We’ll always remember 2020 as being the year that COVID-19 swept the world. Arriving at overwhelming speed and on an enormous scale, with organisations facing a paralysing volume of unfamiliar decisions that could have incredible, long-lasting effects.
The rapid deployment of measures to prevent the spread of COVID-19 have had a clear impact on how companies continue to meet their regulatory obligations. The restrictions placed on travel and social distancing have caused difficulties for companies required to satisfy the economic substance rules in a number of offshore jurisdictions.
“The travel restrictions in place, could make it difficult for some companies incorporated in countries with zero or nominal tax rates to comply with the economic substance rules that have been introduced,” says James Turner, Director at company formation specialists, Turner Little.
Economic substance rules were introduced to stop companies having paper-only operations in certain jurisdictions in order to benefit from low- or no-tax regimes. They are designed to ensure that economic activity takes place in the country, with companies typically required to file an annual declaration that rules have been met.
“Compliance has been rendered problematic in some cases, as individuals are unable to travel so may be unable to travel to those offshore jurisdictions for work. Some offshore jurisdictions have introduced temporary relaxations of the economic substance rules. For example, Guernsey and Jersey have confirmed that where operating practices have to be adjusted to compensate for the outbreak of COVID-19, that will not mean a company has failed to meet economic substance rules, provided the adjustments are to the extent required to mitigate the threats from the outbreak and that any changes are temporary,” adds James.
Given the potential impact of COVID-19 on economic substance rules, it is important for businesses to ensure compliance for both current and future periods. At Turner Little, our team of experts will be able to ensure you are equipped to identify and remedy any gaps in requirements. To find out how we can help you, get in touch today.