At the end of 2018, various jurisdictions introduced economic substance legislation, requiring certain entities to demonstrate “substance” in the relevant jurisdiction. Since then, there have been various updates to the rules and, most recently, a number of jurisdictions have extended their economic substance regimes to apply to partnerships as well as companies.
- Bermuda: the Economic Substance Amendment Act 2021, which came into force on 30 June 2021, has expanded the applicability of the economic substance regime in Bermuda to all partnerships formed on or after 1 July 2021. Partnerships formed prior to 1 July 2021 which have not elected to have separate legal personality, and which are engaged in a relevant activity, will be subject to the economic substance regime from 1 January 2022. Investment funds that are not engaging in a relevant activity will not fall within the scope of the economic substance rules.
- Cayman Islands: the International Tax Cooperation (Economic Substance) Act has been extended to apply to partnerships with effect from 30 June 2021. Most partnerships operating as investment funds are expected to remain outside of the scope of the regime.
- Jersey: similar rules have been proposed in Jersey, with the States Assembly adopting a new law on 29 June 2021. The new legislation is awaiting sanctioning and registration by the Royal Court, but once confirmed will apply to all Jersey partnerships formed on or after 1 July 2021. Jersey partnerships formed prior to 1 July 2021 will be subject to the new requirements for accounting periods commencing on or after 1 January 2022. Notably partnerships that are collective investment funds will continue to be out of scope.
- Guernsey: adopting the same approach as Jersey, regulations came into force on 30 June 2021 and extend the existing economic substance regime to apply to partnerships formed on or after 1 July 2021. Guernsey partnerships formed prior to 1 July 2021 will fall within the scope of the new rules for accounting periods commencing on or after 1 January 2022. However, partnerships that are collective investment schemes will continue to be predominantly out of scope.
- Isle of Man: economic substance rules will cover partnerships and LLCs for accounting periods commencing on or after 1 July 2021. Collective investment schemes are outside the scope of the rules.
- British Virgin Islands: the relevant legislation was expanded to apply to limited partnerships formed without legal personality on 30 June 2021 (as is common in most of the jurisdictions, it previously only applied to limited partnerships with separate legal personality). Investment funds are outside the scope of the economic substance regime. The new rules apply to all limited partnerships formed on or after 1 July 2021. Limited partnerships existing prior to 1 July 2021 will be subject to the new requirements for accounting periods commencing on or after 1 January 2022.
For more information on economic substance regimes please see our previous notes: Economic substance - application to trust structures and Economic substance update.