Cayman Economic Substance Has Arrived: Steps In‑Scope Fund Managers Must Take to Respond

The International Tax Co‑operation (Economic Substance) Law, 2018 (ES Law) came into force in the Cayman Islands at the start of 2019. The ES Law requires certain types of Cayman entities that are engaged in specified activities – including “fund management business” – to meet requirements for “economic substance” in the Cayman Islands. The satisfaction of the economic substance requirements will be a question of fact, and there will not be a one-size-fits-all approach. Whether the requirements are satisfied will depend on the size and nature of the business, both in the Cayman Islands and in other locations, in addition to expected gross income in the Cayman Islands. In a guest article, Appleby partners David Lee and Christian Victory explore the ES Law, the relevant requirements and the steps that managers should take now to ensure compliance with the ES Law. For additional commentary from Lee and Victory, see “How Funds Formed in the Cayman Islands Can Mitigate Legal Risk by Aligning Their Constitutional Documents and Operations” (Oct. 11, 2018). For coverage of other Cayman-related issues, see “Recent Cayman Grand Court Decision Signals That Fund Managers Should Review Indemnification Provisions in Governing Documents” (Apr. 11, 2019); and “Investors in Cayman Funds Have Limited Access to Fund Documents, Records and Information Under Cayman Law” (Dec. 20, 2018).

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