Cayman Islands: Doing Business In… Handbook 2007: Q&A

Legal System

1. What is the legal system (civil law, common law or a mixture of both)?

The Cayman Islands are administered as a British Overseas Territory, but have a significant degree of internal self-government. The Cayman Islands have a combined common law and statute based legal system. English common law is of persuasive authority.

Foreign Investment

2. Are there any restrictions on foreign investment (including authorisations required by central or local government)?

The Cayman Islands distinguishes between doing business within the Islands and doing business outside the Islands. The Local Companies Control Law 1999 (LCCL) governs foreign ownership of businesses within the Islands, requiring 60% Caymanian ownership and control, but permitting the grant of twelve-year licences to investors who are unsuccessful in attracting local participation. There are no restrictions on foreign ownership of land.

Exempted companies, limited partnership and trusts formed to do business outside the Islands are, with limited exceptions, not subject to statutory or regulatory constraints on investment policies and strategies or other commercial matters.

3. Are there any exchange control or currency regulations?

There are no exchange control or currency regulations.

4. What grants or incentives are available to investors? Are any of these aimed specifically at foreign investors?

Investment in the Cayman Islands is encouraged by policy rather than direct grants and incentives.

Investment in the Sister Islands of Cayman Brac and Little Cayman is encouraged by grant of a 50% reduction in import duties for approved investments and reductions in certain licensing fees.

The Cayman Islands Investment Bureau (see provides an investment information service.

Business Vehicles

5. What is the most common form of business vehicle used by foreign companies to conduct business in your jurisdiction?

In relation to this vehicle, please state:

  • Registration formalities (including timing).
  • Minimum (and maximum) share capital.
  • Whether shares can be issued for non-cash consideration, such as assets or services (and any formalities).
  • Any restrictions on the rights that can attach to shares.
  • Any restrictions on foreign shareholders.
  • Management structure and any restrictions on foreign managers.
  • Directors' liability.
  • Parent company liability.
  • Reporting requirements (including filing of accounts) and cost of compliance.

The most common form of business vehicle used by foreign companies when doing business within and from the Islands is either:

  • A local ordinary resident company.
  • The foreign company itself, by being registered as such with the Registrar of Companies.

When carrying on business outside the Islands foreign investors typically use exempted limited liability companies. Partnerships are frequently used for private equity funds, unit trusts are favoured for Japanese investor purposes and trusts and special purpose Special Trusts (Alternative Regime) (STAR) trusts are also available vehicles.

  • Registration formalities. An ordinary resident company is formed by filing the company's memorandum and articles of association with the Registrar of Companies (Registrar) who registers the constitutional documents and issues a certificate of incorporation certifying that the company was incorporated on the date on which the incorporation documents were lodged with the Registrar.

    An exempted company is formed in the same way except that the subscriber for the initial shares of the company must swear an affidavit in the presence of a notary public that the objects of the company will be carried out mainly outside the Cayman Islands. Companies can be registered within 24 hours of filing the documents for an express fee of CI$400 (about US$490), otherwise registered documents are returned within three to five business days.
  • Share capital. There is no minimum or maximum share capital requirement. The size of the authorised share capital does determine the initial registration and annual government fee. Fees range from CI$150 (about US$184) for an ordinary company with authorised capital of CI$42,000 (about US$51,450) or less to CI$1,968 (about US$2,411) for an exempted company with capital in excess of US$2 million (about EUR1.6 million).
  • Non-cash consideration. Shares can be issued for non-cash consideration.
  • Rights attaching to shares. The Companies Law 2004 reserves certain rights for shareholders in general meeting or by special resolution. Otherwise rights are granted in the articles of association or by shareholder agreement.
  • Foreign shareholders. Non-Caymanians cannot control, either directly or beneficially, more than 40% of the shares or management of a local ordinary company unless a licence under the LCCL has been granted. There are no restrictions on foreign shareholders of exempted companies.
  • Management structure. Companies are managed by a board of directors. There is no statutory minimum number except that regulated companies such as mutual funds, mutual fund administrators, banks and trust companies are required to have two directors. Corporate directors are permitted. There is no local residency requirement for directors.
  • Directors' liability. The liability of a director can be unlimited, if specified in the memorandum of association (Companies Law). A director can be held personally liable at common law for the acts of the company where he fails to show that he has acted honestly and with the knowledge, skill and experience, which may reasonably be expected in carrying out his duties. A director can be personally liable for failure to act honestly, in good faith and in the best interests of the company. He must exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances. Liability may also arise under statute for fraud.
  • Parent company liability. A parent company will not generally be liable for the debts of its subsidiaries unless it has given a guarantee.
  • Reporting requirements. Exempted companies must file the following information (including any changes) with the Registrar:
  • memorandum and articles of association;
  • details of the authorised share capital;
  • location of the registered office; and
  • details of directors and officers.

Details of the shareholders of exempted companies do not need to be filed with the Registrar. An exempted company must, however, file an annual return stating that the company has conducted its operations mainly outside the Cayman Islands and has complied with the Companies Law, and that all bearer shares (if any) are kept by an authorised custodian.

Ordinary resident companies are required to file annual returns that specify the names, addresses and nationalities of the shareholders and the number of shares held, in addition to a list of the directors and officers. Regulated entities, such as banks, trust companies, insurance companies, mutual funds and their administrators, are required to submit audited accounts to the Cayman Islands Monetary Authority.


6. What are the main laws regulating employment relationships?

The provisions of the Labour Law 2001:

  • Govern the terms and conditions of employment.
  • Provide remedies for unfair dismissal.
  • Provide severance pay.
  • Regulate health, safety and welfare in the private employment sector.

The Labour Law applies to Caymanian and foreign employees alike, but does not extend to the public sector, charitable organisations or churches. Employment issues are adjudicated by Labour Tribunals or the Grand Court. The Workmen's Compensation Law 1996 applies to accidental injury in the course of employment.

7. Is a written contract of employment required? What, if any, other terms are likely to govern the employment relationship?

A written statement of working conditions is required within ten days of commencement of employment for most categories of employee. Policy manuals and the course of dealing between the parties may import additional terms.

8. Are employees entitled to management representation and/or to be consulted in relation to corporate transactions (such as redundancies and disposals)?

Employees are not entitled to management representation or consultation in relation to corporate transactions.

9. What statutory rules govern the termination of individual employment contracts?

Grounds for dismissal which are considered to be fair or justified are:

  • Serious misconduct.
  • Less serious misconduct or failure to perform satisfactorily following the warning procedure.
  • Redundancy.
  • Continuing the employment would contravene the Labour Law or any other law.
  • Some other substantial reason where the employer acts reasonably.

An employee unfairly dismissed can be awarded compensation by the Labour Tribunal up to a maximum of 12 weeks' pay.

10. Are redundancies/mass layoffs regulated? If so, please give details.

In redundancies, an employee who is employed for at least a year, is entitled to severance pay of one week for every 12 months of employment up to a maximum of 12 weeks' pay. There is no statutory notice period. Redundancies which discriminate between Caymanians and non-Caymanians can be regarded as unfair.

11. In relation to employees, what constitutes tax residency in your jurisdiction?

There are no applicable taxes.

12. What income tax or social security contributions must the following pay:

  • Tax resident employees?
  • Non-tax resident employees?
  • Employers, in relation to their employees?

Tax Resident And Non-Tax Resident Employees

There are no income taxes in the Cayman Islands and no tax residency distinctions. Health insurance and pension contributions are shared with the employer.


For most categories of employee, the employer must pay the premium under a health insurance contract issued by an approved insurer but may recover up to 50% from the employee. Employers and eligible employees make mandatory contributions towards each employee's pension plan of 5% of the basic salary up to a maximum of CI$60,000 (about US$73,500) every year. Employers are responsible for any work permit fees (see Question 13).

13. Do foreign employees require work permits and/or residency permits? If so, how long does it take to obtain them and how much do they cost?

All non-Caymanians employed in the private sector require a work permit. An application for a full permit usually takes four to six weeks to process. Short-term temporary permits do not take as long.

Permit costs vary depending on the sector (financial services, tourism or construction), and the skill level of employees. The costs range from an annual minimum of CI$250 (about US$306) for unskilled workers to CI$17,500 (about US$21,438) for senior management or professionals. Permits are renewable for a maximum of seven years.


14. In relation to business entities, what constitutes tax residency in your jurisdiction?

There are no direct corporation or other business income, capital gains or other taxes in Cayman whether doing business in or from the Islands. Exempted companies, partnerships and trusts may even obtain the additional protection of an undertaking from the Governor-in-Cabinet that no taxes will be imposed for a period of 20 to 50 years from its issue.

15. What proportion of a tax resident business entity's income is taxed and what are the main taxes that potentially apply (including rates)?

Income is not taxed (see Question 14).

Businesses pay annual registration fees and either an annual trade and business licence fee or the relevant licence fee if the entity is in a regulated sector (for example, banks, trust companies, insurance companies, money services businesses, mutual funds and mutual fund administrators, companies managers and telecommunications providers).

16. How are the activities of non-tax resident business entities taxed?

See Question 15.

17. Please explain how each of the following is taxed:

  • Dividends paid to foreign corporate shareholders.
  • Dividends received from foreign companies.
  • Interest paid to foreign corporate shareholders.
  • Intellectual property (IP) royalties paid to foreign corporate shareholders.

No taxes are payable for any of the above.

18. Are there any thin capitalisation rules (restrictions on loans from foreign affiliates)? If so, please give details.

There are no thin capitalisation rules

19. Are there any controlled foreign company rules? If so, please give details.

There are no controlled foreign company rules.

20. Are there any transfer pricing rules? If so, please give details.

Transfer pricing rules do not apply.

21. How are imports and exports taxed?

Customs duties are payable on most imported goods. The standard rate is 20%. There is a category of duty free goods that are available to visitors and residents, with the exception of alcohol. Exported goods are not taxed.

22. Is there a wide network of double tax treaties? If so, please give details.

No double tax treaties apply.


23. Are restrictive agreements and practices regulated by competition law in your jurisdiction? If so, please give brief details.

The Information and Communications Technology Authority Law 2004 regulates anti-competitive practices in the telecommunications, radio and television industries.

Intellectual Property

24. Please outline the main intellectual property rights that are capable of protection in your jurisdiction. In each case, please state:

  • Nature of right.
  • How protected.
  • How enforced.
  • Length of protection.


  • Nature of right. The Patents and Trademarks Law 1999 (PTL) permits owners of patents registered in the UK and the EU to extend such rights to the Cayman Islands.
  • How protected. Patents must be registered with the Patents and Trademarks Registry.
  • How enforced. The main remedies the courts can grant are:
    • permanent or interim injunctions
    • interdicts;
    • delivery up;
    • damages;
    • an account of profits.

Criminal sanctions are also available.

Length of protection. The protection of the patent in the Cayman Islands dates from the time such right arose in the UK or EU and continues in force so long as the protection and rights remain in force in the UK or EU.

Trade Marks

  • Nature of right. The PTL permits owners of trademarks registered in the UK and the EU to extend such rights to the Cayman Islands.
  • How protected. Trade marks must be registered with the Patents and Trademarks Registry.
  • How enforced. Enforcement is the same as for patents (see above, Patents).
  • Length of protection. The protection of the trade mark in the Cayman Islands dates from the time of filing in the UK or EU and continues for 20 years from the date of filing.

Registered Designs

Registered designs are not protected as such, but can be protected as trade marks (see above, Trade marks).

Unregistered Designs

Unregistered designs are not protected as such, but can be protected by copyright (see below, Copyright).


  • Nature of right. Copyright applies to literary, dramatic, musical, artistic and architectural works, sound recording, pictorial, graphic and sculptured works and other qualifying intellectual works.
  • How protected. Copyright exists automatically on, creation of a qualifying intellectual work. The English Copyright Act 1956 was extended to the Islands in modified form by the Copyright (Cayman Islands) Order 1965. UK orders for certain reciprocal protections in relation to copyrighted materials and design rights have also been made, otherwise protection is mainly by common law right, and is not capable of registration in the Cayman Islands.
  • How enforced. Remedies are available to the original owner, or person deriving title from him, or an exclusive licencee.
  • Length of protection. Protection is for the life of the author plus 50 years.

Confidential Information

  • Nature of right. In general, the Confidential Relationships (Preservation) Law 1995 protects all information regarding business of a professional nature in the Islands. Additionally, the common law protects information communicated in confidence or in circumstances which create an obligation of confidence.
  • How protected. An application for directions to the Grand Court is required prior to disclosing any confidential information protected by statute.
  • How enforced. A breach of the statute may be prosecuted with the consent of the Attorney General. Where the statute does not apply, an action may be brought for common law breach of confidence.
  • Length of protection. There is no prescribed term.

Marketing Agreements

25. Are marketing agreements regulated in your jurisdiction? If so, please give brief details in respect of the following arrangements:

  • Agency.
  • Distribution.
  • Franchising.

Agency, distribution and franchising agreements are not regulated by legislation but governed by contract law.


26. Are there any laws regulating e-commerce (such as electronic signatures and distance selling)? If so, please give brief details.

The Electronic Transactions Law 2003 provides a framework for electronic transactions and the use of electronic signatures.

Data Protection

27. Are there any data protection laws? If so, please give brief details.

Certain data protection rights are protected by:

  • The Confidential Relationships (Preservation) Law 1995.
  • The Computer Misuse Law 2000.
  • The Information and Communications Technology Authority Law 2004. The Authority may also make recommendations for data protection regulations under the Electronic Transactions Law but has not yet done so;
  • The Freedom of Information Bill 2005 aims to give the public a general right of access to official documents, it was introduced in the legislative assembly in late 2005 and is currently in the public consultation phase.

Product Liability

28. Are there any laws regulating product liability and product safety? If so, please give brief details.

There is no specific legislation regulating product liability in the Cayman Islands. The Sale of Goods Law 1997, in certain circumstances, implies conditions as to quality and fitness of goods in some contracts for sale.

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.

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