A Core Income Generating Activity (CIGA) is defined under the Cayman Islands International Tax Co-operation (Economic Substance) Act, 2018 (as revised) as an activity that is of central importance to a relevant entity in terms of generating its relevant income. The fundamental rule is straightforward: if a relevant entity conducts a CIGA, that CIGA must be conducted in the Cayman Islands. CIGAs are the first limb of the three-part Economic Substance test, and getting them right can be the most operationally demanding aspect of compliance.
CIGAs are activity-specific
The ES Act sets out examples of CIGAs for each of the nine relevant activities. These examples are neither mandatory nor exhaustive. They serve as a practical guide to the TIA and to entities themselves, but the TIA’s overall assessment will consider which activities the entity actually conducts and whether those activities are genuinely being carried out in the Cayman Islands.
An entity need not perform every listed example of CIGA for its relevant activity. It must, however, conduct those CIGAs that it does perform in the Cayman Islands.
CIGAs for fund management business.
For a fund management company, the ES Act lists four illustrative CIGAs:
- taking decisions on the holding and selling of investments;
- calculating risk and reserves;
- taking decisions on currency or interest fluctuations and hedging positions; and
- preparing reports or returns to investors or to CIMA.
These activities reflect the core judgement calls and governance functions that distinguish a genuine fund manager from a passive vehicle. These activities must be conducted in a manner that demonstrates the relevant CIGAs are being carried out in the Cayman Islands.
CIGAs for intellectual property business
For an IP holding company, CIGAs typically include research and development of the intangible assets, making strategic decisions about the exploitation and licensing of IP rights, and managing the protection and enhancement of those assets through registration, enforcement and ongoing development.
For entities in the ‘high risk IP’ category, the CIGA standard is effectively elevated. The entity must demonstrate a high degree of control over the full DEMPE (development, enhancement, maintenance, protection and exploitation) cycle, exercised by employees permanently based in the Cayman Islands.
CIGAs for other relevant activities
Each relevant activity has its own set of illustrative CIGAs.
For financing and leasing business, CIGAs include negotiating and agreeing funding terms, identifying and acquiring assets to be leased, setting terms and duration of financing or leasing, and monitoring and revising agreements.
For headquarters business, CIGAs include taking decisions on the overall strategies of a group, managing and bearing risk, and providing group-level services such as compliance and human resources.
The common thread across all categories is that CIGAs are the substantive, value-adding decisions and activities, not administrative or mechanical functions.
The distinction between CIGAs and non-CIGAs
Not every activity that takes place in the Cayman Islands counts as a CIGA.
Administrative functions, such as maintaining statutory books, filing annual returns, managing bank accounts, are necessary for compliance but are not CIGAs.
The ES Guidance distinguishes between activities that are ‘of central importance’ to income generation and those that are merely ancillary. The TIA looks at the substance of what the entity does, not just a list of tasks performed on-island.
An entity that holds board meetings in Cayman but makes no genuine strategic decisions at those meetings will not satisfy the directed-and-managed or CIGA requirements.
Understanding which activities constitute CIGAs for a particular business is the starting point for any meaningful Economic Substance compliance exercise. If a CIGA is not conducted in the Cayman Islands, the ES test is failed regardless of how well the other limbs are met.
Related questions: Can a Cayman Islands entity outsource its Core Income Generating Activities and still satisfy Economic Substance? | What are the Economic Substance requirements for a fund management company in the Cayman Islands? | What are the Economic Substance requirements for a Cayman Islands intellectual property holding company?
WB Group helps Cayman entities identify their CIGAs and structure compliant operations. Contact us to discuss your obligations.
FAQs
A Core Income Generating Activity (CIGA) is defined under the Cayman Islands International Tax Co-operation (Economic Substance) Act, 2018 (as revised) as an activity that is of central importance to a relevant entity in terms of generating its relevant income. The fundamental rule is straightforward: if a relevant entity conducts a CIGA, that CIGA must be conducted in the Cayman Islands. CIGAs are the first limb of the three-part Economic Substance test, and getting them right can be the most operationally demanding aspect of compliance.
No. The examples of CIGAs set out in the Schedule to the ES Act for each relevant activity are illustrative only. They are neither mandatory nor exhaustive. A relevant entity need not perform every listed CIGA for its category. However, any CIGA that the entity does conduct must be conducted in the Cayman Islands. CIGAs must be conducted in the Cayman Islands to the extent required by the entity’s business model and relevant activity.
No. Administrative and mechanical functions, such as maintaining statutory registers, filing annual returns, or managing bank accounts, are not CIGAs. The ES Guidance requires that CIGAs be activities of central importance to income generation. The TIA distinguishes between genuine, value-creating activities and routine compliance functions, and will not credit the latter as satisfying the CIGA limb of the ES test.
CIGAs may be outsourced to a service provider based in the Cayman Islands, provided the relevant entity retains adequate supervision and control over the outsourced activities. CIGAs cannot be outsourced to a provider based outside the Cayman Islands. The outsourcing must be genuine: entities cannot use outsourcing as a mechanism to circumvent the substance requirements.