economic substance

Who is caught

The instruments indexed here approach economic substance mainly through two channels: the Economic Substance Declaration (ESD) filing process operated by the Registrar of Companies, and consequential changes the Economic Substance Act 2018 made to Bermuda's investment funds framework. They do not, on their face, enumerate the full range of entity types and relevant activities that the economic substance regime captures.

• Registered entities: Economic substance requirements apply to registered entities in Bermuda that are subject to them, and such entities are expected to submit an Economic Substance Declaration through the ESD portal.
• Relevant activities: The ESD webinar materials refer to the scope of entities and relevant activities as part of Bermuda's economic substance requirements, but the indexed documents do not list which activities or entity types fall within that scope.
• Investment funds: The Economic Substance Act 2018 amended the Investment Funds Act 2006, affecting Private Funds, Professional Class A and Class B Funds, and (following the later 2019 amendments) open-ended and closed-ended funds and overseas funds managed or promoted in or from Bermuda.

Sources: Economic Substance Declaration Webinars (2020-04-09) · NOTICE - Bermuda Investment Funds Amendment Act 2019 (2020-01-20) · Notice - Changes to Bermuda's Investment Fund Regime (2019-05-30)

Key duties

The central economic substance duty appearing in these documents is the filing of an Economic Substance Declaration. The remaining obligations flow from the amendments the Economic Substance Act 2018 made to the investment funds regime, and are fund-registration and ongoing-compliance duties rather than economic substance declarations as such.

Economic substance declaration

• ESD portal filing: Registered entities subject to economic substance requirements submit their Economic Substance Declaration through the ESD portal, which opened for submissions on 1 May 2020.

Investment funds regime

• Registration: Registered Funds (Private and Professional Funds) must apply to the Authority for registration and approval before commencing trading, with Private Fund applications including fund information, the offering document and service provider details.
• Service provider and custody: Private Funds must appoint a local service provider authorised and regulated by the Authority, and a custodian for safekeeping of assets unless the Authority waives that requirement.
• Annual certification: Operators of Private Funds must annually certify ongoing compliance with the qualifying and registration criteria.
• Annual filings: Operators of Private Funds must annually file net asset value information, underlying asset details, management accounts or audited financial statements, and details of any material changes.
• Fit and proper: Following the Investment Funds Amendment Act 2019, service providers, directors and officers of investment funds must satisfy an express fit and proper requirement.
• Transition deadlines: Existing funds previously classified as Excluded, Class A or Class B Exempt Funds had a six-month transition period expiring 1 July 2019; existing closed-ended and overseas funds were given a further six-month transition ending 30 June 2020 to assess and achieve compliance.

Sources: Economic Substance Declaration Webinars (2020-04-09) · NOTICE - Bermuda Investment Funds Amendment Act 2019 (2020-01-20) · Notice - Changes to Bermuda's Investment Fund Regime (2019-05-30)

Exemptions and carve-outs

The indexed documents do not set out exemptions from Bermuda's economic substance requirements. The only carve-out-type provision noted is within the investment funds regime, where the Authority may waive the custodian requirement for Private Funds if certain requirements are met, and where the Investment Funds Definition Order 2019 clarifies arrangements not intended to be captured as investment funds.

Sources: NOTICE - Bermuda Investment Funds Amendment Act 2019 (2020-01-20) · Notice - Changes to Bermuda's Investment Fund Regime (2019-05-30)

Enforcement and penalties

The instruments indexed here do not set out specific penalty provisions for breach of economic substance requirements. They note only that the Authority will begin enforcing the amended investment funds requirements from 30 June 2020 alongside its review of annual certifications, without stating the sanctions available.

Sources: NOTICE - Bermuda Investment Funds Amendment Act 2019 (2020-01-20)