Originally published in September 2001

There is a trend towards international groups establishing holding companies with a physical presence in offshore jurisdictions. The use of offshore holding companies is not new. What is new is the motivation for their use.

Historically the use of offshore holding companies was driven largely by taxation mitigation and in the right circumstances depending upon, amongst other factors, the location of investors, the source of profits and the existence of double tax treaties between the relevant jurisdictions, a holding company in an offshore jurisdiction could provide taxation savings. Onshore jurisdictions spent and still spend considerable time and effort countering the tax motivated use of offshore holding companies.

The new motivation for establishing an offshore base is not directed primarily at reducing taxation but rather introducing greater flexibility in the way international groups operate. This manifests itself in the form of a physical presence (personnel and leased office space) and substantial activities (not of the manufacturing kind but in the form of a few key personnel engaged in management, treasury, marketing or sales operations). Ironically, establishing a physical presence for commercial reasons may in fact assist the tax arguments, but that is another matter.

The trends which have prompted this new approach are first, the globalisation of business, secondly, the globalisation of share ownership both directly and through mutual funds of one sort or another and thirdly, the mobility of manpower and resources. The development of the offshore jurisdictions in terms of infrastructure and recognition has also helped. In many ways some of the so-called "offshore jurisdictions" (a term which is often used pejoratively) have become effectively zero-tax onshore jurisdictions now that it has been recognised that revenue collection by means other than direct taxation is not a matter for international disapproval.

Many businesses operate across borders with no particular jurisdiction offering itself as the natural base for the business in terms of the location of supervisory, management or treasury functions or as the place from which products manufactured and assembled worldwide are sold. This is particularly the case with the new technology companies where product development may take place in one jurisdiction, production of components in another and assembly in a third.

The globalisation of share ownership through both direct investment and mutual funds means that shareholders are no longer regional in their investments – they are prepared to invest in entities which are perhaps, initially at least, unfamiliar to them in terms of corporate mechanics.

The mobility of manpower and resources is a result, in part, of the development of worldwide communication. Nowadays a manager can often operate from almost anywhere in the world given the appropriate technology. There is no natural place for them to be to do their job.

Given these trends many businesses are considering why their base – which can mean the conduct of any of the management, treasury, marketing or sales functions already referred to - is located in a particular jurisdiction. Often the location has not been selected at all but determined almost accidentally based on events in the development of a business. Allowing the base to be determined without considering the international nature of the business is unfortunate because moving offshore later, whilst not impossible, can give rise to some difficult issues including the inevitable accusation that the move is entirely motivated by taxation. Starting with the correct offshore structure at the outset is the best approach.

One offshore location which has seen an increasing number of international groups, both listed and private, establish a physical presence on its shores is the Cayman Islands. Ignoring taxation issues, which may produce benefits or burdens depending upon the circumstances, there are many reasons why having a base with a physical presence offshore, such as the Cayman Islands, may be beneficial.

Central time location

For businesses operating in Asia, Europe and the Americas, a jurisdiction with a central time location like the Cayman Islands can offer several benefits from the point of view of coordinating and managing the business – not only in terms of overlapping time zones but also reduced travel times and costs.

Access to Markets

Locating offshore gives treasurers access to capital markets and financial products which may be unavailable or restricted onshore.

Corporate Flexibility and Group Planning

The Cayman Islands legal system is based on English common law with the addition of local statutes which have changed the common law so as to meet the demands of a modern legal system. As such the Cayman Islands provides an ideal base from the point of view of corporate structuring offering ready solutions for joint ventures, vehicles for direct investment and for highly structured transactions. It also offers a highly flexible approach to repatriation and distribution of funds. In particular, shares of a Cayman Islands company may be redeemed or repurchased if the Articles of Association so provide, and repayment of par value or premium may be made out of the share capital, share premium account or capital if the company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. Dividends may be paid out of profits or, subject to a solvency test, share premium (i.e. the difference between the subscription price for shares and their par value). The definition of profits is not governed by statute but by the Articles of Association and common law and may include income and realised and unrealised gains. The share premium account may also be used to fund a bonus issue and a cash dividend, subject only to the company being able to pay its debts as they fall due in the ordinary course of business following the date of the distribution.

There is also no exchange control in the Cayman Islands on the movement of funds.

Light Regulation

A business not involved in financial services is not likely to be subject to regulation in the Cayman Islands in respect of its activities as such. It may be necessary for the entity to obtain certain licenses in respect of its establishment, however, if it carries on its business in such a way that it conducts its business in the Cayman Islands and works permits will be required for non-Caymanian employees.

Corporate Compliance

There are no burdensome general corporate compliance requirements in the Cayman Islands. The following points should be noted:

  • A company must maintain a registered office in the Cayman Islands at which must be kept:-

    1. the register of mortgages and charges;
    2. the register of officers and directors.

  • Although considered convenient, there is no requirement to maintain the minute book in the Cayman Islands as a matter of Cayman Islands law.
  • No requirement exists under the Cayman Islands Companies Law to appoint Cayman Islands resident directors or officers, a resident representative or any other service providers in the Cayman Islands.
  • Cayman Islands law does not mandate the location of the share register (unless the company is an ordinary company) which need not be maintained in the Cayman Islands if it is inconvenient to do so. If the company is an ordinary company the register must be maintained at the registered office in the Cayman Islands.
  • There is no obligation to notify publicly of the intention to close the register. The position is governed by the Articles of Association.
  • A Cayman Islands exempted company is not required by law to hold an annual general shareholders meeting but may determine to do so pursuant to the Articles of Association. The location of the meeting is a matter for the Articles of Association. An ordinary company is required to hold an annual meeting of its shareholders but again this need not be in the Cayman Islands. Many Cayman Islands incorporated listed companies do nevertheless hold their annual general meetings in the Cayman Islands.
  • No requirement to appoint auditors or to file accounts with any Cayman Islands Governmental authority. The matter is governed by the Articles of Association and applicable listing rules. Directors are under a statutory obligation to maintain such accounts as are necessary to give a "true and fair" view of the company’s financial standing and to explain its transactions.
  • Incorporation and annual filing fees are low and depend upon the size of the authorised capital.


Cayman Islands companies have been listed on NASDAQ, the New York Stock Exchange and the Hong Kong Stock Exchange. Many of these Companies started life as Cayman Islands incorporated companies and have therefore been through the complete international public offering process (rather than simply being redomiciled to the Cayman Islands after initial listing in another jurisdiction).

There are no prospectus filing requirements in the Cayman Islands for a public company and there is no Cayman Islands Governmental or regulatory review. No Governmental approval is required for transfer of securities.

Anti-takeover provisions and financial assistance

Subject to an overriding duty on the directors to act in good faith and in the interests of the Company, it is possible to structure a range of anti-takeover provisions into the constitutional documents and as directors powers. Furthermore subject to the above qualification relating to directors duties, financial assistance may be provided for the acquisition of shares in a Cayman Islands company.

Migration Provisions

A Cayman Islands exempted company may migrate (without reincorporation or transfer of assets and liabilities) to (or from) certain other jurisdictions. There are a number of examples of companies (some of them listed) formed in a number of states in the United States using similar provisions to migrate offshore.


At a time when the Cayman Islands is being assisted by the onshore jurisdictions in its fight to remove the remnants of foreign tax evasion from its shores to leave legitimate investors and international institutions, it is interesting to detect a trend towards the establishment of physical presences for general commercial reasons when taxation planning, although obviously a relevant factor, is no longer the primary motive. Although not suitable for all businesses, for those which have no natural base, it appears that offshore may well be the place to be for key management, treasury, marketing or sales operations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.