The Economic Substance (Companies and Limited Partnerships) (Amendment) Act 2021 (the Economic Substance Amendment), which came into force on 29 June 2021, extends the economic substance regime under the Economic Substance (Companies and Limited Partnerships) Act 2018 (the ESA) to limited partnerships without a legal personality. Limited partnerships with a legal personality were already within the scope of the economic substance provisions of the ESA.
Following the enactment of the Economic Substance Amendment, there will be a six-month transitional period for existing partnerships without a legal personality that were formed before 1 July 2021, in that the amended ESA will apply to such partnerships for the financial years commencing no later than 1 January 2022. However, limited partnerships without a legal personality that were formed on or after 1 July 2021 will be subject to the Economic Substance Amendment immediately.
The Economic Substance Amendment also includes two other notable differences to the ESA:
- The Economic Substance Amendment has added definitions of "investment fund" and "investment fund business", and expressly excluded investment fund business from being a relevant activity. This is a helpful development in that it removes some of the element of doubt as to the treatment of investment funds, particularly all equities funds which might have otherwise been considered pure equity holding entities. The definition of "investment fund" is broader than the definitions of "mutual fund" and "private investment fund" in the Securities and Investment Business Act 2010, such that while all mutual funds and private investment funds will fall within the new definition of "investment fund", it is possible for other types of collective investment vehicles that are neither mutual funds nor private investment funds to be "investment funds" for the purposes of the ESA. Thus, they will be considered as doing investment funds business.
- The definition of "distribution and service centre business" has been amended to add clarity to the second limb of the previous definition in section 2 of the ESA. The change confirms that for an entity to be considered as engaging in a distribution and service centre under the second limb of the definition, the provision of services to affiliated entities need not be linked to any related purchasing and resale business within the description of the first limb. The change clarifies that the definition looks at such activities separately (there was some ambiguity in this respect in the previous definition) and states clearly that providing any "consulting or administrative" services to a foreign affiliate may be caught as a relevant activity. However, the definition did not previously use the descriptors "consulting or administrative" in respect of services. Some thought may be given as to whether this might also limit the application of the definition (however, this may not have been the intention).
For further information on this topic please contact Michael Killourhy, Simon Schilder or Ray Wearmouth at Ogier's British Virgin Islands by telephone (+1 284 852 7300) or email ([email protected], [email protected] or [email protected]). Alternatively, contact Nathan Powell at Ogier's Hong Kong Office by telephone (+852 3656 6000) or email ([email protected]). The Ogier website can be accessed at www.ogier.com.