Marshall Islands substance requirements
In August 2019 and in accordance with the OECD’s BEPS initiative, the Marshall Islands Government passed new substance requirements. Specifically, each 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.
New reporting requirements
- From January 2020 onwards, tax resident Marshall Islands LLC’s will be required to supply to the Government evidence they have a physical office and staff and active director(s) in the Marshall Islands. Healy Consultants Group PLC will assist our multi-national Clients’ with the same;
- By contrast, non-resident Marshall Islands LLC’s must annually supply the Government evidence that the entity is tax resident overseas including i) foreign tax registration numbers and ii) foreign tax returns. Healy Consultants Group PLC will assist our multi-national Clients’ with the same;
- These new rules apply to Marshall Islands LLC’s that are i) trading companies (distribution and services centers) 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;
- Effective mid-2020, all Marshall Islands companies are required to complete an annual online economic substance declaration with 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;
- Newly-formed companies must submit the Economic Substance Declaration within 12 of the first anniversary date;
- Failure to timely comply with the above will result in i) a fine of $10,000 and ii) dissolution of the company;
- Because of the above changes, the EU announced in October 2019 the removal of the Marshall Islands from its blacklist of tax havens. These extra requirements are an attempt by the local Government to improve the reputation of Marshall Islands companies, negatively perceived as “tax havens” entities by international banks, by Governments, by investors and by customers;
What does this mean for our Clients?
- As always, it is important for our Clients to i) be aware of their personal and corporate tax obligations in their country of residence and domicile ii) to fulfil those obligations annually iii) to supply the Marshall Islands Government evidence of the same as soon as practical;
- Let us know if you need Healy Consultants Group PLC help to clarify your local and international annual tax reporting obligations;
- While the preparation of annual financial statements is not legally required, Healy Consultants Group PLC recommends our Clients to still prepare the same, in case the Government of the Marshall Islands or of their country of domicile requires to sight them;
- 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 (click link). Following receipt of a set of draft accounting numbers from your company, Healy Consultants Group PLC will more accurately advise accounting and tax fees. For a dormant company, our fees are only US$950;
- The majority of our multi-national Clients ask Healy Consultants Group PLC to timely, accurately and completely take care of economic substance requirements (ESR) completion and filing for their Marshall Islands company. Our annual fee is US$450 for a dormant company, and US$600 for an active one.
- 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 LLC’s;
- Consequently, we recommend our Clients to conduct international business via alternative zero tax business jurisdictions (click link), possibly through the re-domiciliation of their business to more reputable jurisdictions, including i) Singapore ii) Labuan and iii) Delaware.
- As a short-term solution, engage Healy Consultants Group PLC to register for tax your Marshall Islands company and complete its international accounting and tax filing obligations;
- As a long term solution, engage Healy Consultants Group PLC to re-domiciliate your Marshall Islands business or register a new business in a reputable zero tax country (click link).