Cayman Island

Key benefits

The Cayman Islands are located in the Western Caribbean, south of Florida and Cuba and west of Jamaica. This British Overseas Territory is comprised of three islands; Grand Cayman, Cayman Brac and Little Cayman and have a combined population of approximately 60,000.

The official language of the Cayman Islands is English with the legal system based on the British system. Due to its strong links with the UK the Cayman Islands is considered very politically stable, protected and safe. The Cayman Islands has one of the highest standards of living in the Caribbean with a GNP per capita of around US$49,000. The infrastructure on the Caymans is excellent with good communication facilities and a well established transport system.

The Cayman Islands are a major financial centre and have the fifth largest banking sector in the world with a high concentration of top quality service providers. The Cayman Islands boasts 279 banks and leading global financial institutions, accountancy practices (the big 4 all have a presence in the Caymans) and leading offshore law firms. The Cayman Islands have more registered businesses than they do people!
The regulation of the financial services industry is undertaken by the Cayman Islands Monetary Authority (CIMA) which has a stricter regime than many other offshore jurisdictions. Although perceived as a ‘tax haven’ the Cayman Islands have made a number of steps in recent years to become more legitimate and have achieved greater respect because of improved compliancy. The driving force behind this greater legitimacy was the implementation of the ‘Mutual Legal Assistance Treaty’ in 1986. The purpose of this treaty is to assist law enforcement agencies of other countries when they believe a Cayman Islands Company has been involved in any criminal activities however privacy is still held in the highest regard.
The Cayman Islands offer a tax efficient, respected jurisdiction for the incorporation of an offshore company. The following pages offer information on the benefits of incorporation in the Caymans, the procedure of incorporation and the tax and accountancy regulations imposed by this jurisdiction.

 

Key Benefits

The formation of a Cayman Islands Company is a tax efficient solution for international entrepreneurs. Some of the many key benefits are listed below:

  • All documents and legislation are in the official language of English
  • There are no annual reporting, accounting or auditing requirements for an Offshore Cayman Islands Company
  • Only one shareholder and one director is required. These can be the same person or a corporate body and do not need to include a local
  • There is a complete lack of direct taxation; no corporation, property, capital gains or withholding taxes. This legislation is backed by a 20 year government guarantee (rising to 30 years on application) enabling long term business planning
  • There is no minimum capital requirement for a Cayman Island Company formation
  • The business does not need to be run from the Cayman Islands. It can be run from anywhere in the world
  • Corporate bank accounts

Tax and accounting regulations

A coherent offshore planning tax strategy is essential to maximize the effectiveness of offshore companies. Service Pro can assist by structuring the most tax efficient strategy to satisfy your requirements. Service Pro will guide you as to which jurisdictions offer the best tax structure by identifying the types of tax payable as well as applicable exemptions and incentives. Service Pro will provide tax planning advice that will identify which is the most favourable, tax efficient jurisdiction in which to incorporate.

Below is an overview of the tax and accounting regulations for Exempt Companies in the Cayman Islands:

Tax System:

There are no forms of taxation in the Cayman Islands relating to individuals, corporations or trusts hence there are no taxes on the following:

  • Income
  • Capital Gains
  • Profits
  • Dividends
  • Investments
  • Capital Transfers

International Aspects of Cayman Islands Taxation:

  • Anti-Avoidance Regulation – The Cayman Islands have implemented the ‘Mutual Legal Assistance Treaty’ in order to assist foreign governments with regards to money laundering and illegal activities
  • System of Double Taxation Treaties – There are no double taxation treaties with other parts of the world but instead the Cayman Islands have agreed to assist foreign governments where they believe illegalities and criminal acts have taken place. This assistance does not cover tax offences therefore the government would not disclose information in the light of any allegations of tax offences were made

Annual Reporting Requirements:

  • No requirement to file formal accounts every year but a simple annual declaration must be filed which is a declaration of any changes made to the structure of the company and also confirms that the company has been operating outside of the Cayman Islands

Requirements and administration guidelines

Share Capital:

  • There are no minimum capital requirements for a Cayman Islands Company
  • Bearer shares can be issued but must be held by a Custodian approved by the Cayman Islands Monetary Authority
  • Registered shares can be held in an individual name or corporate body
  • Shares may be issued with nominal or no par value
  • A Cayman Islands Company can be formed with one shareholder
  • Details of shareholders are not maintained on public record

Directors:

  • A minimum of one director is required
  • Corporate directors are permitted
  • Directors do not have to be shareholders or resident in the Cayman Islands
  • Meeting required once a year on the island. Can be done by the appointment of proxies

Restrictions on Name & Activity:

  • The company name must not contain any of the following; Bank, Building Society, Insurance, Fund Management, Asset Management or Trust.

Local Requirements:

  • A registered office must be maintained
  • It is customary to appoint a company secretary but not mandatory. A representative can act in the capacity of a company secretary
  • The company secretary is not required to be a qualified secretary
  • Can either be a corporate body or an individual

Confidentiality:

  • The Confidential Relationship (Preservation) Law makes it a criminal offence to disclose or obtain confidential information in relation to Cayman Companies.

Timescale:

  • Incorporation is quick and will usually take only a few days.

Procedure of company registration

The principle corporate legislation in the Cayman Islands is the Company Law (2007 Revision) which is based on the English Companies Act (1948). The type of company commonly used for international business and investment purposes is an Exempt Company. A Cayman Islands Exempt Company has all the powers of a natural person and can be formed with or without liability.

The procedure for the formation of a Cayman Islands Offshore Company is fast and efficient. The general process is as follows:

For an Individual the following documents are required:

  • A completed application form with details of preferred name and beneficial directors and shareholders (nationality, country of residence, address, profession etc)
  • A scanned and notarized copy of the passports of the beneficial directors and shareholders are required
  • A photocopy of another official document (such as Driving License, ID Card etc) notarized to confirm the copy is a true copy and the photo is a true likeness
  • An original proof of residence showing the name and address of the individual. This can be in the form of a utility bill or bank statement and must not be older than 3 months
  • Two original letters of introduction. This can be from a bank, lawyer, accountant or similar profession.

For a Company the following documents are required:

  • Certified copy of the Certificate of Registration
  • Certified copy of the Company’s Memorandum and Articles of Association
  • Certified copy of the Registered Shareholders with details of shares held by each
  • Certified copy of Register of Directors
  • Certified copy of the Register of Offices
  • For at least 2 Directors the documents set out in ‘Individual’ section above
  • At this point Service Pro will issue an invoice for a Cayman Islands Company Formation. Upon receipt of money we start the incorporation process.
  • The Memorandum and Articles of Association will be sent to the Registrar of Companies along with a sworn statement that the company will carry out activities outside of the island. The Memorandum of Association will include; the name of the company, the address of the registered office of the company, the function and objectives of the company, the share capital of the company and an explanation of liability
  • When the Memorandum of Association is accepted The Registrar of Companies will provide the company with a Certificate of Incorporation

Hedge fund

The Cayman Islands is the jurisdiction of choice for the establishment of offshore funds. Approximately 85% of the world’s hedge funds are domiciled in the Cayman Islands outranking the competing jurisdictions of BVI, Bermuda and Jersey. The Cayman Islands has three times as many Funds as the second most popular offshore jurisdiction for funds, the BVI.

The Cayman Islands are attractive to hedge fund promoters for many reasons, some of which are listed below:

Advantages of establishing a Hedge Fund in the Cayman Islands:

  • The Cayman Islands is a stable jurisdiction with a legal system based on common law.
  • Speed to market – Funds can be established and registered quickly in the Cayman Islands.
  • Cayman Islands does not impose material conditions on the terms of securities offerings by open-ended funds to non-retail investors.
  • No requirement to have Cayman based directors or officers, managers, administrators or custodians.
  • No limit to the asset classes which a fund can acquire or the leverage it may employ.
  • Highly professional service providers, lawyers, accountants etc. are located in the Cayman Islands.
  • Generally there is no Cayman tax applicable to the establishment and operation of funds – there are no corporate gains, income or withholding taxes if any nature.
  • Cayman has full membership of IOSCO and has been commended by the IMF for having strong compliance with regards to anti-money laundering.
  • As from August 2009 Cayman is on the OECD’s whitelist of countries complying with the global standard for tax cooperation and exchange of information.

Establishing a Cayman Island Hedge Fund:

The Mutual Funds Law (2003 Revision) (the Cayman MFL) regulates all mutual funds established in, or operating from, the Cayman Islands.

Hedge funds established in the Cayman Islands will typically take the form of either a company, a limited partnership (the most common form) or a unit trust. In practice most registered funds are set up as exempted companies limited by shares as this is the simplest vehicle to establish and administer.

Below is a brief description of the establishment of a standalone Cayman Islands Hedge Fund (see Appendix 1 for summary). Assumptions are made that the Fund will not be set up as a retail fund or a close ended fund but will offer redeemable equity securities to investors in minimum subscriptions of USD 100,000 or more.

Appendix 1 – Fund Establishment Flowchart

 

Stage 1 – Commercial Structuring:
During this stage there are a number of factors which need to be considered (see Appendix 1) in addition to selection of an investment management vehicle. Whilst there is no need for this entity to be a Cayman Company these are normally used in order to qualify for annual exemption.

Stage 2 – Prepare draft documents:
A draft offering document is prepared describing the shares in all material respects and containing information as necessary to enable a prospective investor in the Fund to make an informed decision.

Draft constitutional documents enshrining share rights and subscription agreements governing the terms on which investors will subscribe for shares and containing subscriber eligibility representations and anti-money laundering KYC requirements are also be prepared.

Stage 3 – Incorporation:
The fund can be established at this stage and the tax exemption certificate can be applied for. The tax exemption certificate guarantees exemption from all Cayman taxes for 20 or 30 years irrespective of any subsequent change in the Law.

Stage 4 – Functionaries:
The Fund will need to negotiate terms with and appoint key functionaries. The Fund will ordinarily require at least two directors who will be responsible for the supervision of the fund. For day to day management an investment manager should be appointed.

There is no requirement for directors to be Cayman residents and often officers of the investment manager will act as directors. Independent directors can be appointed.

An Administrator is required to be located in Cayman or another jurisdiction approved by the CIMA (Cayman Islands Monetary Authority) as having an equivalent anti-money laundering KYC regime. The Administrator will be responsible for calculation of the net asset value of the Fund, the processing of subscriptions and redemptions and the compliance with AML requirements applicable to the Fund’s Investors.

The Fund will also be required to appoint one or more independent Custodians and an auditor approved by CIMA to prepare and file accounts and submit other financial and operating information in respect of the Fund to CIMA.

Stage 5 & 6 – Finalise documentation and agree operational guidelines:
During these stages commercial terms will need to be agreed and documents finalised and executed with functionaries in addition to the operating procedures of the functionaries being confirmed.

Stage 7 – CIMB Filing:
The offering and constitutional documents are finalised and approved and the documents required to establish the Fund are filed with CIMA. The CIMA does not normally raise any issues on the documents filed for a Registered Fund and will normally issue a fund registration within 7 working days. From this point the Fund may begin accepting subscriptions from Investors as a registered Cayman Fund.

Appendix 2 – General Summary of Characteristics of a Cayman Islands Fund

Regulatory Authority
  • Cayman Islands Monetary Authority
Type of Vehicle
  • Company (exempted companies), unit trust, limited partnership
Type of Fund
  • Open or close ended funds or a combination of the two
  • Close ended funds are unregulated
Licensing / registration requirements
  • Non-retail open ended funds registered with CIMB
  • Retail funds must either be licensed or employ licensed administrator
  • Prospectus required on registration / licensing of funds
Companies Registry
  • Annual filing and Annual fees required
  • Limited information available publically
Financial Statements
  • Audited financial statements to be filed with CIMA and signed off by local auditor
Directors
  • No residential requirement
  • Corporate Directors acceptable
  • CIMA require a minimum of 2 directors for registered funds
Shareholders Meetings
  • No requirement for annual meeting
Managers
  • No licensing requirements if Securities Investment Business Law exemption applies
  • Simple annual registration & filing would then be required
Investment restrictions
  • None
By Laws / Constitutional Documents
  • M&AA
  • May be amended by shareholders
Transfer of Shares
  • Unrestricted (unless otherwise stated in M&AA)
Currency
  • Multi-currency funds permitted
Administrator
  • No requirement for local administrator
  • Cayman administrators licensed under Mutual Funds Law
Custodian
  • No Custodian requirements
Investment Advisor
  • No licensing requirements if Securities Investment Business Law Applied

     

  • Simple annual registration and filing would be required
Set up time
  • Company incorporation – 1-2 working days
  • Registration with CIMA – 4-7 working days
Taxation
  • No income, capital gains or corporation tax
  • Government undertaking that no taxation will be levied on the income or property of the fund for 20 years.
Segregated Portfolio / Protected Cell Companies
  • Permitted under the Companies Law
Statutory Merger Provisions
  • None