Specialty Services

Economic Substance

Vistra's Economic Substance Services & Solutions

In order to address alleged concerns of entities generating too much profit and too little substance in low or zero-rate tax jurisdictions, the European Union (EU) has sought to introduce economic substance requirements.

As a result, many international finance centres have introduced substance legislation. This includes all the traditional offshore jurisdictions, including the British Virgin Islands (BVI), the Cayman Islands and other strategically important locations.

Most of the jurisdictions that had made commitments to the EU to introduce substance requirements successfully passed legislation before the 2018 year-end deadline, in addition to providing guidance around the application of the legislation. In March 2019 and with a subsequent review in May, the EU published an updated list, moving those jurisdictions who had reached the requisite standard off the list, or onto a Greylist or the Blacklist depending upon their respective progress. As a result, a majority of jurisdictions have since been adapting their local substance legislations and providing additional guidance on economic substance requirements.


Who is affected?

In addition to the BVI and Cayman, several other jurisdictions that will be affected by the EU substance legislation include Anguilla, Bahamas, Bermuda, and the Crown Dependencies of Jersey and Guernsey. Failure to comply with substance requirements could lead to grave consequences, such as incurring significant fines or being struck off by local registries.


What constitutes “Substance”?

In the context of the EU Economic Substance legislation, “substance” is a broad term that encompasses various areas of a business, including management, control, operations, physical presence and decision-making procedures. It is thus crucial for entities incorporated in relevant jurisdictions to assess whether they are carrying out ‘Relevant Activities’ as prescribed and whether there is a need to demonstrate “substance”. Equally important is for directors of such entities to demonstrate that they have shown regard towards the legislation by resolving that their company is either in or out of scope and, if in scope, that they have or are taking steps to comply with the new legislation.

Ultimately, it is important to gain clarity and assurance of compliance, without which a damaged reputation, financial penalties and other sanctions could result. To do so, however, can be a complex process that is open to various interpretations.


Which are Relevant Activities?
Banking business
Insurance business
Fund management business
Finance and leasing business
Headquarters business
Shipping business
Holding business
Intellectual property business
Distribution and service centre business
How can Vistra help you?

To help you navigate the EU substance requirements in the BVI, Cayman Islands and other jurisdictions, Vistra offers a comprehensive range of options – from a classification check to a full review, as well as advisory services on registering your status with the regulator.

Classification

Our classification tool will help you determine the classification of your BVI and/or Cayman company as it applies to the substance legislation. This includes a report and director resolution.

Full Review

Vistra will guide you through step-by-step to determine the classification, provide you with the relevant directors resolution and, if needed, help you lodge your status with the regulator.

Portfolio Review

Through its legal practice, Vistra can provide bespoke legal opinions, through qualified BVI, Cayman and other offshore lawyers, for single entities or structures, which include relevant entities and assess the classification.

In-Scope Advisory Services

Through Vistra’s in-house technical experts and network panel of tax experts, a review of portfolio structure and provision of alternative options from in-jurisdiction substance to alternative structuring options.

Substance Solutions

Vistra's BVI and Cayman offices can provide jurisdictional solutions, including provision of fiduciary directors, office space, employees and such other outsourced solutions.

BVI, Cayman Islands and other jurisdictions are open for business!

The BVI, Cayman Islands and other similar jurisdictions remain attractive centres for incorporations and structuring, as they continue to offer legal certainty, tax neutrality and a stable and competitive business environment. In fact, many of the structures established in these jurisdictions will not need to establish substance, and can continue to conduct business with little impact to their operations. It is important to understand that all structures will need to be assessed on their own merits. That said, the BVI and Cayman remain open for business, and entities that can demonstrate due compliance with and regard for substance legislation will be the ones to win in the long term.

 

Contact us

For more information on how Vistra can help your business come into compliance with EU Economic Substance requirements, please contact your Account Manager or the relevant personal listed below:

Contact us

Location

Contact name

Phone number

BVI Rexella Hodge +1 284 852 2550
Cayman Islands Jeffrey Goddard +1 345 769 9381
China Reyna Hu +86 21 2090 0598 Ext. 6602
Cyprus Alexis Alexandrou +357 25 272703
Guernsey Julian Carey +44 1481 754 123
Hong Kong Effy Yeung & Jessica Far +852 2848 0323
& +852 2848 0321
Indonesia Miguel Latorre +62 21 5099 6400
Jersey Steve Rowland +44 1534 504707
Legal Services Debbie Farman & Debbie Wilmot +44 117 918 1221
& +1 284 852 3813
Malaysia Olivier Too +603 2092 9458
Malta Marco Bugelli +356 22 586 423
Mauritius Shahed Hoolash +230 260 7072
Seychelles Neil Puresh +248 4325 600
Singapore Chin Wai Hun +65 6854 8035
Switzerland Klara von Rotz & Ingrida Gereiko +41 44 296 68 32
Taiwan Nadine Feng +886 2 2718 1220
UAE Rajiv Kumar Singh +971 4 351 8330
United Kingdom Victor Hjalt +44 20 3872 7387

DOWNLOADS

EU Economic Substance Solutions