Marshall Islands economic substance requirements in 2024
In August 2019, the Marshall Islands government passed new Economic Substance Requirements (ESRs) for companies registered in the country.
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ESR rules
- Every Marshall Islands LLC must be tax-resident in a foreign country. Annually, the shareholders and directors must submit a declaration to the Marshall Islands government confirming where the LLC is tax resident.
- From January 2020, tax-resident Marshall Islands LLCs must supply to the government evidence they have a physical office and staff and active director(s) in the Marshall Islands.
- Non-resident Marshall Islands LLCs must also annually supply the government evidence the entity is tax-resident overseas including i) foreign tax registration numbers and ii) foreign tax returns.
- ESRs apply to Marshall Islands LLCs that are i) trading companies (distribution and services centres) ii) holding companies iii) fund management companies iv) financing and leasing companies v) IP holding and licensing companies vi) shipping companies, and possibly vii) banking and insurance.
- Because of the above changes, the EU announced in October 2019 the removal of the Marshall Islands from its tax neutral black list. These extra requirements are an attempt by the local government to improve the reputation of Marshall Islands companies, negatively perceived as ‘tax neutral’ entities by international banks, governments, investors and customers.
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ESR filing procedure
- Every year, the company must file an economic substance report to the Marshall islands government as part of the company renewal process. Healy Consultants will handle this administrative task.
- The ES report is filed online and includes i) confirmation of whether the company conducted any business activity in the reporting period ii) if the company has local staff or office and iii) the name, address and phone numbers of the company directors.
- Within one day of filing the online report, we receive the Economic Substance certificate for the company. The certificate includes the company name and number. The Certificate is valid for one year, and is also not available for public viewing.
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Problems and solutions
Healy Consultants Group will help multi-national Clients as follows:
New legal requirement Simple, practical low cost solution Marshall Islands companies engaged in relevant activities must i) conduct income-generating activities in the Marshall Islands ii) rent physical office space in the Marshall Islands iii) hire staff in Marshall Islands and iv) have active directors in the Marshall Islands.
Healy Consultants Group will assist you to: - Locate a small shared physical office space for a one-time fee of US$950. Rental fees are then paid by our Clients directly to the landlord.
- Recruit a local, low-salary admin employee for a one-time fee of US$4,950.
- Secure your local visa for a one-time fee of US$4,950.
Effective 2020, all Marshall Islands companies must complete an annual online economic substance declaration confirming whether or not the company is conducting relevant activities. The notification must be submitted to the Registrar of Corporations.
The declaration includes i) business type ii) amount and type of gross income iii) amount and type of expenses and assets iv) premises v) number of employees, including number of full-time employees and vi) information on core income-generating activities.
- For a fee of US$700, Healy Consultants Group will prepare and file this report for an active company. For a dormant company the fee is US$550.
- The contents of this report will be agreed with our multi-national Clients, to ensure their business goals continue to be met.
Failure to timely comply with the above may result in i) a fine of $10,000 and/or ii) dissolution of the company.
- Together with our multi-national Client, Healy Consultants Group will timely accurately and completely discharge your Marshall Islands annual legal, accounting and tax obligations.
- If required, Healy Consultants Group will assist you to prepare accurate and complete financial statements for your Marshall Islands business, for these accounting and tax fees.
- While the preparation of annual financial statements is not legally required, Healy Consultants Group recommends our Clients prepare them, in case the government of the Marshall Islands or of their country of domicile requires to sight them.
Our multi-national Client does not want to submit an annual ESR report to the Marshall Islands government.
In 2020 and 2021 i) there is a 50% probability that the Marshall Islands will be blacklisted again by the EU or another western government and ii) it will become even more challenging to secure and maintain multicurrency corporate bank account numbers for Marshall Islands LLCs.
- We help our Client re-domicile the Marshall Islands entity to alternative reputable zero tax jurisdictions, including Singapore or Delaware.
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Conclusion
As a short-term solution, engage Healy Consultants Group to register for your Marshall Islands company for tax, and complete its international accounting and tax filing obligations.
As a long term solution, engage Healy Consultants Group to re-domicile your Marshall Islands business or register a new business in a reputable zero tax country.
