The Cayman Islands government has long been under attack from OECD countries, especially the United States, to change the tax policy for foreign companies and adapt to the new standards the organization is trying to set.
According to the new requirements, which have been largely dictated by the EU, companies with low or zero tax jurisdictions engaged in “key activities” (according to the EU definition) must show that they meet minimum requirements as part of the tax refund Their annual, in order to benefit from the jurisdictional tax regime in which they are located, certain business sectors characterized by over-mobility will require that core business generating income for the company be performed by highly skilled employees and it can be proven that the business has operating expenses in the jurisdiction.
The “key activities” identified by the EU group are: banking, insurance, fund management, financing and leasing, forwarding, intellectual property, collective investment vehicles and holding companies that generate income from each of these key activities.
Variable requirements for each “key activity” are intended to be fair and proportionate, while ensuring that there are sufficient activities in the relevant jurisdiction to reflect the amount of profits generated there. The new requirements could illustrate whether the company is managed from the relevant territory, whether the company has an adequate number of employees, whether the company has physical offices in the state, or whether the annual expenses correspond to its operations in the country.
Notice of the new rules will be sent to all Cayman companies and will be done through the country’s general registration system. The government expects the notification form to be available online in the fourth quarter of 2019. The notification process will be explained publicly to the directory, which will be published on the International Tax Department’s website during September 2019.
According to Cayman Laws, if a Cayman company carries out relevant business activities and is not resident in other tax jurisdictions, it must prove “economic substance” in the islands to benefit from the Cayman Islands tax regime.
The administration will establish a new tax reporting portal for the companies in the island, and will provide accurate guidance in the first quarter of 2020. The first step in filing tax reports will be to confirm information through the portal, which will be partially filled thanks to the notification form the company previously submitted. The portal will open for submission of reports in July or August 2020.
Companies must file tax reports within 12 months of the end of the fiscal year.