The Economic Substance Amendment (No.2) Regulations 2021 (the “Amendment Regulations”) were enacted on 23 December 2021, making certain changes to the Economic Substance Regulations 2018, principally to amend the definition of the relevant activity of “fund management”.

Pursuant to the Amendment Regulations, an entity will be carrying on the relevant activity of “fund management” if it manages investments for an investment fund. For these purposes, “investment fund” has the meaning given to such term in the Investment Funds Act 2006 (and includes both open-ended investment funds and closed-ended investment funds), and the phrase “managing investments” should be construed in accordance with the Investment Business Act 2003 (the “IBA”). Consequently, where an entity is managing or offers, or agrees to manage, investments for an investment fund, it will be carrying on the relevant activity of “fund management”, whether or not it is required to be licensed to conduct such activity in accordance with the IBA. Prior to the Amendment Regulations, an entity would be carrying on the relevant activity of “fund management” only if it managed investment for funds in respect of which a licence was required in accordance with the IBA or for which a licence would be required if such activity was taking place in Bermuda.

The operative date of the Amendment Regulations is 1 January 2022. Accordingly, for a newly in-scope entity carrying on fund management with a financial year end of 31 March, for example, the first relevant financial period will be the financial year end, ending on 31 March 2022 (not 31 March 2023). Such entity will therefore be required to file its economic substance declaration form (or claim its tax residency outside of Bermuda, as the case may be) within six months after 31 March 2022, i.e., on or before 30 September 2022. For a newly in-scope entity with a financial year end of 31 December, for example, the first relevant financial period will be the financial year end, ending on 31 December 2022. This entity will therefore be required to file its economic substance declaration form (or claim its tax residency outside of Bermuda, as the case may be) within six months after 31 December 2022, i.e., on or before 30 June 2023.

Certain consequential revisions have also been made to the Economic Substance Guidance Notes, in particular to the Schedule - Section E “Fund Management”, linked to here.

How can we help?

Conyers has been closely involved with the implementation of Bermuda’s economic substance legislation as well as the Registrar’s Economic Substance Declaration Portal.

Our lawyers have advised and assisted our clients with their assessment of the impact of the economic substance requirements, as well as the filing of their initial Declaration Forms. In so doing, we have acquired an unrivalled understanding in Bermuda of the economic substance requirements of various types of entities, across all relevant activities.

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