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On 31 July 2024, the Cayman Islands introduced the Beneficial Ownership Transparency Act 2023 (BO Act) along with the Beneficial Ownership Transparency Regulations, 2024 (BO Regulations).
Alongside these regulations, guidance titled Guidance on Complying with Beneficial Ownership Obligations in the Cayman Islands (BO Guidance Notes) was also made available on the General Registry’s website.
This new framework, known as the New BO Regime, revises the rules for entities registered in the Cayman Islands.
For those involved in private client structures, especially with trust arrangements and underlying companies incorporated in the Cayman Islands, these changes may have significant implications.
This article explores what the New BO Regime entails and how it may impact trusts and other wealth management entities.
The New BO Regime broadens the types of Cayman Islands entities required to comply with beneficial ownership reporting obligations.
Under the new rules, some entities that were previously exempt now fall within scope, meaning more wealth structuring vehicles, including foundation companies and private trust companies (PTCs), must adhere to these requirements.
While trusts themselves are exempt from registration, companies or other entities under a trust, known as “Trust Underlying Entities,” must comply with beneficial ownership reporting if they meet certain criteria.
Under the New BO Regime, several types of entities are classified as “Legal Persons” and fall within the scope of the regulations, including:
Entities designated as Legal Persons must maintain a Register that identifies their beneficial owners.
The BO Act sets out who qualifies as a “Registrable Beneficial Owner.” This includes individuals or legal persons who:
In the absence of a Registrable Beneficial Owner, a senior managing official, like a director or CEO, must be listed as the contact person on the Register.
For each Registrable Beneficial Owner, the following information must be provided:
The Register needs to be updated monthly to ensure compliance.
The responsibility for maintaining and filing the Register lies with the Legal Person itself, typically in collaboration with a corporate services provider (CSP). Failure to comply with these reporting requirements may lead to civil or criminal penalties.
The New BO Regime enforcement begins in January 2025, providing a grace period for entities to meet compliance obligations.
Trustees of trusts with a Trust Underlying Entity may need to report beneficial ownership details if there are no other identifiable Beneficial Owners.
Trustees must meet specific criteria, demonstrating ultimate control over the trust’s activities, unless this control is limited to advisory or managerial functions.
Foreign trustees also need to report details of a nominated individual within their organisation.
Foundation companies commonly used in private wealth structuring may also require review.
Depending on the constitutional documents, a Registrable Beneficial Owner could be the Supervisor, founder, or another individual with control.
For PTCs, previously exempt unlicensed PTCs now fall within scope, requiring identification of Registrable Beneficial Owners.
Privacy and Future Changes
However, draft regulations are under consultation, exploring a possible framework for public access in the future.
If public access is introduced, requests will be subject to a “legitimate interest” test to safeguard against risks like extortion or violence.
The New BO Regime places a significant regulatory responsibility on entities and individuals managing trusts and wealth structures in the Cayman Islands.
With the January 2025 deadline approaching, private clients, trustees, and wealth management advisors should carefully assess their current structures to ensure compliance.
If you have any queries about this article on beneficial ownership, or tax matters in the Cayman Islands, then please get in touch.
Alternatively, if you are a tax adviser in the Cayman Islands and would be interested in sharing your knowledge and becoming a tax native, there is more information on membership here.
A non-cooperative tax jurisdiction is a country or territory that does not follow international tax transparency and information-sharing standards.
These jurisdictions often have low or no taxes and strict privacy laws, making them attractive to individuals and businesses looking to avoid or evade taxes in their home countries.
However, because these jurisdictions do not cooperate with international efforts to combat tax avoidance, they are often labelled as “non-cooperative” by organisations like the European Union (EU) and the Organisation for Economic Co-operation and Development (OECD).
Non-cooperative tax jurisdictions make it easier for individuals and businesses to hide their income and assets, reducing the amount of tax revenue that countries can collect.
This can lead to significant losses for governments, which depend on taxes to fund public services like healthcare, education, and infrastructure.
In addition, non-cooperative jurisdictions often allow companies to shift their profits to low-tax or no-tax countries, a practice known as profit shifting.
This deprives the countries where the profits were actually made of tax revenue, contributing to **base erosion**.
The **EU** and the **OECD** maintain lists of non-cooperative tax jurisdictions. These lists are based on criteria like:
Countries that do not meet these criteria may be placed on a black list or grey list of non-cooperative jurisdictions.
Countries and territories on these lists may face penalties or sanctions.
For example, businesses operating in or through non-cooperative jurisdictions may be subject to higher taxes or stricter reporting requirements in other countries.
In some cases, non-cooperative jurisdictions may also face restrictions on accessing international financial markets.
Non-cooperative tax jurisdictions contribute to global tax avoidance and profit shifting, depriving countries of much-needed revenue.
By identifying and penalising these jurisdictions, the EU and OECD aim to create a fairer global tax system where companies and individuals pay their fair share of taxes.
If you have any queries about this article or on international tax matters more generally, then please get in touch.
On 1st July 2023, Australia ushered in a comprehensive reform with the activation of the Foreign Ownership Register, under Part 7A of the Foreign Acquisitions and Takeovers Act 1975 (Cth) (FATA).
This new register has absorbed and expanded upon the functionalities of previous registers maintained by the Australian Taxation Office (ATO), marking a significant shift in how foreign ownership of Australian assets is documented and regulated.
The Foreign Ownership Register amalgamates several previously separate registers into a unified system.
Notably, it encompasses the Agricultural Land Register and the Water Register, both previously under the 2015 Register of Foreign Ownership of Water or Agricultural Land Act (Cth) (Old Register Act), along with the register for foreign ownership of residential land.
However, registers pertaining to critical infrastructure assets and foreign media ownership remain independently managed by the Cyber and Infrastructure Security Centre and the Australian Communications and Media Authority, respectively.
The broadened scope under Part 7A significantly enhances the transparency around foreign investments in Australia, imposing new reporting and compliance obligations on foreign investors.
Among the critical updates are the requirements for notifying certain acquisitions of interests in Australian entities, businesses, and all types of Australian land.
From 1st July 2023, foreign persons must notify acquisitions of specific interests in Australian assets, including interests in entities, businesses, and land.
Notices for these acquisitions should be submitted within 30 days, except for registrable water interests, which have a 30-day window post-financial year-end.
If a holder of a Registrable Interest becomes a foreign person post-acquisition, notification is required.
Various changes, such as disposal of interests or significant modifications in the nature of the interest, necessitate notification within 30 days, with specific provisions for registrable water interests.
The introduction of the Foreign Ownership Register represents a pivotal step towards greater transparency and control over foreign investments in Australia.
By centralising and broadening the scope of reporting requirements, the Australian government aims to ensure that foreign investments are made transparently and responsibly, aligning with the national interest.
If you have any queries on this article on the Foreign Ownership Register in Australia, or Australian tax matters in general, then please get in touch.
In a significant regulatory update, the Canadian federal government has introduced new trust reporting requirements effective for taxation years ending after 30 December 2023.
The first reporting deadline for trusts with a 31 December 2023, year-end is 2 April 2024.
This development introduces an expanded scope of reporting, bringing a wider array of trusts under the purview of mandatory filing, including certain bare trusts.
Here’s what you need to know about these new requirements and their potential impact.
The amendments mandate more extensive filing for trusts, including those that were previously exempt under certain conditions. Key changes include:
More trusts are now required to file T3 trust income tax and information returns, extending to certain bare trusts previously exempt.
Most trusts must provide additional information, including details about trustees, beneficiaries, settlors, and anyone with influence over the trust’s decisions.
The new rules specifically target express trusts resident in Canada or foreign trusts deemed resident, eliminating previous exemptions for certain types of trusts.
However, a list of “listed trusts,” such as registered charities and mutual fund trusts, continues to enjoy exemptions.
Trusts mandated to file under the new rules must complete the new Schedule 15, disclosing comprehensive information about the involved parties.
This includes their names, addresses, taxpayer identification numbers, and their roles within the trust.
Failure to comply with these updated reporting requirements could lead to substantial penalties, especially in cases of gross negligence.
Penalties are pegged at 5% of the trust’s property value or $2,500, whichever is higher.
In a move to facilitate a smoother transition, the Canada Revenue Agency (CRA) has announced a waiver for the normal failure-to-file penalty for the 2023 taxation year, specifically for trusts qualifying under the bare trust exclusion.
Given the significant changes and the potential for hefty penalties, it’s crucial for trustees and beneficiaries to familiarize themselves with the new requirements.
This includes understanding which trusts now need to file, the expanded information requirements, and ensuring compliance to avoid penalties.
For those involved in trust administration or planning, staying informed about these developments and their implications is essential.
This article merely serves as a starting point, but further guidance and clarification from the CRA may be necessary as taxpayers work to comply with the new framework.
If you have any queries on this article around Canada’s Enhanced Trust Reporting Regulations, or Canadian tax matters more generally, then please get in touch.
Hong Kong has been officially removed from the European Union’s list of non-cooperative jurisdictions for tax purposes, commonly referred to as the EU Watchlist.
This took place with effect from the 20 February 2024.
The development comes after the Hong Kong government introduced the Foreign-Sourced Income Exemption (FSIE) regime in January 2023.
This is aimed at addressing the EU’s concerns over tax cooperation and aligning with international tax standards.
The FSIE regime was established in response to Hong Kong’s inclusion on the EU Watchlist in 2021, marking a concerted effort by the local government to ensure the jurisdiction’s compliance with global tax norms.
The regime applies to certain types of passive income, including dividends, interest, income derived from intellectual property (IP), and disposal gains related to equity interests.
To benefit from the profits tax exemption under the FSIE regime, multinational enterprises (MNEs) operating in Hong Kong must meet specific economic substance, nexus, and participation requirements relevant to each income type.
Following the EU’s updated Guidance on Foreign-sourced Income Exemption Regimes in December 2022, which called for adequate substance requirements for all passive income types, the Hong Kong government expanded the FSIE regime.
This expansion included broadening the scope of disposal gains to encompass gains from the disposal of all asset types received by MNE entities in Hong Kong.
These adjustments, which took effect on 1 January 2024, played a crucial role in demonstrating Hong Kong’s commitment to adhering to international tax standards.
The EU’s decision to remove Hong Kong from the Watchlist was based on a comprehensive review of the amendments made to the territory’s tax regime concerning foreign-sourced passive income.
By fully aligning with the EU’s requirements and international tax standards, Hong Kong has successfully addressed the concerns that led to its initial inclusion on the Watchlist.
Hong Kong’s removal from the EU Watchlist is a positive development for the region, enhancing its reputation as a cooperative jurisdiction in tax matters and potentially improving its attractiveness as a business and investment destination.
Stakeholders in Hong Kong and international businesses operating within the territory will benefit from the clarity and stability this resolution provides.
As Hong Kong continues to implement and refine the FSIE regime, further updates and guidance are expected to ensure that the territory remains in compliance with evolving international tax standards.
This proactive approach underscores Hong Kong’s dedication to fostering a transparent and cooperative tax environment on the global stage.
If you have any queries about this article on ‘Hong Kong Removed from EU Watchlist’, or tax matters in Hong Kong more generally, then please get in touch.
Malta has been tasked with implementing three essential reforms to its anti-money laundering (AML) strategies to be removed from the Financial Action Task Force’s (FATF) enhanced monitoring list, commonly referred to as the grey list.
Following an agreement on an action plan with the FATF, Malta’s government is under pressure to address significant issues identified by the global financial crime watchdog.
The action plan outlines a comprehensive strategy for Malta, focusing on:
Malta must ensure that company ownership information is precise, with strict enforcement actions against inaccuracies.
This includes imposing sanctions on legal persons and gatekeepers failing to maintain accurate beneficial ownership information.
The government’s Financial Intelligence Analysis Unit (FIAU) is expected to better utilize financial intelligence to support the pursuit of criminal tax evasion and associated money laundering cases.
This entails clarifying the roles of the Revenue Commissioner and the FIAU.
The FIAU’s analytical efforts must focus on criminal tax offences to produce intelligence that aids Maltese law enforcement in detecting and investigating tax evasion-related money laundering activities in alignment with Malta’s risk profile.
Malta, alongside Haiti, the Philippines, and South Sudan, was grey-listed by the FATF, signaling the need for enhanced AML measures.
Despite having a robust legal framework on paper, Malta’s practical implementation of these laws has been under scrutiny.
The nation’s commitment to fighting tax crimes and policing beneficial ownership rules is central to the FATF’s concerns.
Although Malta has made significant strides in addressing some issues flagged in 2019, including improving financial intelligence analytics and resourcing law enforcement, the FATF’s latest review indicates that critical areas still require attention.
The Maltese government has acknowledged progress on most recommended actions but admits that three critical points have only been partially addressed.
The Maltese government has expressed disagreement with the grey-listing, emphasizing its dedication to rectifying the remaining deficiencies promptly.
The economic impact of the FATF’s decision on Malta, a notable financial hub, hinges on the government’s effectiveness in implementing the necessary reforms.
Rating agencies and investors are closely watching the situation, as Malta’s attractiveness for foreign investment is at stake.
Malta’s path to exiting the FATF grey list is paved with stringent AML reforms and enhanced financial transparency measures.
The nation’s ability to fulfill the FATF’s action plan will not only determine its removal from the grey list but also reinforce its standing as a reliable and compliant financial centre.
The Maltese government’s commitment to these reforms is crucial for restoring international confidence and securing Malta’s economic future.
If you have any queries regarding this article relating to Malta AML Reforms to Exit FATF Grey List, or Maltese tax matters, then please get in touch.
The Netherlands’ recent update to its list of low-taxed and non-cooperative jurisdictions for 2024 has notably excluded the United Arab Emirates (UAE), marking a shift in tax policy.
This change follows the UAE’s introduction of a federal Corporate Income Tax (CIT) regime, setting a standard tax rate of 9% for financial years beginning on or after 1 June 2023.
Of course, this blacklist has nothing to do with Raymond Reddington.
Instead, the Dutch tax blacklist is a list of jurisdictions that facilitate abusive tax structures through minimal or non-existent taxation rates, defined as less than 9%.
The presence on this list subjected entities in blacklisted jurisdictions to stringent domestic anti-abuse measures in the Netherlands.
These included conditional withholding taxes on cross-border payments and limitations on obtaining tax rulings for transactions involving blacklisted jurisdictions, alongside the application of Controlled Foreign Corporation (CFC) rules that impacted the taxable income of Dutch entities.
The removal of the UAE from this blacklist alleviates several challenges for UAE-based businesses operating in the Netherlands.
Previously, the anti-abuse measures introduced a layer of complexity and uncertainty for transactions between the two nations.
Now, the reclassification signals a positive development, potentially enhancing economic connections and fostering a more favorable environment for cross-border investments and collaborations.
The UAE’s proactive adjustment of its tax regime to introduce a CIT rate aligns with global tax standards and demonstrates a commitment to fostering a transparent and cooperative financial landscape.
This adjustment has directly influenced its standing with the Netherlands, removing barriers that once complicated financial and corporate engagements.
For businesses within the UAE with Dutch interests, this development opens doors to new opportunities and simplifies operations, heralding a phase of strengthened economic ties between the UAE and the Netherlands.
This move is anticipated to encourage a smoother flow of trade, investment, and financial services between the two countries, reinforcing their positions in the global market.
If you have any queries about this article on the UAE being off the Dutch Blacklist, or UAE matters more generally, then please get in touch.
In a key development for corporate transparency, the Financial Crimes Enforcement Network (FinCEN) of the US government has initiated the process of receiving beneficial ownership information reports as mandated by the Corporate Transparency Act 2021.
This strategic move aims to fortify the battle against financial crimes by ensuring clarity in company ownership structures.
Under the new framework, existing companies are provided with a one-year window to submit their reports, while newly established entities must adhere to a 90-day filing deadline post-creation or registration with FinCEN.
The agency is entrusted with the administration and secure management of the beneficial ownership database.
Reporting entities are required to furnish comprehensive details for each beneficial owner, including their name, date of birth, address, and a valid identification number from an approved list of documents such as a US driving license, passport, or other state or local government-issued documents, including foreign passports.
As 2023 drew to a close, FinCEN unveiled a final rule elucidating the conditions and authorized entities eligible to access the national beneficial ownership database.
This rule, largely based on the previous year’s draft but incorporating notable amendments, is set to progressively allow access from 20 February onwards.
The list of entities with granted access includes federal, state, and foreign law enforcement agencies, financial institutions, regulators involved in customer due diligence processes, and the US Treasury.
A significant enhancement in the final rule is the broadening of the ‘customer due diligence requirements’ clause.
This expansion now covers legal obligations designed to counteract money laundering, terrorism financing, or protect the US’s national security.
Consequently, financial institutions are empowered to integrate FinCEN’s beneficial information into their due diligence and suspicious activity monitoring and reporting mechanisms, thereby reinforcing their compliance with the Banking Secrecy Act or sanctions enforced by the US Treasury’s Office of Foreign Assets Control.
The implementation of access to the beneficial ownership information will commence on 20 February with a pilot program aimed at key federal agency users.
This initial phase will be followed by extending access to other federal agencies, and subsequently to state and local law enforcement agencies.
The final rule also paves the way for financial institutions to share beneficial ownership information with employees or contract personnel outside the USA, with specific exceptions, thus addressing operational challenges for institutions with extensive international operations and compliance functions.
While the precise operational framework of the database remains under wraps, FinCEN has clarified its stance against providing bulk data exports to authorized users.
Instead, an application programming interface is expected to be made available, allowing these users to conduct specific queries in the database.
This landmark regulation marks a significant stride in the US government’s ongoing efforts to enhance corporate transparency and combat financial crimes effectively.
If you have any queries about this article on US Beneficial Ownership Access, or any other US matters, then please get in touch.
The BVI has made a significant stride towards enhancing transparency and tax information exchange.
It has mandated that, from 24 January 2024, all entities under its jurisdiction with certain financial reporting responsibilities, are to submit their reports exclusively through the BVI Financial Accounting Reporting System (BVIFARS).
The relevant reporting responsibilities include:
The shift to the digital platform is in response to the recommendations from the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes (the Global Forum).
Despite BVI’s AEOI legislation aligning with the Global Forum’s technical standards for years, the OECD’s 2022 review identified significant gaps in the actual AEOI implementation.
The spotlight was on the “significant issues” concerning the assurance that Reporting Financial Institutions were accurately carrying out due diligence and reporting procedures.
The Global Forum hence called for the BVI to fortify its domestic compliance framework to solidify CRS implementation effectiveness.
The BVI government candidly attributed the shortcomings to the devastating impact of Hurricanes Irma and Maria and the subsequent global COVID-19 pandemic, which significantly hindered their information exchange capabilities.
In light of these challenges, the government requested a supplementary review to validate the improvements in their AEOI processes.
This request was approved, with an on-site visit by the OECD slated for the first quarter of 2024 to confirm the BVI’s adherence to the stipulated conditions.
With the activation of BVIFARS in January 2024, entities are now transitioning to this centralized online system for their FATCA, CRS, and CbC report submissions.
A notable feature of this new system is the imposition of an annual usage fee of USD185 for each reporting entity, payable by 1 June each year.
Entities are required to be vigilant about the following critical deadlines:
Additionally, each legal entity is obligated to furnish its registered agent with the mandated economic substance information annually.
The registered agent, in turn, must relay this data to the BVI International Tax Authority within six months from the end of the pertinent reporting period.
This transformation in the reporting process for BVI entities signifies a proactive approach to addressing the challenges previously flagged by the OECD.
By embracing a digital and centralized reporting system, the BVI is taking definitive steps towards bolstering its compliance framework, thereby reinforcing its commitment to international tax transparency and cooperation.
If you have any queries on this article about BVI and Online Submission for FATCA, CRS and CbC Reports, or BVI matters in general, then please get in touch.