Cayman Islands: The International Comparative Legal Guide To: Private Client 2017 (Cayman Islands)

Last Updated: 4 January 2017
Article by Morven McMillan and Alex Way
Most Read Contributor in Cayman Islands, October 2017

1. PRE-ENTRY TAX PLANNING

1.1 In your jurisdiction, what pre-entry estate and gift tax planning can be undertaken?

There are no estate or gift taxes in the Cayman Islands.

1.2 In your jurisdiction, what pre-entry income and capital gains tax planning can be undertaken?

There are no income taxes or capital gains taxes in the Cayman Islands.

1.3 In your jurisdiction, can pre-entry planning be undertaken for any other taxes?

There are no other relevant taxes in the Cayman Islands.

2. CONNECTION FACTORS

2.1 To what extent is domicile or habitual residence relevant in determining liability to taxation in your jurisdiction?

There is no direct taxation in the Cayman Islands.

2.2 If domicile or habitual residence is relevant, how is it defined for taxation purposes?

This is not applicable in the Cayman Islands.

2.3 To what extent is residence relevant in determining liability to taxation in your jurisdiction?

There is no direct taxation in the Cayman Islands.

2.4 If residence is relevant, how is it defined for taxation purposes?

This is not applicable in the Cayman Islands.

2.5 To what extent is nationality relevant in determining liability to taxation in your jurisdiction?

There is no direct taxation in the Cayman Islands.

2.6 If nationality is relevant, how is it defined for taxation purposes?

This is not applicable in the Cayman Islands.

2.7 What other connecting factors (if any) are relevant in determining a person's liability to tax in your jurisdiction?

There is no direct taxation in the Cayman Islands.

3. GENERAL TAXATION REGIME

3.1 What gift or estate taxes apply that are relevant to persons becoming established in your jurisdiction?

There are no gift or estate taxes in the Cayman Islands.

3.2 How and to what extent are persons who become established in your jurisdiction liable to income and capital gains tax?

There are no income taxes or capital gains taxes in the Cayman Islands.

3.3 What other direct taxes (if any) apply to persons who become established in your jurisdiction?

There are no other relevant taxes in the Cayman Islands.

3.4 What indirect taxes (sales taxes/VAT and customs & excise duties) apply to persons becoming established in your jurisdiction?

When taking up residence in the Cayman Islands, personal belongings moved within the first six months of residence are not subject to duty, within the following provisions: (i) all items imported are used personal belongings that are over six months old, including computers, household goods and furniture (proof of purchase may be required if this is in question); and (ii) vehicles, alcohol and tobacco are not included in the duty exemption. Generally speaking, import duty is 22% of the sum of the market value of the possession, and the insurance and shipping costs of delivery to its destination in the Cayman Islands. Certain items, such as alcoholic beverages and luxury motor cars, suffer higher rates of import duty.

3.5 Are there any anti-avoidance taxation provisions that apply to the offshore arrangements of persons who have become established in your jurisdiction?

There are no anti-avoidance taxation provisions in the Cayman Islands.

3.6 Is there any general anti-avoidance or anti-abuse rule to counteract tax advantages?

No, there is not.

4. TAXATION ISSUES ON INWARD INVESTMENT

4.1 What liabilities are there to tax on the acquisition, holding or disposal of, or receipt of income from investments in your jurisdiction?

There is no direct taxation in the Cayman Islands.

4.2 What taxes are there on the importation of assets into your jurisdiction, including excise taxes?

Dutiable items accompanying the owner on his or her arrival in the Cayman Islands are exempt from duty as to the first CI$350 (approximately US$420). This tax-free exemption does not apply to goods imported that are not accompanied by the owner on his or her arrival or re-entry to the Cayman Islands. Unaccompanied imports suffer import duty, generally speaking, at 22% of the value plus shipping and insurance. Certain categories are zero or lower rated; most commonly items also for sale in the duty-free stores for the cruise ship passenger trade as well as, for example, some necessities. Equally, luxury items, such as alcoholic beverages and motor cars above a certain value, suffer higher rates of duty.

4.3 Are there any particular tax issues in relation to the purchase of residential properties?

There is no particular tax involved in the purchase of residential properties in the Cayman Islands other than a one-time stamp duty at time of purchase, which is 7.5% of the purchase price.

5. TAXATION OF CORPORATE VEHICLES

5.1 What is the test for a corporation to be taxable in your jurisdiction?

There is no direct taxation in the Cayman Islands.

5.2 What are the main tax liabilities payable by a corporation which is subject to tax in your jurisdiction?

There is no direct taxation in the Cayman Islands.

5.3 How are branches of foreign corporations taxed in your jurisdiction?

There is no direct taxation in the Cayman Islands.

6. TAX TREATIES

6.1 Has your jurisdiction entered into income tax and capital gains tax treaties and, if so, what is their impact?

There are no income taxes or capital gains taxes in the Cayman Islands. The Cayman Islands has entered into a number of tax information exchange agreements and, strictly speaking, only one double tax treaty, with the United Kingdom.

6.2 Do the income tax and capital gains tax treaties generally follow the OECD or another model?

There are no income taxes or capital gains taxes in the Cayman Islands.

6.3 Has your jurisdiction entered into estate and gift tax treaties and, if so, what is their impact?

There are no estate or gift taxes in the Cayman Islands.

6.4 Do the estate or gift tax treaties generally follow the OECD or another model?

There are no estate or gift taxes in the Cayman Islands.

7. SUCCESSION PLANNING

7.1 What are the relevant private international law (conflict of law) rules on succession and wills, including tests of essential validity and formal validity in your jurisdiction?

The Cayman Islands' laws on succession largely follow the English law approach. Accordingly, under Cayman Islands law, the applicable law governing succession to movables (and for determining both the essential and formal validity of a will) of a deceased person is that of his last domicile; the applicable law governing succession to immovables (and the essential validity of a gift of such in a will) is the law of the jurisdiction in which the immovable property is situated. The Cayman Islands' test for establishing a person's domicile is the same as the English law test: the domicile of the individual's father at the date of birth (if the parents were married at the time and, if not, from the mother − domicile of origin) which continues to apply unless replaced by migrating to a different country (or, in the case of a federal country, state) with the positive intention of making that different country (or, in the case of a federal country, state) the permanent home (domicile of choice) and having made a clean break with the domicile held by the individual immediately prior to the change.

Having established domicile as a matter of Cayman Islands law, movable property (including shares in a Cayman Islands company whose register is maintained in the Cayman Islands) follows the succession laws of the testator's last domicile (see question 7.2 in relation to the laws of succession in relation to real estate).

It may be helpful to have a will disposing exclusively of such Cayman Islands situs movable property and, if so, it is advisable for that will to be governed by Cayman Islands law, but essential that it complies with the formal validity requirements for wills under the laws of the deceased's last domicile. As it is the domicile at death that is critical, it is also essential to keep the will under review: a change in domicile after the date of execution of the will may make it invalid. It is also vital to ensure that any such will is not inadvertently revoked by an over-inclusive revocation clause in a subsequent will disposing of non-Cayman Islands situs assets.

The domestic requirements for formal validity of a will (i.e. those applicable to persons dying domiciled in the Cayman Islands at death) are set out in the Wills Law; summarised, the will has to be in writing, signed by the testator in the presence of two witnesses present at the same time and in his presence, who also sign. The testator must intend by his signature to give effect to the will. Concerning essential validity, the testator has to have the necessary testamentary and mental capacity, he has to know and approve the contents of the will, he must not be subject to any undue influence, and there must be no component of fraud and no component of forgery. Testamentary or mental capacity requires the testator to be of sound mind, memory and understanding. He must, therefore, be capable of forming testamentary intention, his memory must be sound to recall the persons who ought to be considered as his likely beneficiaries, and he has to be able to understand the ties of those people to him by blood or friendship, and their claims on these or other grounds on his testamentary generosity. Undue influence follows the English test, that is, "influence" does not mean that the testator was persuaded to make his will in a certain way for reasons that other people might consider foolish or inappropriate. Undue influence in this context means coercion to the extent that the will does not reflect the actual intentions of the testator. To seek to declare a will essentially invalid on grounds of fraud or forgery requires a very high degree of proof.

7.2 Are there particular rules that apply to real estate held in your jurisdiction or elsewhere?

Regardless of the domicile of the deceased, if the deceased owns real estate, whether in the Cayman Islands or elsewhere, Cayman Islands law will apply the laws of succession of the jurisdiction where the property is located to the question of the succession to that property (lex situs).

8. TRUSTS AND FOUNDATIONS

8.1 Are trusts recognised in your jurisdiction?

Yes, trusts are recognised in the Cayman Islands.

8.2 How are trusts taxed in your jurisdiction?

There is no direct taxation in the Cayman Islands. There is nominal stamp duty (rarely more than US$50) on certain deeds and other documents executed in connection with trusts.

8.3 How are trusts affected by succession and forced heirship rules in your jurisdiction?

The Cayman Islands has specific statutory provisions that cover conflicts of laws concerning trusts. That legislation also addresses, and declines to give effect to, attempts to set aside a trust merely on the grounds that the terms of the trust may defeat a forced heirship claim of a disappointed heir of the settlor. There are no forced heirship rules under Cayman Islands law.

8.4 Are foundations recognised in your jurisdiction?

Foundations, in the sense generally understood in civil law countries, do not exist as such in the Cayman Islands. A foundation from a civil law country that largely resembles a company or corporation, that is, it has a separate legal personality, can own property and sue and be sued, is likely to be recognised in the Cayman Islands as a legal person similar to a foreign company. Some charitable trusts and charitable companies are named "foundations" in the Cayman Islands, but they are either a trust or a company if they are governed by Cayman Islands law. They are not foundations as understood in civil law jurisdictions.

A Foundations Bill is under consideration, however.

8.5 How are foundations taxed in your jurisdiction?

There is no direct taxation in the Cayman Islands.

8.6 How are foundations affected by succession and forced heirship rules in your jurisdiction?

Foundations as they are understood in civil law jurisdictions cannot be created as such in the Cayman Islands, but see question 8.4 above.

9. MATRIMONIAL ISSUES

9.1 Are civil partnerships/same sex marriages permitted/recognised in your jurisdiction?

There is no concept of civil partnership under Cayman Islands law. There is no concept of same sex marriage under Cayman Islands law.

9.2 What matrimonial property regimes are permitted/recognised in your jurisdiction?

There is no forced heirship regime in the Cayman Islands.

9.3 Are pre-/post-marital agreements/marriage contracts permitted/recognised in your jurisdiction?

There is no legislation in the Cayman Islands that authorises or upholds such agreements but the Cayman Islands courts are likely to follow recent English authority on pre-nuptial agreements (see question 9.4 below).

9.4 What are the main principles which will apply in your jurisdiction in relation to financial provision on divorce?

The court will first consider the best interests of any children of a marriage and thereafter the responsibilities, needs, financial and other resources, actual and potential earning power of the parties.

The Cayman Islands, like England, does not have legislation that authorises or upholds pre-marital agreements. However, recent cases in England have slightly changed matters. Where before the courts would have paid no attention to such agreements, now pre-marital agreements have been held to be a factor for consideration in the division of matrimonial assets. Judgments in England may be persuasive in the Cayman Islands and the Cayman Islands courts are likely to adopt the same position as in England.

10. IMMIGRATION ISSUES

10.1 What restrictions or qualifications does your jurisdiction impose for entry into the country?

Besides the system of entry under a work permit, to gain entry to the Cayman Islands as a resident, a person must be a Caymanian national, have the right of permanent residence or hold a Certificate of Residency as a person of independent means or a person who has directly invested in the Islands. The requirements of each are outlined below in question 10.2. To gain the right of permanent residence, a person must have been legally and ordinarily resident in the Islands for at least eight years and have fulfilled certain other specified criteria as determined by the Caymanian Status & Permanent Residency Board. The Immigration Law of the Cayman Islands is currently under legislative review and may be amended in the near future.

10.2 Does your jurisdiction have any investor and/or other special categories for entry?

There are two special categories for entry: (i) a Residency Certificate for Persons of Independent Means ("IM Certificate"); and (ii) a Residency Certificate of Direct Investment ("DI Certificate"). A person may apply for an IM Certificate if they are at least 18 years old, have no serious criminal convictions, are in good health with adequate health insurance and must not be in need of engaging in employment in the Cayman Islands. In addition, if they wish to reside in Grand Cayman, they must have a continuous source of annual income in the amount of CI$120,000 and have invested CI$500,000 in Grand Cayman, of which at least CI$250,000 must be in developed residential real estate; if in the other two Islands, the applicant must have a continuous annual income of CI$75,000 and have invested the sum of CI$250,000 locally, of which at least CI$125,000 must be in developed real estate. Alternatively, a person may apply for a DI Certificate if he has invested, or proposes to make an investment of, at least one million dollars in an employment-generating business in the Cayman Islands. The DI Certificate would allow the holder to reside in the Cayman Islands permanently with their families, and to work in the business or businesses in which they have invested for up to 25 years, and it is renewable or extendable at the end of this period.

10.3 What are the requirements in your jurisdiction in order to qualify for nationality?

There are two main processes by which a person may obtain the right to be Caymanian. The first is through a connection to the Islands by virtue of birth or marriage. The second way is by applying to the Caymanian Status & Permanent Residency Board for Caymanian Status. To qualify for this process, a person must be: (i) a permanent resident; (ii) naturalised as a British Overseas Territories Citizen (BOTC); and (iii) legally and ordinarily resident in the Islands for at least five years after the grant of BOTC. If a person is granted Caymanian Status, he will have the full rights and benefits of a Caymanian including the right to vote, the right to have a Cayman Islands passport and to reside permanently in the Cayman Islands.

10.4 Are there any taxation implications in obtaining nationality in your jurisdiction?

There is no direct taxation in the Cayman Islands.

10.5 Are there any special tax/immigration/citizenship programmes designed to attract foreigners to become resident in your jurisdiction?

There is no direct taxation in the Cayman Islands.

11. REPORTING REQUIREMENTS/PRIVACY

11.1 What automatic exchange of information agreements has your jurisdiction entered into with other countries?

The Cayman Islands has entered into a number of tax information exchange agreements directly with each of Argentina, Aruba, Australia, Belgium, Brazil, Canada, China, Curaçao, Czech Republic, Denmark, Faroes, Finland, France, Germany, Greenland, Guernsey, Iceland, India, Ireland, Isle of Man, Italy, Japan, Malta, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Qatar, Seychelles, Saint Maarten, South Africa, Sweden, United Kingdom and the United States of America.

11.2 What reporting requirements are imposed by domestic law in your jurisdiction in respect of structures outside your jurisdiction with which a person in your jurisdiction is involved?

The Cayman Islands has entered into intergovernmental agreements ("the IGAs") with the United States of America and the United Kingdom in relation to FATCA and the UK equivalent of FATCA, respectively. The IGAs impose reporting obligations on certain Cayman Islands financial institutions, and the jurisdiction has enacted relevant local legislation. The Cayman Islands has also committed to be an "early adopter" of the OECD Common Reporting Standard.

11.3 Are there any public registers of owners/beneficial owners/trustees/board members of, or of other persons with significant control or influence over companies, foundations or trusts established or resident in your jurisdiction?

No.

Originally published by Global Legal Group, London.

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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