Cayman Islands: World's Leading Financial And Trust Centres: Cayman Islands

Last Updated: 6 August 2014
Article by Tim Frawley, Martin Livingston and Abraham Thoppil

14.1 GENERAL OVERVIEW

14.1.1 Location

The Cayman Islands is a group of three islands (Grand Cayman, Cayman Brac and Little Cayman) located in the Western Caribbean.

14.1.2 Time zone

All three islands use Eastern Standard Time all year long.

14.1.3 Population

The Islands have a population of approximately 56,732 (December 2012 est.), most of which is concentrated on the island of Grand Cayman and comprises a mixture of Cayman nationals and expatriates.

14.1.4 Capital

The capital, George Town, is located on Grand Cayman and is the administrative, business and financial centre.

14.1.5 Language

The official and spoken language is English.

14.1.6 Introduction

The Cayman Islands is widely recognised as one of the world's leading offshore financial centres. The Cayman Islands' financial services industry encompasses banking, mutual funds, captive insurance, reinsurance, aircraft registration, vessel registration, companies, partnerships, trusts, structured finance and the Cayman Islands Stock Exchange (CSX). As of December 2013, over 95,000 companies were incorporated in the Cayman Islands. In addition, approximately 213 banks, 788 insurance companies and 11,379 funds were registered and/or licensed in the Cayman Islands. The CSX opened in 1997 and is recognised by the major market players as a "blue chip" listing environment that provides investors with the necessary degree of regulation and comfort they seek when making investment decisions.

14.1.7 Government and constitutional arrangements

The Cayman Islands is a British Overseas Territory and as such is the responsibility of the United Kingdom. The Islands enjoy a large measure of self-government under a constitution which gives executive and legislative power to the Governor, the Cabinet and the Legislative Assembly.

The Governor is appointed by the British Government and has overall responsibility for the administration of the Islands. Government policy is made by Cabinet consisting of the Governor, two official members (appointed by the Governor) and five ministers, who are elected members of the Legislative Assembly appointed by their fellow members. There are ministerial portfolios and government departments which are staffed by civil servants with each member of Cabinet having particular areas of responsibility.

The Cayman Islands does not form part of the European Union. However, the Cayman Islands, together with certain other British Overseas Territories, enjoys an association with the EU pursuant to which provision is made for favourable market access to the EU for overseas territory products, aid allocations and dialogue with the EU on areas of mutual interest.

The Cayman Islands is an associate member of the Caribbean Community (CARICOM).

14.1.8 Political and economic stability

The territory enjoys a stable government and there is no desire for independence from the UK, making the Cayman Islands a low sovereign risk jurisdiction. The Cayman Islands has a sovereign rating of Aa3 (and stable outlook) from Moody's Investors Service Inc.

There is a substantial invisible trade surplus with the outside world, largely as a result of tourism and the activities of the financial community. Unemployment is low and the standard of living is one of the highest in the Caribbean. The favourable economic situation of the Cayman Islands is reflected in its longstanding economic, social and political stability.

14.1.9 Business environment

Modern laws have made the Cayman Islands one of the world's leading offshore financial centres for banking, mutual funds, hedge funds, insurance companies, capital markets and structured finance transactions, project financings, company registrations, trusts and partnerships. All business conducted adheres to the highest financial trade and regulatory standards.

14.1.9.1 Currency and exchange control

The currency of the Cayman Islands is the Cayman dollar which is pegged to the United States dollar at a fixed rate of CI$1 = US$1.22. There are no currency exchange controls or legislation in the Cayman Islands.

14.1.9.2 Employment and immigration

Due to the position of the Cayman Islands as a leading international offshore financial centre, the Cayman Islands has attracted professionals such as attorneys, accountants, administrators, bankers, and insurance managers, from leading onshore institutions based in the major global financial centres. As a result, the business climate is comparable to that of cities like London and New York.

In order to live and work in the Cayman Islands without restriction a person must possess "Caymanian Status". Those who do not possess Caymanian Status require permission from the Immigration Department to enter the Islands and may not work without possessing a work permit (unless otherwise exempt). The grant of a work permit is discretionary and is normally granted only if no Caymanians or persons married to or descended from Caymanians, or persons legally residing in the Islands, are available, suitable, qualified and willing to undertake the employment in question.

14.1.9.3 Establishing a business in Cayman – requirements

The principal local conduct of business and regulatory laws which are likely to be relevant to persons wishing to carry on business in the Cayman Islands are as follows:

  • Companies Law (2013 Revision) (the "Companies Law"): This law provides the framework for the incorporation of ordinary or exempted companies in the Cayman Islands. The Companies Law also requires the registration of all foreign companies which establish a place of business or commence carrying on business within the Cayman Islands.
  • Local Companies (Control) Law (2007 Revision) (the "Local Companies (Control) Law"): This requires that no company may carry on business in the Islands unless it is 60% owned or controlled by Caymanians or it is duly licensed under the Local Companies (Control) Law. However, carrying on business in the Islands does not include, amongst other things:

    • doing business in the Islands with any person in furtherance only of the business of that company carried on exterior to the Islands; or
    • buying or selling or otherwise dealing in shares, bonds, debentures, stock, obligations, mortgages or other securities issued or created by an exempted company, a foreign partnership or a resident corporation incorporated abroad; or
    • effecting or concluding contracts in the Cayman Islands and exercising in the Cayman Islands all other powers, so far as may be necessary for the carrying on of the business of that company exterior to the Cayman Islands.
  • Trade and Business Licensing Law (2007 Revision) (the "Trade and Business Law"): The Trade and Business Law provides that every person who carries on, within the Cayman Islands, a trade or business specified in such law, must be annually licensed under the law, save where expressly excluded under other regulatory laws (eg the Banks and Trust Companies Law, Mutual Funds Law, etc.)

Unfortunately, there is no statutory definition of "carrying on business", except that, in relation to foreign companies, it is specifically provided that this includes the sale by or on behalf of a foreign company of its shares or debentures and, in relation to mutual funds, it is specifically provided in the Mutual Funds Law (2013 Revision) (the "Funds Law") that a mutual fund is carrying on or attempting to carry on business if:

  • it is incorporated or established in the Islands; or
  • regardless of its place of incorporation or establishment, it makes an invitation to the public in the Islands to subscribe for any of its equity interests.

However, English case law suggests that a business is carried on generally where there is some degree of physical presence, or where as a factual and legal matter business contracts are negotiated or concluded, and the activity is on a repeated basis. The vast majority of offshore finance transactions that use Cayman vehicles do not involve the carrying on of a business in Cayman.

14.1.9.4 Confidentiality

Confidentiality arising in relation to legitimate financial transactions is protected in Cayman. The Confidential Relationships (Preservation) Law (2009 Revision) (the "Confidential Relationships (Preservation) Law"), as well as the regulatory laws including the Monetary Authority Law (2013 Revision) (the "Monetary Authority Law"), the Banks and Trust Companies Law (2013 Revision) (the "Banking Law"), and other similar legislation regulating the insurance, mutual fund and company management industries, impose criminal penalties on Government officials and professional persons who make unauthorised disclosure of information obtained in the course of their duties or professional work; and the common law rule of confidentiality in a bank's relationship with its clients also applies.1

The Confidential Relationships (Preservation) Law contains detailed provisions for disclosure of confidential information in appropriate circumstances, most notably if the information is required for the investigation or prosecution of serious offences in the United States,2 a Tax Information Exchange Agreement (TIEA), or where disclosure is permitted or required under the Proceeds of Crime Law, 2008 (the "Proceeds of Crime Law") or the Money Laundering Regulations (2013 Revision) (as amended) (the "Regulations").

14.1.10 Legal system

14.1.10.1 General

The substantive law of the Cayman Islands is based on locally enacted statutes3 and local common law with English common law authorities being persuasive but not binding before a Cayman court.

The court system in the Cayman Islands is a simple one and practice and procedure are based on English law. Minor criminal and civil cases are tried by a stipendiary magistrate sitting in the summary court. All serious crimes and most civil cases are tried by the Grand Court which is presided over by the Chief Justice and Grand Court judges permanently resident in the Islands. Appeals lie from the Grand Court to the Cayman Islands Court of Appeal, which sits in Grand Cayman and, from there, to the Judicial Committee of the Privy Council in England.

The Grand Court is a superior court of record, the business of which is divided amongst five separate divisions, namely: the Civil Division, the Family Division, the Admiralty Division, the Financial Services Division and the Criminal Division. In absence of local legislation or case law, the Grand Court will generally adopt positions that are consistent with English and British Commonwealth common law and equity.

14.1.10.2 Treaties

The Cayman Islands was the first British Overseas Territory to have in place a mutual legal assistance treaty and local legislation which met the standards set by the United States and the United Kingdom and which also contained safeguards to protect legitimate privacy rights. Such treaties and local legislation are regarded as essential for Cayman's continuing acceptance as part of the international financial community.

14.1.10.3 Taxation

There are no direct taxes on companies or individuals in the Cayman Islands. Government revenue is principally derived from import duties, tourist taxes, stamp duties, registration and licence fees. The regime has no aspect of "ring fencing" and applies equally to all individuals, partnerships, trusts and companies, whether resident or non-resident. The Organisation for Economic Co-operation and Development (OECD) does not regard this as a regime which differentiates between residents and other particular types of entities, and therefore, it is not considered a "harmful" tax practice. The OECD has placed the Cayman Islands on its "white list" of jurisdictions that substantially implement international tax standards.

14.1.10.4 Stamp duties

Stamp duty is effectively a tax upon certain documents and legal instruments. The charge to stamp duty arises if certain categories of document or instrument are executed in the Cayman Islands, or thereafter originals are brought into the Cayman Islands (such as for the purposes of enforcement).

The duty payable on the various types of instrument is prescribed by statute. For transactions involving the most common offshore finance vehicles, viz. exempted companies, limited partnerships and trusts, the stamp duty payable is often nominal.

14.1.10.5 Tax undertaking

Exempted companies, limited partnerships and trusts may obtain from the Cayman authorities an undertaking against the future imposition of taxation. This is so notwithstanding the current absence of taxation.

14.1.10.6 Transparency and international cooperation

The Cayman Islands has invoked numerous statutory measures to cooperate with and assist foreign governments, authorities and courts with the provision of information held in the Cayman Islands. Such laws override any statutory or common law duties of confidentiality that may otherwise exist.

14.1.10.6.1 Regulatory initiatives

Mutual legal assistance for criminal matters has been provided for through a number of statutes since the mid 1980s. The Cayman Islands is also a party to the Hague Convention 1970 on the taking of evidence abroad.

The Misuse of Drugs Law (2010 Revision) (the "Misuse of Drugs Law"), Terrorism Law (2011 Revision) (the "Terrorism Law") and the Proceeds of Crime Law also contain provisions for the sharing of information with authorities in relevant circumstances.

As a regulatory matter, the Cayman Islands Monetary Authority (CIMA) is empowered under the Monetary Authority Law to entertain requests for information from any recognised overseas regulatory authority exercising equivalent functions. If certain criteria are met, CIMA may direct a local financial service provider or connected person to disclose information they hold in response to the overseas regulatory authority's request. Separately, CIMA may enter into specific Memoranda of Understanding with recognised overseas regulatory authorities. For example, CIMA has entered into a specific Undertaking with the United States Securities and Exchange Commission and a Memorandum of Understanding with the Commodity Futures Trading Commission in relation to the exchange of information.

CIMA is also a member of the International Organisation of Securities Commissions (IOSCO). The Cayman Islands Government and CIMA have had ongoing dialogue with foreign national and international agencies to ensure that the Cayman Islands is viewed as cooperative and responsive in relation to requests for information on regulatory and criminal matters. Accordingly CIMA has become a signatory to the IOSCO Multilateral Memorandum of Understanding concerning Consultation and Cooperation and the Exchange of Information.

14.1.10.6.2 Tax information exchange

A TIEA between Cayman and the United States was signed in 2001 and provides for the provision of information in relation to criminal tax matters from the 2004 tax year and civil matters from the 2006 tax year and does not require a dual criminality test (ie that the matter constitutes a criminal offence in both the United States and the Cayman Islands). The Cayman/US TIEA was updated in 2013 in conjunction with the execution of the Cayman/ US Intergovernmental agreement in relation to the US Foreign Account Tax Compliance Act (FATCA).

The Cayman Islands first introduced the Tax Information Authority Law in 2005 (now the 2013 Revision) (the "Tax Information Law") to provide the enabling framework for the TIEAs to be implemented and to create the Tax Information Authority as the competent authority to handle foreign requests for information in accordance with the TIEAs. TIEAs entered into between Cayman and the foreign jurisdictions are scheduled under the Tax Information Law and conform to the model developed with the participation of the United States, and the OECD Global Forum on Taxation. Both the G-8 and G-20 countries have endorsed the model agreement as reflecting "high standards of transparency and exchange of information for tax purposes". The Cayman Islands has currently entered into 33 TIEAs with foreign jurisdictions, 26 of which are in force.

In 2005, the Cayman Islands introduced the Reporting of Savings Income Information (European Union) Law (2007 Revision) to implement the European Union Savings Directive exchange of information measures.

As noted above, on 29 November 2013, the Cayman Islands Government executed a Model 1(b) (ie non-reciprocal) inter-governmental agreement (IGA) and simultaneously entered a new TIEA with the US government, in order to provide a platform for Cayman Islands' financial institutions, including hedge funds, private equity funds, structured finance and aircraft finance vehicles, banks, trust companies and insurance vehicles, to report under, and comply with, FATCA. FATCA was enacted in the US in 2010 to combat offshore tax evasion by US taxpayers who hold their investments and other assets in foreign accounts and by agreeing to the IGA and TIEA the Cayman Islands has agreed to report certain information on such US accounts to the US Inland Revenue Service. In order for the IGA to come into force in the Cayman Islands, enabling legislation will need to be enacted to provide the legislative framework for the IGA and future IGAs.

A similar IGA was entered between the Cayman Islands Government and the UK Government on 5 November 2013 to introduce similar FATCA like reporting obligations for foreign accounts held by UK persons.

The FATCA IGA's are based on the principles of automatic exchange of information; ie an annual reporting of specific information through the Tax information Authority to the foreign fiscal authorities.

As noted above, the Cayman Islands has also signed TIEAs with various other jurisdictions and maintains a Double Tax Agreement with the United Kingdom. A typical TIEA only deals with the provision of information upon request, for tax purposes. A Double Tax Agreement also deals with other taxation matters, as well as having a component for the provision of tax information. The Cayman Islands is a member of the OECD Global Forum Steering Group, which assists with the implementation of OECD tax policy. The Cayman Islands has also passed the two phases of the OECD Peer Review process, confirming that the Cayman Islands legal and regulatory framework complies with international standards of transparency and information exchange.

The Cayman Islands will continue its participation in global tax and transparency initiatives, including high-level involvement on both the Steering and Peer Review groups of the Global Forum. In April 2013 the government requested to participate in the G5 pilot on multilateral automatic exchange of information (which 17 EU Member States have joined to date), and in June 2013 the government committed to the OECD Convention on Mutual Administrative Assistance in Tax Matters.

To read this Chapter in full, please click here.

Originally published in World's Leading Financial and Trust Centres, Second Edition, June 2014, by Bloomsbury Professional Ltd.

Footnotes

1. Tournier v National Provincial and Union Bank of England [1924] 1 KB 461.

2. Mutual Legal Assistance (United States of America) Law (1999 Revision).

3. A few English Statutes have been extended to the Cayman Islands by Order in Council.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Tim Frawley
Martin Livingston
Similar Articles
Relevancy Powered by MondaqAI
Cayman Islands Government
Maples and Calder
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Cayman Islands Government
Maples and Calder
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions