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The Cayman Islands economic substance regime extended to partnerships

08 Oct 2021

All types of Cayman Islands partnerships are now being transitioned to within scope of the Cayman Islands economic substance regime.

For those partnerships formed before 30 June 2021, there is a six month transitional period, and they need to comply from 1 January 2022. Partnerships formed on or after 30 June 2021 must comply with the economic substance regime as soon as they commence conducting a relevant activity.

What will my partnership need to do?

You must determine if your partnership is conducting a relevant activity. Please see our guide to economic substance for details of the relevant activities and economic substance tests. If you require any assistance to make this determination please contact your usual Harneys representative.

On an annual basis, your partnership will need to file an economic substance notification. The economic substance notification must include the following information:

  • Whether or not the partnership is carrying out a relevant activity
  • Whether or not the partnership is a relevant entity, and if so
  • The financial year end of the partnership and the person responsible for making subsequent filings to the Tax Information Authority

The timing for the first filing depends on the formation date of your partnership.

When will my partnership need to make its first economic substance notification filing?

If your partnership was formed on or after 30 June 2021 you will be required to file an economic substance notification with the Registrar in January 2022 prior to being able to pay the annual fees and be in good standing. This filing will be required in each January thereafter.

If your partnership was formed before 30 June 2021 you will be required to file the first economic substance notification with the Registrar in January 2023, then each January thereafter.

My partnership is a fund, do the new rules apply to it?

A partnership that is registered with CIMA (either as a mutual fund or a private fund) is not required to adhere to any economic substance test, however it must still file an economic substance notification in January of each year.

My partnership is tax resident outside of the Cayman Islands, do the new rules apply to it?

A partnership that is tax resident outside of the Cayman Islands is also not required to adhere to any economic substance test but they must provide evidence to support their overseas tax residency to the Tax Information Authority. The partnership must also provide additional information in its annual economic substance notification about its ownership.

What if my partnership is conducting a relevant activity and is not a fund or tax resident elsewhere?

If a partnership is conducting a relevant activity and does not fall within either of the exemptions noted above, it will need to satisfy the economic substance test. For a partnership formed before 30 June 2021, it must satisfy the economic substance test beginning in 2022. For a partnership formed on or after 30 June 2021 it must satisfy the economic substance test as soon as it commences conducting a relevant activity.

The partnership must file an economic substance notification in January of each year and then submit an annual return to the Tax Information Authority showing how it has met the economic substance test. The annual return must be filed within 12 months of the end of the financial year of the partnership.

Please contact your usual Harneys representative to discuss how your partnership can satisfy the economic substance test.

Are there any other resources available?

The Tax Information Authority published updated Guidance Notes on 30 June 2021 which can be found on their website.

Harneys’ team is well versed in all aspects of the economic substance requirements in the Cayman Islands, so please contact your usual Harneys representative if you would like to discuss the economic substance regime in the Cayman Islands or require assistance to determine the obligations of your partnership. If you have any other questions, visit harneys.com/Cayman.