Economic Substance – Cayman Islands
David Charles Lloyd



The Cayman Islands have made a commitment to address the concerns of the EU Code of Conduct Group around economic substance and to introduce appropriate legislation addressing this issue before the end of 2018.

What will the legislation look like?

Whilst the Cayman Islands draft legislation is in an advanced state to implement new economic substance requirements and reporting and have been in close discussions with the EU working group, it is not yet publicly available.  We do understand that the legislation will follow the approach which has been taken jointly by the Crown Dependencies of Jersey, Guernsey and the Isle of Man.

The proposals will require companies tax resident in the Cayman Islands, and undertaking certain categories of geographically mobile financial and other service activities, to demonstrate that they have sufficient substance in the Cayman Islands. The substance requirements apply to the following "relevant activities" (being those categories identified by the OECD's Forum on Harmful Tax Practices):

·       Banking;
·       Insurance;
·       Shipping;
·       Fund Management 
·       Financing & leasing;
·       Headquarters;
·       Distribution and service centres;
·       Holding Company (a pure equity holding company); and
·       Intellectual Property (for which there are specific requirements in high-risk scenarios).

How will Substance be demonstrated?

(i)           Being directed and managed – a great deal of focus will be on where the board of directors are located, where meetings take place and the general management of the company. 
(ii)          conducting Core Income Generating Activities ("CIGA"); and
(iii)        there being adequate people, premises and expenditure.

Companies need to consider the structure of their businesses in light of the substance requirements. 

The legislation resists prescribed staffing numbers or premise requirements in favour of a concept of adequacy, adaptable to the particular facts of each company and its activities. The legislation also permits outsourcing provided that adequate supervision is demonstrable and providing that where required to meet the substance requirements the outsourced activity still occurs on-island.

What is the time-frame?

We expect that the draft legislation will be made public in the Cayman Islands in the next couple of weeks. 

David Charles Lloyd


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