Shipping – Marshall Islands economic substance update

26 August 2020

The Marshall Islands ‘Reporting Portal’ was launched last month on the Islands’ International Registries website and it will now be accepting reports in respect of the Islands’ Economic Substance Regulations. The Economic Substance Regulations are not new and took effect from 1 January 2019 as a response to the EU’s measures to ensure fairer global taxation standards, specifically by low or zero tax jurisdictions, and followed the OECD’s recommendations to prevent Base Erosion and Profit Shifting (BEPS). 

Companies within the scope of these rules will need to file their Economic Substance Regulations ‘ESR’ report within 12 months from their anniversary date falling after 1 July 2020 and annually thereafter, meaning that each entity will have its own specific filing deadline. The ESR Report should be completed once the accounting period ending in the calendar year 2020 has past.

In the context of shipping, any ‘non-resident domestic’ entities engaged in the ownership and operation of Marshall Islands registered vessels will be required to confirm that the relevant economic substance requirements have been met, if they are: “compliant will all statutory and other obligations under the Marshall Islands Associations Law, the Marshall Islands Maritime Act and compliance with all applicable International Maritime Organisation and International Labour Organisation regulations, customs and manning requirements”. They will also be required to summarise the income received during the relevant period. Alternatively, entities which are subject to a tax regime, which may also include applicable tonnage tax regimes, in a country outside the Marshalls Islands will need to provide confirmation of their tax status.

‘Foreign maritime' entities engaged in the ownership and operation of Marshall Islands registered vessels are only required to confirm that they are not managed and controlled from the Marshall Islands.

Pure equity holding company businesses will need to declare that they are compliant with all filing and statutory requirements under the Associations Law and maintain a registered agent in the Marshall Islands.

Whilst the Economic Substance Regulations in respect of the Marshall Islands entities undertaking shipping activities or pure equity holding company businesses do not currently seem to result in significant additional substance requirements on the Islands, shipping groups should still actively review their existing structures and business models to ensure other BEPS measures, implemented by other countries where a group may operate, do not also impact the group.

This article was written by James Bailey, Director, Shipping and Transport. To contact James please call: +44 (0)78 6614 8272 or email