Maples and Calder and Maples Fund Services representatives explain how US and UK Fatca will impact Cayman-based funds.

The implementation of the US Foreign Account Tax Compliance Act (US Fatca) and the less well-known but equally applicable UK equivalent (UK Fatca) have been a topical and core focus for Cayman Islands' regulators within the past 12 months. US and UK Facta directly apply to the vast majority of Cayman Islands-domiciled funds vehicles, notably notwithstanding they have no assets or investors in either the US or the UK.

Pursuant to commitments given in the Fatca inter-governmental agreements signed with the US and the UK, the Cayman Islands' government has enacted laws to give effect to US and UK Fatca.

The Cayman Islands has also committed, along with 57 other 'early adopter' countries, to the implementation of the OECD Standard for Automatic Exchange of Financial Account Information – Common Reporting Standard (the CRS). It is anticipated that the Cayman Islands will pass legislation in late 2015 to give effect to the CRS with first reports due in early 2017.

As with US and UK Fatca, financial institutions will be required to have procedures in place to identify, and report information in respect of specified persons in the jurisdictions which sign and implement the CRS. A further 35 countries have committed to implement the CRS but with first reports due in 2018.

The initial deadline for US and UK Fatca registration with the Cayman Islands Tax Information Authority (the TIA) has passed. There have been, and remain, a number of challenges and misperceptions that have confronted fund managers with respect to the classification, registration and reporting obligations of vehicles within a fund structure.

In many instances, the operational solution being pursued for a fund vehicle is the delegation of these functions to a service provider, typically either an administrator or other compliance professionals, who will report back on a regular basis as to its procedures and processes. In doing so, they gain access to a team of experts who have the depth of experience necessary to cope with the distinct nature of the vehicle and grapple with the complex and often laborious nature of the current regulatory environment.

These obligations, however, can be particularly acute for self-administered funds, including traditional private equity or other closed-ended vehicles which pursue less liquid strategies and need to actively manage verification procedures for new and existing accounts. Based on early trends and evolving regulations, there are several potential issues of which fund sponsors and operators need to be aware.


Under the Cayman regulations, there is no statutory requirement to appoint a responsible officer or otherwise to delegate responsibility to a third-party service provider. A Cayman Islands financial institution and its operators (primarily being directors of a company or the general partner of a limited partnership and their respective officers) will be held accountable for ensuring compliance with Fatca-related obligations. Non-compliance is a criminal offence and while in most cases there is a requirement for fraud, intention or neglect, there is no such prerequisite for failing to implement the relevant arrangements and procedures. Operators attract vicarious liability where the offence is shown to have occurred with their consent or connivance, or is otherwise attributable to their neglect.

The operators must be satisfied that the entity has been properly classified, registered (where applicable) and has undertaken, and continues to undertake, appropriate due diligence on its investor base to ensure that reportable accounts are identified. The Cayman regime does not impose an obligation to withhold proceeds from recalcitrant investors.


Financial institutions are reliant on investors being cooperative and timely with respect to completing self-certifications. Many investors, however, do not fully comprehend the need for funds to obtain from them positive assertions as to their tax status, whether as a US person or UK tax resident. It is a common misconception that the US Fatca self-certification requirements do not apply to non-US investors or fund structures, whereas the focus of US Fatca is in fact on non-US entities.

UK Fatca does not have the same global recognition and has some subtle differences from the more familiar US regime. As a result, Cayman funds often experience greater pushback with respect to UK Fatca formalities given investors are acclimatised to submitting applicable US tax forms (either W-8 or W-9 forms) with a subscription, which contain sufficient information for US Fatca purposes. The UK regime, however, requires a positive self-certification as to a person's UK tax residency status and the US tax forms are therefore inadequate for this purpose.

It is anticipated that this approach will also be more broadly applied once CRS is implemented (into which regime UK Fatca is expected to be ultimately subsumed) as investors will need to confirm their tax residency status by reference to the CRS signatory countries.


Nuanced and divergent definitions can lead to the same entity having a different classification under the existing US and UK Fatca regimes. While US and UK versions use identical definitions of 'investment entity', the non-reporting exemptions available in each case differ slightly, so while an entity might be non-reporting for one regime it may not be such for the other.

Operators also need to reconcile and take account of certain types of investors who are taking varying positions on their own classification. Custodians may not, for example, necessarily consider themselves to be an investor whereas for Cayman legal purposes, as investors of record, they will be regarded as the account holders.

Additionally, entity classification and reporting obligations may vary for vehicles within a fund structure. A general partner or special purpose vehicle company may either fall outside the definition of a financial institution, being a non-financial foreign entity, and if otherwise caught as an investment entity may also be able to avail of an exemption from reporting. These matters are fact-specific and advice should be sought early in the structuring process especially as Fatca status confirmations often need to be given as part of any account opening process.


Cayman Islands financial institutions are subject to two registration requirements: first, to register with the IRS for a global intermediary identification number and, second, to register with the TIA through an online portal maintained by the Department of International Tax Cooperation (DITC). The registration requirements exist irrespective of whether a financial institution anticipates having any reportable accounts.

Under US Fatca, the first account reports are due by 26 June 2015. The Cayman reporting format is consistent with that published by the IRS and will either need to be individually entered manually on the portal or via submission by uploading an XML format report to the Portal.

Filing of a nil report with the DITC is not mandatory. It is however expected that many reporting entities will want to take positive steps to file a nil report as an industry best practice approach as evidence that positive steps have been taken to monitor and identify reportable accounts.


In light of tight timeframes and anticipated reporting volumes (approximately 30,000 Cayman vehicles have already registered with the IRS) the TIA has advised that it will take a soft approach to enforcement during the first year of Fatca to work with, and allow, industry to meet compliance requirements by specified due dates.


Fund sponsors and fund operators of self-administered funds face a number of legal and operational challenges in complying with both the US and UK Fatca regimes as enacted in Cayman Islands law, especially as this is a developing area of law with the CRS anticipated to become law also later in the year.

While many self-administered funds may have operational compliance infrastructure to be able to deal with these challenges, many other funds for reasons of scale, complexity and cost will be looking to third-party service providers to provide compliance solutions.

This article appeared in the 2015 edition of Cayman published by HFMWeek, London in 2015.

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.