Anguilla Economic Substance Requirements: How To Stay Compliant

Key provision of Anguilla Economic Substance Rule

The key provision of the Anguilla Economic Substance (ES) Regulation, 2019 is the requirement for companies to demonstrate that they have a substantial presence and legitimate economic activities in Anguilla, rather than being established solely for tax avoidance purposes.

The introduction of ES rules in Anguilla is in line with global efforts to address tax avoidance and promotes transparency in business operations. These rules contribute to maintaining fair competition and promoting equitable taxation practices on an international scale.

It is important to note that the specific provisions and requirements of the Economic Substance Rules may be subject to change, and it’s advisable to consult with a professional service for the most accurate and up-to-date information.

Who is subject to the rule?

The ES rules in Anguilla apply to certain types of business entities engaged in specific business activities known as “relevant activities“.

The business entities subject to these rules include:

• Companies: This includes various types of companies, such as International Business Companies (IBC) and Limited Liability Companies (LLC); and
• Limited partnership: Business entities operating as limited partnerships are also subject to the ES rules.

The relevant activities that fall under the scope of the ES rules in Anguilla are as follows:

• Banking (as defined in the local Banking Act);
• Insurance (as defined in the local Insurance Act);
• Fund management (providing management services to an investment fund);
• Financing and leasing (providing credit facilities, leasing of land excluded);
• Distribution and service center (selling products that are bought from other entities within a group or providing services within a group);
• Shipping (carrying out shipping-related activities);
• Headquarters (providing services for a group or other entities in the group);
• Intellectual property (IP) business (renting or selling intellectual property assets);
• Holding company (holding equity to earn dividends and capital gains).

If you’re uncertain whether your company is subject to Anguilla ES rule, find out by using the Economic Substance Self-Assessment Tool.

Who is exempted from the rule?

Companies and limited partnerships in Anguilla engaged in relevant activities may be exempted from the Economic Substance (ES) requirements if they meet the following criteria:

• They are managed and controlled, or carry out their relevant activities in a jurisdiction other than Anguilla;
• The jurisdiction where the companies or limited partnerships are managed and controlled or conduct their relevant activities must have a corporate tax rate of at least 10%; and
• The companies or limited partnerships must be tax residents in the jurisdiction where they are managed and controlled or carry out their relevant activities.

To avail themselves of the exemption, these companies and limited partnerships are required to provide proof of their tax residency in another jurisdiction to the local Registrar.

This proof can include submitting documentation such as a tax return that has already been filed with the tax authority in the other jurisdiction.

What are the requirements under the ES Rule?

Business entities engaged in relevant activities in Anguilla, unless exempted, are required to fulfill two main obligations:

• Satisfy the ES test: This entails conducting core income-generating activities within Anguilla, maintaining a sufficient physical presence, employing qualified employees, incurring operating expenditure, and complying with other relevant obligations.
• File an ES return with the Registrar: This return provides information and evidence of the entity’s compliance with the ES requirements.

Economic Substance Test

The ES test is an assessment used to determine whether an in-scope business entity meets the requirements of the ES Rule.

The specific criteria of the test can vary based on the relevant activity being conducted, but in general, there are two conditions that an in-scope business entity must fulfill to satisfy the test:

• Core income-generating activities (CIGA): The entity must conduct its core income-generating activities within Anguilla. These are the activities that generate the entity’s income and are directly related to its business. The specific activities will vary depending on the nature of the relevant activity.
• Adequate physical presence and expenditure: This can involve factors such as:
  • Having directors or partners with sufficient qualifications, who are physically present in Anguilla
  • Employing a sufficient number of qualified employees, who are physically present in Anguilla to carry out its CIGA;
  • Maintaining sufficient operating expenditure necessary for conducting business operations in the jurisdiction;
  • Having an office space in Anguilla that is appropriate for the management of the entity, whether rented or owned;
  • Conducting board of directors/partners meetings in Anguilla at a reasonable frequency with the participation of an adequate number of directors/partners.
  • Keeping minutes of all board meetings and maintaining company/partnership records in Anguilla.
  • Ensuring proper supervision if any core income-generating activities are outsourced.

For holding business

For a holding business entity that solely holds equity, the ES test may differ as outlined below:

• Compliance with statutory filing requirements: The holding business must comply with all the statutory filing requirements specified by the Anguilla International Tax Authority (AITA). This typically involves submitting relevant forms, returns, and other necessary documentation within the prescribed timelines.
• Sufficient human resources and premises: The holding company should have an adequate number of qualified human resources (such as directors or partners) physically present in Anguilla. Additionally, the company should have appropriate premises in Anguilla to manage its holding activities. This could include maintaining an office space or registered office in Anguilla where board meetings are held and records are kept.

If the holding business earns income from sources other than solely holding equity, such as interest, rent, or royalties, the ES test may involve demonstrating the CIGAs related to earning that income, rather than fulfilling the requirements mentioned above.

For high-risk Intellectual Property (IP) business

An IP business entity is deemed high-risk in the following situations:

• It acquires an IP asset from an affiliated entity or acquires an IP asset in consideration of funding research and development by another person who stays in another jurisdiction;
• It grants a license to an affiliated entity for the use of the IP asset or earns income from the asset through activities performed by an affiliated entity, it is also classified as high risk.

To satisfy the ES test as a high-risk IP business, the following conditions must be met:

• The business has a high degree of control over the development, exploitation, maintenance, enhancement, and protection of intellectual property assets;
• The business has full-time qualified employees who are permanently located in Anguilla and engage in activities directly related to the IP assets;
• The business must file certain information with the Registrar, including:
  • A detailed business plan outlining the strategy for holding the high-risk IP asset in Anguilla;
  • Information about the qualified employees working in Anguilla; and
  • Evidence demonstrating that significant decisions regarding the IP assets are made in Anguilla.

Economic Substance Return

All companies and limited partnerships in Anguilla are required to submit an annual ES return, which is filed alongside the annual return. The purpose of this return is to declare whether the entity engages in relevant activities or not.

If the entity does engage in relevant activities, it must furnish the following information as evidence of complying with the ES test, unless it qualifies for an exemption:

• A description of the relevant activity or activities it is involved in;
• The amount and type of income generated from the relevant activity;
• The amount and type of expenses incurred in conducting the relevant activity;
• The address, premises, and any physical assets located in Anguilla that are utilized for the relevant activity;
• The number of qualified employees directly employed or engaged through an outsourced third-party service provider in Anguilla;
• A description of the core income-generating activities carried out in Anguilla in relation to the relevant activity;
• The evidence demonstrating that the decision-making and management of the entity occur in Anguilla; and
• A declaration stating that the entity has satisfactorily met the ES test.

For high-risk intellectual property business

In addition to the information mentioned above, high-risk IP businesses are required to provide the following additional details:

• A detailed business plan that includes the commercial rationale for holding the intellectual property assets in Anguilla;
• Details of the employees, including their contacts, qualifications, experience, and duration of employment; and
• The evidence that the decisions are made in Anguilla in respect of the relevant activity.

Filing method

The ES return shall be filed electronically in a manner specified by the Registrar.

Filing deadline

The filing deadline for the ES return in Anguilla is typically the last day of the relevant quarter. The relevant quarter refers to the calendar quarter in which the anniversary of the incorporation or continuance of the entity occurs.

For example, if the incorporation or continuance date of an entity is January 1st, the filing deadline for the ES return would be on March 31st.

Penalties for non-compliance entity

Business entities that do not meet the requirements, including the economic substance test and filing of the annual return, may face monetary penalties. The amount of the penalty can vary based on factors such as the severity of the non-compliance, the duration of the non-compliance, and the size of the entity.

The local tax authorities may impose regulatory sanctions, such as suspension, revocation, or non-renewal of licenses, for entities that consistently fail to comply with the ES requirements.

It’s important to note that non-compliance with ES requirements may prevent the entity from obtaining tax benefits, incentives, or exemptions that the entity may have otherwise been entitled to.

To ensure compliance and avoid penalties, make sure you meet the requirements and fulfill your obligations in a timely and accurate manner.

Conclusion

If you have any questions about Anguilla economic substance requirements or need further guidance on this matter, feel free to get in touch with us via service@bbcincorp.com. We are always here to help!

Share this article