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New recordkeeping requirements for Marshall Islands incorporated companies

The Republic of Marshall Islands (RMI) introduces new recordkeeping requirements for Marshall Islands incorporated entities. The new legislation updating the Marshall Islands (RMI) Associations Law introduces a requirement for all RMI incorporated entities to keep records of beneficial owners.
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Within the EU there has for the last 10 years been a heightened focus to curb harmful tax competition, not only between the EU member states but also between third countries and in territories to which EU treaties do not apply. The Code of Conduct Group set up by the ECOFIN Council in March 1998 has prepared a number of Council conclusions, including the EU list of non-cooperative jurisdictions for tax purposes – adopted by the ECOFIN Council on 5 December 2017 (the “List“). The List was prepared throughout 2017 and is intended to promote good governance in taxation worldwide, maximising efforts to prevent tax avoidance, tax fraud and tax evasion.

The Republic of Marshall Islands (“RMI“) was included in the edition of the List published on December 5th,  2017. Since then the government of RMI has had a close dialog with the Council and has made several commitments to remedy the concerns of the EU. On March 13th 2018 the work paid off and RMI was removed from the List.

As part of the commitment to the EU the parliament of the Republic of Marshall Island recently passed legislation updating the Marshall Islands (RMI) Associations Law and introducing new recordkeeping requirements for RMI incorporated companies. In short the amendments introduces the requirement for all RMI incorporated entities to keep records of beneficial owners.  The following summarizes the four key changes regarding recordkeeping requirements;

1.   Information on beneficial owners shall be kept in the entity’s internal records:

In addition to the records the entities are already required to keep under the law, the new amendments add a requirement for non-resident domestic entities to use all reasonable efforts to obtain and maintain an up-to-date record of the names and addresses of their beneficial owners. Beneficial owners in this respect includes any natural persons who exercise control over the entity through direct or indirect ownership of more than 25% of the ownership interests or voting rights.

There is no requirement as to the format of such records – the main target is that the entity keeps record over its beneficial owners and that such records can be presented upon request (also see 2 below).

Publicly traded companies are exempted from the requirement, and for existing entities, there is a 360-day phase-in period, which runs until November 2018. There are penalties for knowingly or recklessly failing to keep, retain, or maintain records as required.

2.   Records must be provided to the registered agent on demand:

While the accounting, legal ownership, and beneficial ownership records required under the Associations Law generally are to be kept by the entity, the amendments require non-resident domestic entities, under certain limited circumstances, to provide these records to their registered agent in the RMI upon request. Failing to provide records within 60 days of such a request, or wilfully producing false or misleading records, may result in substantial penalties under the amendments.

3.   Corporations now must record bearer share information:

A significant new change under the amendments is that corporations issuing bearer shares must now use all reasonable efforts to keep up-to-date records of all holders and beneficial owners of bearer shares as well as any subsequent transfers.  In order to maintain the validity of bearer shares, including any and all rights and privileges of a holder of such shares, these records must be recorded with the corporation’s registered agent in the RMI. Bearer share information may be recorded with the registered agent by completing the forms “Declaration of Holders and Beneficial Owners of Bearer Shares” or “Declaration of Transfer of Bearer Shares”. The forms can be obtained by either contacting SVW or IRI directly.

A 360-day phase-in period is provided for existing bearer shares, which also runs until November 2018.  Bearer shares that do not comply with the recordkeeping obligations within the prescribed period must be cancelled by the corporation within the timeframe specified in the amendments.

4.  Annual Attestation:

The amendments also obligate non-resident domestic entities  (except publicly traded companies) to make an annual attestation to the Registrar of Corporations that the records referred to above are being maintained as required.  The plan is to integrate the attestation into the Registrar’s invoicing process and, once that has been implemented, the requirement to make this attestation is expected to be effortless for most clients.

For further information on this topic please contact Ms. Christine Rødsæther or Ms. Camilla Flatum or International Registries Inc. directly through their website www.register-iri.com