whether the activities fall within these industries and “relevant activities.”

Existing and registered entities within each territory with “relevant activities” will be required to make an economic substance declaration to their local registrar in the context of their core income-generating activities taking place on each island.

What’s next?

 Key considerations around current structures and local presence include:

  • What “relevant activities” are in scope for the structure?
  • Which aspects of “Relevant activities” are core income-generating activities?
  • Are the day-to-day operations taking place within each island?
  • To what extent can these activities be outsourced?
  • Does the business meet the “economic substance test”?

Summary

Learn how to navigate the regulatory changes resulting from economic substance legislation, as well as key considerations around current structures and local presence.

 Access the full report to learn more about economic substance.

About this article

By

EY Americas

Multidisciplinary professional services organization