Legal Framework

Legislation

What legislation sets out the economic substance requirements in your jurisdiction?

The Turks and Caicos Islands (TCI) legislative framework is set out in the Companies and Limited Partnership (Economic Substance) Ordinance 2018 and accompanying Regulations (Substance Legislation), which came into force on 1 July 2019.

The Exchange of Information Unit (EOIU), the TCI’s competent authority under the Substance Legislation, issued Guidance Notes in November 2020 to assist in understanding the requirements of, and practical assistance relating to, economic substance. While the Guidance Notes do not form part of the Substance Legislation nor have the force of law, they are a useful source of information and practical guidance relative to the economic substance test and requirements.

Relevant entities

What types of entity are subject to the economic substance requirements in your jurisdiction?

A resident TCI entity that is carrying out a relevant activity is subject to the Substance Legislation. A resident TCI entity is:

  • a TCI company incorporated under the Companies Ordinance 2017;
  • a TCI limited partnership registered under the Limited Partnership Ordinance; or
  • a foreign company registered in the TCI under the Companies Ordinance 2017.
Relevant activities

What activities trigger the economic substance requirements in your jurisdiction?

Under the Substance Legislation, there are nine relevant activities that trigger compliance with the requirements and legislation. These are:

  • banking business;
  • distribution and service centre business;
  • finance and leasing business;
  • fund management business;
  • headquarters business;
  • holding entity business;
  • insurance business;
  • intellectual property holding business; and
  • shipping business.

 

A resident TCI entity that does not carry out a relevant activity does not need to comply with the Substance Legislation. By way of example, owning real estate in the TCI through a TCI entity is not a relevant activity.

Tax residence requirements

Must entities be tax resident (or deemed tax resident) in your jurisdiction to be subject to the economic substance requirements? If yes, what are the tax residence rules and requirements? If not, do the economic substance requirements in your jurisdiction differ with respect to non-resident entities ?

Yes. All TCI entities incorporated or registered in the TCI are deemed tax resident in the TCI unless proven otherwise, and to the extent that the entity is not on the list of non-cooperative jurisdictions for tax purposes maintained by the European Union. There is no corporation tax in the TCI, nor are there any tax liabilities payable by an entity subject to tax in the TCI.

If the entity is claiming to be tax resident in a jurisdiction outside of the TCI, the entity must provide to the EOIU the following documents obtained from the relevant authority in the jurisdiction in which it is tax resident as evidence that it is not to be considered as a resident entity for the purposes of the Substance Legislation:

  • a tax identification number;
  • a tax residence certificate (or equivalent);
  • an assessment or payment of corporate income tax liability on all of the entity’s income in the TCI from a relevant activity; and
  • details of its parent company, ultimate parent company and ultimate beneficial owners.
Guidance

Has the government published guidance on the economic substance requirements?

Yes. The EOIU issued Guidance Notes in November 2020.