Business panel: What economic substance law means for firms
What is economic substance legislation and does it apply to my company?
Mel Torode, operations director, Estera, replies:
Economic substance legislation has been introduced in Guernsey, the other Crown Dependencies and British Overseas Territories.
The legislation is designed to improve tax transparency and ensure that companies resident in Guernsey, the other Crown Dependencies and British Overseas Territories are not being used to avoid tax in other jurisdictions.
The legislation came into effect on 1 January 2019, with reporting to the tax authorities due from January 2020. The fines for non-compliance may be significant and directors must establish if their company meets the new economic substance requirements.
The economic substance requirements vary depending on the actual activity of the company. In general economic substance includes a requirement for the company to be directed and managed in Guernsey; to conduct core income-generating activity in Guernsey and have adequate people, premises and expenditure in Guernsey.
There are two key stages to establishing how an entity might be impacted by substance regulations in any given jurisdiction. Firstly, is the entity in scope of the new law, i.e. is the entity a relevant entity carrying out a relevant activity? Secondly, if it is in scope, does it meet the substance requirements?
We have significant experience in gathering and reporting company data and are helping our clients understand and respond to the new legislation.
Not every company or partnership will be impacted by this change and we expect that most will meet the substance requirements or will not be caught by the new rules.