We are pleased to share that the OECD Forum on Harmful Tax Practices (FHTP) has reviewed and deemed the tax practices of 12 no or only nominal tax regimes, including the British Virgin Islands (BVI) and the Cayman Islands, to be “not harmful”, and that their respective domestic legal frameworks meet all aspects of economic substance requirements.
Several other jurisdictions have also been granted “not harmful” status in acknowledgement of their efforts to address concerns around Base Erosion Profit Shifting (BEPS) and implement substance legislation, which include Anguilla, Bahamas, Bahrain, Barbados, Bermuda, Guernsey, Isle of Man, Jersey, Turks and Caicos Islands, with the United Arab Emirates in process of amending “one outstanding technical point”.
This is no doubt a positive sign of progress for popular offshore jurisdictions, which have since the European Union’s (EU) introduction of the legislation in late 2018 respectively implemented their own guidance and codes to comply with substance requirements. This state of development should instil further confidence in companies with offshore incorporations, as international bodies such as the OECD and the EU continue to monitor and affirm the regulatory good standing and suitability for conducting business of low or zero-tax regimes like the BVI and Cayman Islands.
Following the passing of landmark dates 30 June 2019 and 1 July 2019 as stipulated in legislation such as the BVI’s Economic Substance (Companies and Limited Partnerships) Act, 2018, as well as the Cayman Islands’ International Tax Co-operation (Economic Substance) Law, 2018 and Economic Substance Guidance V2.0, it is now mandatory for all in-scope entities to demonstrate substance compliance as soon as possible. Given that failure to do so could imply hefty penalties, the possibility of being struck off from company registries, and even imprisonment in extreme cases, it is strongly advised that companies gain a clear understanding of where they stand in relation to the legislation by classifying their status, before they proceed to carry out any next steps where necessary.
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