Following pressure by the OECD and the EU to tackle tax evasion, money laundering and lack of transparency in international trade, the Republic of the Marshall Islands Economic Substance Regulations of 2018 (the “Regulations”) entered into force on 1st January 2019 and were further amended on 21st February 2019 and 29th August 2019. They are applicable to all “relevant entities” engaged in a “relevant activity.” In general, the Regulations require Marshall Islands companies engaging in a relevant activity to have a certain and actual level of economic substance in the Marshall Islands, including management, employees or other physical presence, in circumstances where such companies are not tax resident in another jurisdiction.

Having said the above, Marshall Islands companies owning or managing vessels flying the flag of the Marshall Islands are, generally speaking, not within the scope of the Regulations and are accordingly not required to have any economic substance in the Marshall Islands. The position is more complicated regarding a Marshall Islands holding company that owns either in whole or in part a shipowning or shipmanagent company; the guidelines published by the Marshall Islands Registrar of Corporations do not clarify how holding companies are to be treated although it appears likely for such companies, in line with the above, to be considered as not being within the scope of the Regulations. Needless to say, Marshall Islands companies which do not perform exclusively shipping activities and not have the required level of substance in the Marshall Islands, may well be considered as being in breach of the Regulations.