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Trustees step up to assist HNWIs with economic substance compliance

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Professional trustees have started providing classification services for private clients with offshore assets in a bid to improve overall compliance with the European Union’s economic substance rules.

Although Dawn Quek, principal at Baker McKenzie Wong & Leow, recently told Asian Private Banker that the economic substance rule will have a limited impact on HNWIs, private clients are concerned and are seeking the services of trust companies to identify whether offshore entities and assets fall within the scope of the new regulations.

Case in point, Vistra — an international trust, fund administration and corporate services provider — last week launched its Economic Substance Services and Solutions offering, providing private clients with an economic substance classification questionnaire to identify to what extent they are affected by the economic substance rules.

“The questionnaire results in a report which assists clients to determine whether or not they need to establish substance in the offshore jurisdiction — this is our Classification service. This can be the first step in determining the next steps,” Simon Filmer, global lead, company formation at Vistra, told Asian Private Banker.

The firm is yet to see any significant asset movement but Filmer suggests clients consider all their options before commencing business operations and, for certain business activities — including those related to intellectual property — clients may need to prepare for restructuring.

“All HNW clients will need to review their offshore structures — but in many cases, they will not need to make any changes, beyond some additional reporting,” he added.

To start, Vistra designed a questionnaire specifically for the British Virgin Islands (BVI) owing to its popularity amongst Asian HNW clients over the last two decades. Next, the firm is looking to launch classification solutions for other popular offshore jurisdictions such as the Cayman Islands.

Similarly, John Ashwood, managing director at trust, corporate and fund services provider Zedra Hong Kong, told Asian Private Banker that the firm is also assisting clients in reviewing offshore entity activities, but added that the “unspecified or vague” interpretation of the laws and guidelines has made compliance trickier.

“Many of these initiatives are driven by supranational bodies such as the OECD and EU, however, the laws giving effect to them are legislated for at the individual jurisdictional levels — e.g. the new economic substance laws introduced in the BVI, Cayman Islands and other British Overseas Territories and Crown Dependencies,” said Ashwood.

“This means that the laws apply to entities in these jurisdictions, and are therefore bound to comply with them, willingly or not. Failure to comply can come with serious consequences.”

He added that all professional trustees should be aware of the changes and identify the necessary remedial actions, including potentially restructuring in order to better and more easily comply with the new regulations.

“Certainly this can be a difficult task for professional trustees and their clients when new laws and guidelines being issued are quite vague; however, this does not diminish the responsibility on parties affected by the new laws to make best attempts to fully comply with them, engaging outside expert professional advisors — for example, lawyers, etc. — as necessary to help guide them,” Ashwood explained.

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