s.4Requirement to satisfy economic substance test
4
Section 4Part 0 —

Requirement to satisfy economic substance test

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Subject to subsections (5), (6) and (7) and to regulations made under section 15, a relevant entity that carries on a relevant activity is required to satisfy the economic substance test in relation to that relevant activity.
Subject to subsections (3), (4) and (5), a relevant entity satisfies the economic substance test in relation to a relevant activity, if the relevant entity —
conducts core income generating activities 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.
A relevant entity complies with subsection (2)(b) if in relation to a relevant activity —
the relevant entity’s board of directors, as a whole, has the appropriate knowledge and expertise to discharge its duties as a board of directors;
meetings of the board of directors are held in the Islands at adequate frequencies given the level of decision making required;
during a meeting of the board of directors described in paragraph (b), there is a quorum of directors present in the Islands;
the minutes of the meetings of the board of directors described in paragraph (b) record the making of strategic decisions of the relevant entity at the meeting; and
the minutes of all meetings of the board of directors and appropriate records of the relevant entity are kept in the Islands.
A relevant entity satisfies the economic substance test in relation to a relevant activity if its core income generating activities in relation to that relevant activity are conducted by any other person and the relevant entity is able to monitor and control the carrying out of core income generating activities by that other person.
A relevant entity that is only carrying on a relevant activity that is the business of a pure equity holding company is subject to a reduced economic substance test which is satisfied if the relevant entity confirms that —
it has complied with all applicable filing requirements under the Companies Act (2026 Revision); and
it has adequate human resources and adequate premises in the Islands for holding and managing equity participations in other entities.
A relevant entity that is carrying on a relevant activity shall satisfy the economic substance test from the date prescribed.
A relevant entity that is carrying on a relevant activity that is a high risk intellectual property business is presumed not to have met the economic substance test for a financial year, even if there are core income generating activities relevant to the business and the intellectual property assets being carried out in the Islands, unless the relevant entity —
can demonstrate that there was a high degree of control over the development, exploitation, maintenance, enhancement and protection of the intangible asset, exercised by an adequate number of full-time employees with the necessary qualifications that permanently reside and perform their activities within the Islands; and
provides sufficient information under section 7(4)(j) to the Authority in relation to that financial year to rebut this presumption.
A relevant entity that is carrying on more than one relevant activity is required to satisfy the economic substance test in relation to each relevant activity.

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