The European Union has confirmed that the British Virgin Islands and Cayman Islands have not been included on the EU’s updated list of non-cooperative jurisdictions for tax purposes (known as the EU blacklist), which was published on 12 March 2019. The EU’s decision confirms that both jurisdictions have implemented tax good governance principles which address the EU’s earlier concerns on the economic substance of certain entities in low (or like the BVI and Cayman Islands no) tax jurisdictions.
Both the BVI and Cayman Islands introduced legislation with effect from 1 January 2019 which requires certain legal entities carrying on specific relevant activities to demonstrate adequate economic substance in the jurisdiction. The legislation in each jurisdiction follows closely the approach taken to address the same issue by the Crown Dependencies of the UK (Jersey, Guernsey and the Isle of Man) and the other UK Overseas Territories.
Our earlier updates summarise which relevant entities now have to demonstrate economic substance in each of the BVI and Cayman Islands and the reporting obligations that apply. Further detailed guidance notes are expected to be issued in the BVI in the coming weeks, with sector specific guidance anticipated in the Cayman Islands expanding on the existing guidance notes. Details of the jurisdictions now included on the EU’s blacklist of non-cooperative jurisdictions, grey list pending further guidance from the EU and white list are also available here.
There will also be further cooperation between the EU and BVI/Cayman Islands during 2019 to define acceptable economic substance requirements and further technical guidance for collective investment funds in those jurisdictions. We anticipate that these discussions will take into account that the global standard on economic substance for relevant financial and corporate entities issued by the OECD does not include collective investment funds.
Harneys has worked closely with the BVI government on the BVI’s economic substance legislation and we are regularly advising clients to help them understand the impact (if any) of the economic substance requirements in the BVI and Cayman Islands and the measures that entities need to take to ensure compliance. We believe that, for many entities, the impact will be minimal and compliance will be straightforward. Please contact your usual Harneys contact or any of Ross Munro, Phil Graham, Amy Roost or Josh Mangeot with any questions on compliance with the BVI’s laws, or Matt Taber or Jonathan Bernstein with any questions on compliance with Cayman Islands laws.