Cayman Islands legal and accounting and tax considerations in 2024

Since 2003, Healy Consultants Group assists multi-national Clients’ to timely accurately and completely discharge their annual legal, accounting and tax statutory reporting obligations.

• Accounting and tax considerations

  • All Caymans Islands entities are free of taxation including i) zero corporation tax and withholding tax and ii) zero VAT and payroll taxes iii) no capital gains tax and iv) and no property taxes nor wealth tax v) and zero death or gift taxes vi) no export taxes.
  • That said, most imports are subject to duty, usually 22%.
  • Consequently, Caymans Islands entities are attractive for receiving and paying i) dividends and ii) interest and iii) Intellectual property (IP) royalties.
  • There are no applicable transfer pricing rules.
  • Canadian companies can benefit from a very favorable Tax Information Exchange Agreement (TIEA) between Canada and the Cayman Islands Government. In certain circumstances, a Canadian holding company can legitimately set up a subsidiary in the Caymans Islands and i) subsidiary annual net profits are legally tax exempt and ii) the repatriation of annual net profits to the Canadian holding company do not suffer Canadian corporation tax, because they are treated as exempted surplus dividends.

• Legal and compliance considerations

  • The Companies Act 2021 No. 50 stipulates all entities must maintain a legal registered office in Cayman Islands; to receive official Government communications. As always, Healy Consultants Group will supply our Client with these professional services as outlined on this web page; and
  • For unregulated Caymans Islands entities, it is not necessary to prepare annual financial statements; and
  • Furthermore, the Cayman Islands Companies Act requires entities maintain proper accounting records including accurate and complete documentation relating to entity i) assets and liabilities and ii) sales and purchases and iii) receipts and expenditures. In the comfort of their own home or overseas office, our multi-national Clients’ can maintain these records. It is not necessary to main these records in the Cayman Islands legal registered office; and
  • Cayman’s company registration law requires all businesses to register with the Cayman government for permission to operate within the islands. As a requirement of registration, all companies must have at least 60 percent Cayman ownership or provide goods and/or services that are deemed essential to the country; and
  • The Patents Act (2018 Revision) provides for a Cayman Islands Registry of Patents, to which patents registered in the British or European registries may be extended on application. Protection is available for any graphical mark capable of distinguishing goods, services or undertakings, including by way of words, designs, numerals, letters or the shape of goods and/or packaging; and
  • The Trade Marks Act 2016 establishes a Cayman Islands Register of Trade Marks. Applications may be made to the Registrar of Trade Marks for registration, which is not contingent on previous registration in any other registry elsewhere in the world; and
  • Unless our Client has a CIMA regulatory license, an entity cannot contain words such as “bank”, “insurance”, “trust”, “chartered”, “assurance”, “mutual fund”, “company management”, or “Chamber of Commerce”; and
  • In 2017, the Cayman Islands passed legislation to establish a centralized platform for beneficial ownership information. The legislation requires Caymans entities to maintain a beneficial ownership register.

• Openness and transparency

  • The Caymans Islands complies with i) US FATCA and ii) UK FATCA and iii) the OECD’s Common Reporting Standard and iv) the EU Savings Directive; and
  • To protect the country reputation as a quality financial services center, The Caymans Islands signed:
    • Tax information exchange agreements with 36 jurisdictions including the USA and the UK and the EU; and
    • An automatic data exchange as part of the European Union Savings Directive; and
    • The Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which allows tax information exchange with more than 140 countries.
  • In November 2018, the Cayman Islands revised their FATCA and CRS regulations for businesses that trade and manage securities. Such businesses will have to register with the Cayman Islands Tax Information Authority (TIA) in order to comply with FATCA or CRS requirements; and
  • The Cayman Islands is not a signatory to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting; and
  • Since 2022, UK companies have to publicly disclose their ownership of structures in the Cayman Islands; and
  • Before 31 January, all Cayman Islands entities must file an annual economic substance report with the the Department for International Tax Cooperation. From this report, the Cayman Islands Government sends FATCA and CRS reports to foreign Governments, comprising data on i) shareholders and directors and beneficial owners name and address and ii) USA taxpayer identification number and iii) passport details and iv) bank signatory details.

• FATCA

  • FATCA is a USA federal law that aims to reduce tax evasion by US citizens and US entities. FATCA requires international financial institutions to report to the IRS, relevant information on overseas bank accounts of US taxpayers. Because the Caymans Islands has a special relationship with the USA, certain exemptions are enjoyed including:
    • A typical Cayman Islands holding company is not generally affected by FATCA; and
    • A Cayman hedge fund or private equity fund where more than 50% of the gross revenues are from real estate (or other non-financial assets); and
    • Cayman Islands entities that act solely as managers and advisers of hedge funds and private equity funds; and
  • Cayman Islands entities that are exempt from FATCA reporting must self-certify their status to local and overseas banks by completing a US W8-BEN-E form including i) ticking “Active NFFE” on question 5 and ii) certifying that the entity is an Active NFFE in question 39; and
  • The Cayman Islands signed a Model 1B inter-governmental agreement with the US (the “US IGA”), which allows Cayman Islands financial institutions to comply with FATCA reporting obligations, without direct reporting to the IRS. Instead, reporting directly to the Cayman Islands Tax Information Authority. Those financial institutions include:
    • An investment entity that conducts a business of trading or portfolio and investment management activities on behalf of a customer; and
    • An investment entity that invests, administers or manages funds or money on behalf of other persons; and
    • A custodial Institution entity that holds financial assets for the account of others; and
    • A depository Institution or entity that i) accepts deposits and ii) provides loans and iii) issues letters of credit and iv) finances foreign exchange transactions; and
    • An Cayman Islands entity that i) provides trust or fiduciary services and ii) trading in receivables, notes or similar instruments and iii) finance leases or leased assets and iv) similar business and regularly engages in one or more of the following activities
    • Specified Insurance Companies and Cayman Islands securitisation vehicle; and
    • Almost all hedge funds and private equity funds are classed as Investment Entities and qualify as FFIs under FATCA., including a subsidiary Cayman Islands trading entity of a hedge fund.
    • The majority of trusts that have a Cayman Islands trustee will likely be classified as a financial institution and subject to FATCA reporting.
  • Cayman Islands financial institutions subject to FATCA must do the following:
    • Secure a Global Intermediary Identification Number (“GIIN”) through this IRS portal; and
    • Notify the Cayman Islands TIA of that fact no later than 30 April in the first calendar year; and
    • On or before 31 July in each year, Cayman Islands FFIs should report to the TIA in relation to accounts held by Specified US Persons or a non-US entity with one or more controlling persons that are Specified US Persons; and
    • Revise their account opening forms and/or subscription agreements to ensure they comply with FATCA rules in relation to new accounts; and
    • For funds, it is also important to have updated offering and constitutional documents to ensure FATCA is appropriately addressed.