Cayman Islands Company Annual Review
Cayman companies must undergo an annual review by December of the year they are established, and the review must be completed by December 15th, regardless of when the company was registered. The annual review must be conducted every December. The fee for the annual review varies depending on the registered capital, and more details can be obtained from Mercury International.
If the Cayman company also acts as a registered or managing partner of a Cayman Limited Liability Partnership (LLP) — either as a Limited Partner (LP) or a General Partner (GP) — it must also submit relevant documents to the Cayman Islands Monetary Authority (CIMA) for annual review during the same period.
If a Cayman company does not complete its annual review by the deadline, the Cayman Registry will no longer issue a Certificate of Good Standing to the company, which will directly affect the continuity of the company's accounts and the development of its business.
If the Cayman company fails to conduct its annual review by January 31st, the late fee is 10% of the annual review cost. If the review is not completed by April 30th, the late fee is 50% of the annual review cost. If the annual review is not conducted for over a year, the company will be forcibly struck off by the Cayman Registry, and the company's assets will revert to the government of the Cayman Islands.
Economic Substance Declaration
Economic substance refers to the requirement for relevant corporate entities to have substantive activities within a particular jurisdiction.
In simple terms, this means that the core income-generating activities must correspond to the income earned. Specifically, the relevant entities must engage in activities that generate corresponding income and, unless they meet certain statutory exceptions, must pass the economic substance test to satisfy the requirements of economic substance.
Entities Subject to Economic Substance Declaration
'Relevant entities' refer to Cayman Islands companies registered under the Cayman Islands Companies Law (Revised 2018), limited liability companies registered under the Cayman Islands Limited Liability Companies Law (Revised 2018), limited partnerships established under the Cayman Islands Limited Partnerships Law of 2017, and companies incorporated outside the Cayman Islands but registered under the Cayman Islands Companies Law (Revised 2018). However, this specifically excludes the following three types of entities: domestic Cayman Islands companies, investment funds, and entities that are not tax residents in the Cayman Islands.
Economic Substance Declaration Relevant Activities
The Economic Substance Regulations specify that 'relevant activities' which must comply with the economic substance requirements cover the following nine categories of business:
(1) Banking business;
(2) Distribution and service center business;
(3) Financing and leasing business;
(4) Fund management business;
(5) Headquarters business;
(6) Holding company business;
(7) Insurance business;
(8) Intellectual property business;
(9) Shipping business.
Impact and Consequences of Failing to Meet Economic Substance Declaration
If your company entity is identified as subject to the Cayman Economic Substance Test, you must meet the economic substance requirements within the stipulated time according to relevant regulations. For entities that fail to meet the economic substance test, the Cayman Tax Information Authority will impose a fine of CI$10,000; if the entity still fails to meet the economic substance test in the next fiscal year, the Cayman Tax Information Authority will impose a fine of CI$100,000.
For entities that fail to meet the economic substance test for two consecutive years, the Cayman Tax Information Authority should notify the Companies Registry. The Companies Registry should apply to the Grand Court of the Cayman Islands for an order requiring the relevant entity to take actions to comply with the economic substance test requirements or ask the court to order the deregistration of the entity.
Note: The annual review handling fee for Cayman companies includes registration for the Economic Substance Act.
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