Cayman Islands: CRS In Cayman - Ensuring Compliance

Last Updated: 22 June 2017
Article by Nick Rogers

The Common Reporting Standard (CRS) is an international tax information exchange framework that has been implemented in the Cayman Islands. Cayman companies and other vehicles must comply with the Cayman CRS regulations. Those that don't face significant penalties. Deadlines for notification (30 June) and reporting (31 July) are fast approaching.

Cayman entities should confirm their classification for the purposes of CRS. All Financial Institutions (whether Reporting or Non-Reporting) must appoint persons authorised to correspond with the tax authority and making an initial notification by 30 June. All Reporting Financial Institutions must also review any delegation of their responsibilities, adopt written policies and procedures and submit reports which are due by 31 July.

This advisory summarises the core requirements for Reporting and Non-Reporting Financial Institutions; addresses certain common misconceptions; and recommends practical steps to ensure compliance.

It is expected that CRS will be enforced in Cayman in a disciplined and systematic manner. Clients with Cayman entities must therefore focus on this now, and in particular on the key notification and reporting obligations that arise in June and July 2017.

Classification

A Cayman Islands entity which is a Financial Institution will have certain obligations under CRS. There are four categories of Financial Institution, the most common being an Investment Entity (which includes most types of investment funds). If the entity is a Financial Institution, it will either be a Reporting Financial Institution or a Non-Reporting Financial Institution.

Generally, an entity's classification under both FATCA and CRS will be the same. However, it is possible for the classification to be different. For example, Cayman investment manager and general partner entities, or sponsored investment entities, may be Reporting Financial Institutions under CRS despite being Non-Reporting Financial Institutions under FATCA.

Core requirements

Notification

Every Cayman Islands Financial Institution (including Non-Reporting Financial Institutions) must submit to the Cayman Islands Tax Information Authority (TIA) an "information notice" specifying its CRS classification and details of persons authorised to correspond with the TIA on its behalf.

The information notice must be submitted on or before 30 June 2017. Such notification (and the subsequent reporting mentioned below) is required only where the entity became a Financial Institution on or before 30 April 2017.

Financial Institutions that have previously registered with the TIA under FATCA must update their existing FATCA registration for CRS.

Due diligence procedures

A Reporting Financial Institution must identify whether it maintains reportable accounts, and must establish and maintain policies and procedures to achieve this. Due diligence on some accounts (e.g. high value individual accounts in existence as of 31 December 2015) should already have been completed.

CRS differs from FATCA in that these due diligence policies and procedures must be in writing. Where a Reporting Financial Institution is relying on a third party (e.g. the administrator) to conduct due diligence on its accounts, it must still have written policies and procedures which must describe: (i) what functions have been delegated; (ii) the management/oversight of the delegation; and (iii) the performance of any CRS obligations that have not been delegated.

Reporting

Subject to certain exceptions, each Reporting Financial Institution must report certain information with respect to each of its reportable accounts including:

  • personal details of each reportable person (including controlling persons who are reportable persons);
  • the account balance or value as of the end of the relevant calendar year or, if the account was closed during such year or period, the closure of the account; and
  • the total gross amount paid or credited to the account holder with respect to the account during the calendar year, including the aggregate amount of any redemption payments made to the account holder during the calendar year or other appropriate reporting period.

The reporting deadline for 2017, for both FATCA and CRS, has been extended to 31 July 2017. Reports must be filed through a portal maintained by the TIA. Reporting Financial Institutions must file nil returns where they did not maintain any reportable account in any reportable jurisdiction.

Liquidating Entities

Liquidating Financial Institutions that were still in existence when the portal opened for reporting on 17 May 2017 are required to comply with CRS with respect to the 2016 and 2017 reporting period. Any Financial Institution that was completely wound up (i.e. the date provided on the certificate of dissolution/strike off had passed) before 17 May 2017 will not have to make any notification or reports for CRS for 2016 or 2017.

Common misconceptions

We complied with FATCA so we don't need to comply with CRS

FATCA and CRS have been implemented under two separate sets of regulations in Cayman.  Although there are similarities, both need to be complied with.

We applied for a GIIN so we are done

Obtaining a GIIN is a necessary first step for FATCA compliance, but the TIA notification requirements under Cayman's FATCA and CRS regulations must also be complied with.

The US did not sign up to CRS so it doesn't apply to US managers

Every Cayman Islands "entity" organised under the laws of the Cayman Islands will have a classification under Cayman's FATCA and CRS regulations, regardless of where it is managed from.

I think our administrator takes care of all that

Many Reporting Financial Institutions, in particular investment funds, have delegated some or all of their FATCA and CRS obligations to their administrator. This is permitted under the regulations. However, as FATCA and CRS have evolved, it is important to recheck that the delegation is comprehensive. Notwithstanding any delegation, the Reporting Financial Institution must now have written policies and procedures that describe what functions have been delegated and the performance of any CRS obligations that have not been delegated. It is important to be clear on who is performing each function of notification, due diligence and reporting.

We didn't need to report under FATCA so we won't need to report under CRS

As noted above, in most cases, an entity's classification under both FATCA and CRS will be the same. However, it is possible for the classification to be different so care must be taken. In addition, even Non-Reporting Financial Institutions are required to make the TIA notification required by 30 June 2017.

We just need to do the same for CRS as we did for FATCA

In addition to the different classification that may apply to certain entities, two specific steps that need to be addressed for CRS are (for Reporting Financial Institutions) the adoption of written policies and procedures (see "Due diligence procedures" above), and (for all Financial Institutions) the appointment of a so-called 'change notifier'. This is an individual authorised to inform the TIA of any changes to the identity or contact details of the person notified to the TIA as the Principal Point of Contact.

Practical steps

The following steps should be taken now:

  1. Confirm classification - Certain entities which are Non-Reporting Financial Institutions for FATCA purposes will be Reporting Financial Institutions under CRS.
  2. Review delegation agreements - Reporting Financial Institutions should ensure that the role of any third parties providing CRS services is reflected in these agreements and all parties are clear as to their respective responsibilities.
  3. Adopt written policies and procedures - Reporting Financial Institutions are required to have written policies and procedures to document compliance with CRS requirements even where the due diligence and/or reporting functions are delegated to an administrator or another third party.
  4. Appoint a Principal Point of Contact (PPOC) and Change Notifier - All Financial Institutions (Reporting and Non-Reporting) are required to notify the TIA of both a PPOC and a person who is authorised to notify the TIA of any change in the PPOC.
  5. Submit information notice to the TIA - All Financial Institutions (Reporting and Non-Reporting) which became Financial Institutions on or before 30 April 2017 will need to notify the TIA of such status by 30 June 2017.
  6. Report to the TIA in respect of any reportable accounts held by Reporting Financial Institutions - most Reporting Financial Institutions are required to report by 31 July 2017 for the 2016 calendar year.
  7. Board approval - The directors or operators of Financial Institutions should document and approve these actions and determinations in board resolutions.

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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