Services

In our experience we have found that there are broadly four potential services which tend to offer the best balance between effectiveness and practicality. No one service is suitable for all entities at all times and the goal is often to find the most pragmatic and cost-effective solution.

Specialist Economic Substance Director

The Economic Substance (“ES”) guidance notes confirms that the Authority will look to ensure that the board, as a decision making body, has the appropriate knowledge and experience in relation to the underlying activity, when evaluating the ES Test. It is critically important that the Cayman board member(s) have real world experience and internationally recognized qualifications to back it up. The DITC will be reviewing the knowledge and experience of all directors on the board but most closely, the Cayman based directors.

The Specialist Economic Substance independent director (“ES Director”) will join the board of the Investment Manager or the Holding Company. The ES Director will perform the standard fiduciary and corporate governance duties expected of a Cayman independent director, and in addition, the director and his team would perform certain Core Income Generating Activities (“CIGA”) services which would assist the entity in satisfying its CIGA requirements under the ES Act.

The ES guidance notes make one particularly interesting clarification:

“The directors (or equivalent) of a relevant entity may sometimes perform CIGA in addition to performing their fiduciary duties for the relevant entity and thereby reduce or even eliminate the relevant entity’s practical need for full-time employees or an outsourcing arrangement. In these cases, the Authority may consider evidence of the CIGA performed by the directors (or equivalent) in the Islands. The Authority will take this type of activity into account in making the determination whether a relevant entity meets the ES Test.”

Upscaling Existing Solutions

As Gross Revenue at an entity grows or upon feedback from the DITC, there are times when an entity is required to increase their ‘presence’ on the island. This can be achieved through several different options, some less onerous or expensive than others. We would be delighted to advise on what works and what doesn’t tend to work when looking to increase substance. 

Often, the addition of a second, Cayman based independent director with real world Investment Management and/or Risk Analysis experience, who may perform certain CIGA functions, is enough to comply with the ES Test. 

Cayman ManCo

One way for an entity to avoid some of the costs of setting up a standalone Investment Management company in the Cayman Islands, and thereby not falling into scope of the ES Legislation, is through the use of an outsourced Cayman ManCo. As a CIMA regulated entity, Artemis can operate as a Cayman ManCo to serve as a Discretionary Investment Manager to an entity’s Cayman fund (“Fund”) with delegation down to the onshore adviser. We have seen many reasons why an entity might wish to pursue this solution and in certain circumstances, it can work exceptionally well. 

Part or Full Time Employees, including Risk Officer

Risk Officer or Outsourced Chief Investment Officer. From time to time, there are certain situations that require roles to be performed on the Island in the form of part, or full, time employees. We have found that this can be achieved in one of several ways:

  • Artemis can supply risk officers to provide an entity with a Cayman oversight function with respect to the entity’s risk and compliance obligations.
  • Artemis can provide a part time or full time Chief Investment Officer or other senior management roles to the entity. 
  • Artemis can provide a supervisory and managerial role when traders or risk officers are posted to the Cayman Islands.
  • Artemis can provide office space, office facilities, infrastructure, IT Support and other services to traders and risk officers posted to the Cayman Islands on a temporary basis.

Compliance with the Economic Substance Test

If an entity is deemed within scope of the International Tax Co-operation (Economic Substance) Act (2021 Revision) (“ES Act”) it would be obligated to comply with the Economic Substance Test (“ES Test”). A relevant entity conducting a relevant activity must satisfy the following criteria in the islands to comply with the ES Test:

  • conducts core income generating activities (CIGA) in relation to that relevant activity;
  • is directed and managed in an appropriate manner in the Islands in relation to that relevant activity; and
  • having regard to the level of relevant income derived from the relevant activity carried out in the Islands –
    • has an adequate amount of operating expenditure incurred in the Islands;
    • has an adequate physical presence (including maintaining a place of business or plant, property and equipment) in the Islands; and
    • has an adequate number of full-time employees or other personnel with appropriate qualifications in the Islands.