The Marshall Islands’ economic substance regulations (“ESR”) require certain legal persons (a “relevant entity” under the ESR) to have sufficient economic substance in the Marshall Islands. A “relevant entity” for ESR purposes is a non-resident domestic entity or a foreign maritime entity. All relevant entities must file a report on economic substance (an “ESR Report”) annually.
The Marshall Islands opened its web portal on July 1, 2020. To comply with the ESR, all relevant entities must submit an ESR Report through the portal. Beginning July 1, 2020, with each annual renewal letter sent to relevant entities, the Marshall Islands have included a notice to register and file an ESR Report. The deadline to complete the ESR Report is twelve months from the relevant entity’s entity renewal date (i.e., “anniversary date”).
Reporting must be completed for the entity’s financial year that immediately precedes the year in which the report is submitted, beginning with the financial year which ends in 2020. Therefore, entities that already received notices (because the corporate renewal date was in the latter half of 2020) should wait to complete the ESR Report in 2021 (if on the calendar year for financial reporting purposes).
Any person authorized to act on behalf of the entity can submit the report. This can be an officer, director or third-party service provider, if properly authorized.
Generally, the ESR Report will address the nature of the relevant entity’s business, the nature of the activities that occur in the Marshall Islands, and certain financial information.
One of the first screens will allow a relevant entity to establish if it is tax resident in another jurisdiction. If non-resident domestic entities or foreign maritime entities cannot establish that they are tax resident in a jurisdiction outside of the Marshall Islands, then the ESR Report must also include whether they have derived income from a “relevant activity.” Relevant activities include the distribution and service center business, financing and leasing business, fund management business, headquarters business, holding company business, intellectual property business, and shipping business.
Relevant entities that engaged in a relevant activity will have additional reporting requirements, including business type, amount and type of gross income, and amount and type of expenses and assets.
Relevant entities that engaged in a relevant activity other than the shipping business or holding company business must also report the physical address of the business in the Marshall Islands, the number of employees, and the number of full-time employees, and must describe how their core income-generating activities are being carried out in the RMI.
If you have additional questions or would like to discuss compliance with the ESR, please contact a member of Seward & Kissel LLP’s Marshall Islands Practice Team listed below.
