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07 Mar 2019

New era for the offshore jurisdictions: Introduction of substance requirements

Preamble

Several offshore jurisdictions like the British Virgin Islands, Bermuda, the Cayman Islands, Guernsey, Jersey, the Isle of Man, Seychelles and Mauritius have enacted new legislation introducing a number of requirements on adequate business substance for companies incorporated in these jurisdictions.

In line with the requirement of the EU Code of Conduct Groups, these changes are expected to make it difficult to hold money and/or assets through companies in these jurisdictions without proven adequate business operations. The implementation of the new legislations remains unclear for the moment and we expect that official guidelines will be issued in the coming months that would provide some certainty.

Considering the above, the purpose of this e-report is to inform you about the fundamentals of these new requirements rather than providing concrete guidance. Our aim is that you are kept duly informed and up to date with new developments by providing more such briefing by Athos Demetriou Associates LLC as more information becomes available.

Adequate substance

Briefly cited below, the adequate business operations requirements introduced for the legal entities affected by the new changes concern the following three areas:

  1. Employment of qualified personnel. Companies should employ people with adequate background in the area of their business operations.
    2. Physical presence/equipped office. The physical presence, in terms of office space, equipment, and/or other features must be in line with the companies’ business operations.
    3. Running costs. Companies must provide evidence of proper and reasonable costs incurred whilst supporting business operations.

Companies failing to satisfy the economic substance tests for a given financial year, and/or officers (directors, managers, secretary, or other officer) of a body corporate incorporated under these laws, are subject to heavy penalties.

Affected jurisdictions

In total, nine offshore jurisdictions have already adopted the aforementioned requirements in their respective national legislation, namely, Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Jersey, the Isle of Man, Mauritius, Bahamas, and Seychelles. More low tax jurisdictions, such as the UAE, are expected to “jump on the bandwagon” and introduce similar legislations.

For your reference, the table below links you with the specific legislations of each of the nine countries that have already adopted it:

JurisdictionEffective dateLink to the draft legislationBermudaJanuary 1, 2019www.gov.bmBritish Virgin Islands (BVI)January 1, 2019eservices.gov.vgCayman IslandsJanuary 1, 2019cnslibrary.comGuernseyJanuary 1, 2019www.gov.ggJerseyJanuary 1, 2019statesassembly.gov.jeIsle of ManJanuary 1, 2019www.gov.im
www.gov.im / pdfMauritiusJanuary 1, 2019mitco.muBahamasJanuary 1, 2019bfsb-bahamas.comSeychellesJanuary 1, 2019www.fsaseychelles.sc

How we can help

The above e-report is intended to provide a summary of these changes and to provide ample time to offshore companies affected by them to consider possible options which are best suited to them.

We will be happy to assist you and respond to your queries with regard to the above. We shall keep you updated as things develop.

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