Marshall Islands economic substance requirements in 2021

In August 2019, the Marshall Islands government passed new Economic Substance Requirements (ESRs) for companies registered in the country.

  • 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 havens black list. These extra requirements are an attempt by the local government to improve the reputation of Marshall Islands companies, negatively perceived as ‘tax haven’ entities by international banks, governments, investors and customers.
  • Problems and solutions

    Healy Consultants Group PLC will help multi-national Clients as follows:

    New legal requirementSimple, 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 PLC 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$600, Healy Consultants Group PLC will prepare and file this report for an active company. For a dormant company the fee is US$450.
    • 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 PLC will timely accurately and completely discharge your Marshall Islands annual legal, accounting and tax obligations.
    • If required, Healy Consultants Group PLC 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 PLC 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.

  • Case study

    • Annual economic substance reporting obligations met

      Background

      Our client, based in Canada, runs a pharmaceutical distribution company incorporated in the Marshall Islands. It was incorporated in 2012 and has been dormant and not generated any forms of income since.

      In the third quarter of 2021, our Client engaged Healy Consultants Group PLC for our Marshall Islands annual company renewal services, including i) economic substance 2021 report filing for a dormant entity to be submitted to the International Registries ii) company secretary and legal registered office and iii) the settlement of the annual corporation maintenance fee to the Trust Company of the Marshall Islands, Inc.

      Engagement Planning

      • In the third quarter of 2021 our Client settled our renewal fees.
      • Within a week, this engagement was assigned to Elmira, our in-house accounting and tax expert based in Singapore.
      • Elmira verified all economic substance reporting obligations for this Client and informed the Client about all upcoming deadlines, as well as the main milestones of this engagement to clearly define an action plan for the upcoming months and set Client expectations.

      Economic Substance Reporting Obligations

      • Firstly, Elmira verified and confirmed with our Client via email that the company was dormant during the financial period.
      • Upon confirmation of the dormancy, Elmira adjusted list of mandatory filings applicable for our Client’s business.
      • Thereafter, she prepared a draft economic substance reporting filing form, which was sent to our Client for their review and approval.
      • Within 24 hours of receipt of confirmation from the Client, Elmira submitted the economic substance filing to the International Registries on 1 October 2021 and sent confirmation of the same to the Client.
      • At the same time, Elmira settled the annual corporation renewal fee with the Marshall Islands Registrar.
      • On 2 October 2021, International Registries successfully issued the Certificate of Economic Substance Reporting Compliance to our Client and proof of annual corporation renewal fees payment.

      Engagement completion

      • Our team sent an email to our Client on 6 October 2021, summarizing all legal, compliance, and economic substance reporting obligations for the financial year end 2021, and confirming completion of the same. The email included proof of the economic substance filings from the government and proof of payment to the Trust Company of Marshall Islands, Inc., confirming completion of the same.
      • Healy Consultants Group PLC asked our Client for a online professional reference.
  • Conclusion

    As a short-term solution, engage Healy Consultants Group PLC 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 PLC to re-domicile your Marshall Islands business or register a new business in a reputable zero tax country.

Contact us

For additional information on our company registration services in Marshall Islands, please contact our in-house country expert, Ms. Chrissi Zamora, directly:
client relationship officer - Chrissi