Historically, the timing of the commencement of the voluntary liquidation of a Cayman Islands company was often driven primarily by the desire to avoid incurring the following year's annual government fees. To avoid those fees, the liquidation had to commence by December, with the final meeting being held before the end of January. This timetable resulted in an effective dissolution date into the next calendar year, while still avoiding the government fees for that year. However, given increasing regulatory costs and requirements, we often see companies looking to commence their liquidations earlier than previously. There may now be increased operational efficiencies in completing the dissolution within the current calendar year as additional regulatory filings and other costs for stub years can be avoided. Similar considerations may also apply to other types of Cayman entities.
This is particularly relevant to companies that are Reporting Financial Institutions under FATCA1 or CRS2, which may be required to further report to the Cayman Islands Tax Information Authority should they be in existence during 2021. Companies that are registered for taxation purposes in other jurisdictions or that have annual financial reporting requirements might also find a 2020 dissolution date advantageous.
For a Cayman Islands company to complete its dissolution by 31 December 2020, its voluntary liquidation will need to have commenced before 30 August 2020. Additional time may need to be allowed where the affairs of the company are not straightforward. Funds that are registered with the Cayman Islands Monetary Authority ("CIMA") pursuant to the Mutual Funds Law (2020 Revision) ("Funds") may also need to consider an earlier commencement date to ensure that the final audited financials are completed and filed with CIMA prior to the final meeting of the Fund. CIMA requires that a Fund undertakes a final audit for the period either up to the date of the appointment of the third party liquidator or to the date of the full payment of the final redemptions.
Originally published 01 July, 2020
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