Until recently, a business could only be carried on in the local market place in the Cayman Islands through:
- an individual (i.e. a Caymanian or holder of a Residency Certificate conferring such a right); or
- a company licenced to carry on business or trade in the Cayman Islands.
On September 28, 2011, a new law was introduced which allows exempted companies or exempted limited partnerships to carry on a "special economic zone business" in a "special economic zone" in the Cayman Islands if they are registered with the Registrar of Companies as a Special Economic Zone Company or Partnership.
Exempted companies or exempted limited partnerships are entities incorporated in the Cayman Islands which are not entitled to engage in trade with any person except in furtherance of business carried on outside the Islands. Under the Special Economic Zones Law, 2011 (the "SEZ Law"), this remains but is distinguished in that, the business, though it has a physical presence in the islands, is deemed to be outside of the Cayman Islands.
What follows, is a summary of the licensing requirements for conducting business in the local market place in the Cayman Islands pursuant to the Companies Law, the Local Companies (Control) Law (Revised) (the "LCCL") and the SEZ Law.
The law provides that no company shall carry on business in the Islands unless:
- it is a local company which is Caymanian controlled with at least 60% of its shares
- beneficially owned by Caymanians and at least 60% of its directors are Caymanians;
- it has been granted a licence under the Local Companies Control Licence Law and
- under the Trade and Business Licensing Law (Revised);
- it is licensed under the Bank and Trust Companies Law (Revision); or " it is operating under a franchise granted by the Government.
Application for Licences
Generally, all companies conducting business in the Cayman Islands are required to obtain a Trade and Business Licence. Foreign-owned or controlled companies carrying on business in the Cayman Islands must also obtain a Local Companies Control Licence ("LCCL").
In the absence of securing 60% Caymanian participation, a company can proceed to apply for a LCCL by submitting:
- an application form along with the requisite processing and licence fee;
- a copy of the Memorandum and Articles of Association of the company or the bye-laws;
- a statement setting out the nature of the business the company is carrying on or proposes to carry on;
- copies of the advertisements seeking Caymanian participation; and
- such other information as the Trade and Business Licensing Board (the "Board") may require.
Grant of the LCCL
The grant of this licence is entirely at the discretion of the Board and hinges largely on the Board being satisfied that it would be in the public's interest to grant the licence. Each application is assessed on its own merits; however, we should indicate that one factor considered by the Board is, the efforts of the company to obtain Caymanian participation. In deciding whether or not to grant a licence, the law provides that the Board shall have regard to a number of factors including:
- the economic situation of the Islands and the due protection of persons already engaged in business in the Islands;
- the nature and previous conduct of the company and the persons having an interest in that company whether as directors, shareholders or otherwise;
- the advantage or disadvantage which may result from that company carrying on business in the Islands;
- the desirability of retaining the economic resources of the Islands in the control of Caymanians;
- the efforts made by the company to obtain Caymanian participation;
- the number of additional people from outside the Islands who would be required to reside in the Islands were the application to be granted;
- whether the company, its directors and employees have and are likely to continue to have the necessary professional, technical and other knowledge to carry on the business proposed by the company;
- the finances of the company and the economic feasibility of its plans;
- whether the true ownership and control of the company have been satisfactorily established; and
- the environmental and social consequences that could result from the carrying on of the business proposed to be carried on by the company.
In most cases, a LCCL is granted for a maximum period of 12 years and may be subject to such terms and conditions as the Board may see fit. Once granted, the company is required to pay the prescribed annual licence fee on the anniversary date of the grant of the LCCL and submit a return of shareholdings.
Special Economic Zone Companies
There are a number of benefits to establishing a business in the Special Economic Zone ("SEZ"), including the fact that the 60% Caymanian participation rule does not apply and there is no requirement to obtain a LCCL or Trade and Business Licence. The exempted company or exempted limited partnership is required to (a) register or re-register as a SEZ company/ partnership and (b) obtain a Trade Certificate.
Registration of a Special Economic Zone Company
For a new registration, the process is much the same as with any exempted entity. The Memorandum and Articles should state that the company will be carrying on special economic zone business. The objects are restricted to conducting business mainly outside the Islands. There are no restrictions on the name, except that it must include the words "Special Economic Zone Company" or "SEZC".
If the company already exists as an exempted company, then it may apply to be re-registered as a SEZC and will require a resolution to alter its Memorandum and Articles and change its name as outlined above.
A fundamental requirement of the registration process is that an approval letter to operate in the SEZ must first be obtained from the developer of the SEZ.
Upon registration as a SEZC, an application for a trade certificate must be made to the Special Economic Zone Authority ("SEZA"). The application must be supported by evidence of registration as a SEZC in good standing along with the prescribed non-refundable application fee. Other information required includes the following:
- Applicant Details - including copies of the passports or identification for all Directors;
- Business Details – nature and type of business being conducted, expected number of employees, exact location of the business, register of Directors and return of Shareholders;
- Personal Details of each Director – including nationality and questions on conviction of criminal offences or other liability and bankruptcy; and
- Complete Due Diligence on each director.
Where the application is submitted, SEZA shall within seven days of the application being made or additional information received, grant or refuse the trade certificate.
The trade certificate granted will specify the period of validity, the SEZ business which may be conducted, the name of the SEZ in which the enterprise is authorized to carry on business, the address of the premises from which the SEZ business is to be conducted, and all terms and conditions, if any. The trade certificate may be amended on an application to the Authority and payment of the requisite fee.
The trade certificate is not transferable or assignable but is subject to voluntary surrender, suspension or revocation in accordance with the SEZ Law. As with any other Cayman Islands company, the SEZC is subject to an annual fee.
There are a number of unique concessions of doing business within the SEZ but this will form the subject of a later article.
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.