The Cayman Islands is a popular jurisdiction for the establishment of private and mutual funds. Entities can take advantage of zero-rated corporation tax, with no wealth, capital gains or estate tax. And while the process of incorporating a company in the Cayman Islands is quick and straightforward, there are requirements to consider after incorporation.
In a recent article we highlighted four important steps to consider when setting up an entity in the jurisdiction.
In this follow up article, we focus on the continuing requirements after incorporation, from statutory registers to regulatory compliance.
It is important to be aware of these requirements to ensure that certain information is maintained properly, and that annual fees or annual filings are completed in time to avoid any adverse consequences such as penalties or fines. We've categorised these considerations into three sections.
1. Statutory registers
Each exempted company is required to maintain four statutory registers:
The register of directors and officers
This must contain the names and addresses of the directors and officers. However, it also often contains the dates of appointment and removal or resignation. Further, this register is the only register required to be filed with the Registrar within 30 days of any changes made to it. The register is open to inspection by the public upon payment of a fee to the Registrar.
The register of members
This must contain:
- the name and address of each shareholder
- the numbers of shares held by each shareholder (or class of shareholders)
- the number of shares issued
- the amount paid or agreed to be paid on the shares
- the voting rights carried by the shares and whether such rights are conditional
- the date on which each person became and ceased to be a shareholder.
There is no requirement to file this register with the Registrar. Therefore, it is not open to inspection by the public. Further, an exempted company - which is not licenced to carry out business in the Cayman Islands - may keep its register of members outside of the Cayman Islands.
Register of mortgages and charges
This contains the details of all mortgages and charges specifically affecting the company's property and includes:
- the amount of the charge
- a description of the property charged
- the names of the natural or legal persons entitled to the charge.
The beneficial ownership register (BOR)
The BOR is required by law and must be maintained at the registered office of the exempted company, unless it satisfies any one of the exemption provisions. It must take reasonable steps to identify any "registrable persons" whose details must be entered in the BOR.
A registrable person is:
(a) an individual holding:
- directly or indirectly, 25% or more of the shares or voting rights of the company
- or holding the right, directly or indirectly, to appoint or remove the directors
- or who has the right to exercise
- or actually exercises, significant influence or control over the exempted company, and,
(b) a legal entity established in the Cayman Islands which:
- by virtue of the shares it holds directly in or its direct control over the exempt company, would be a beneficial owner if it were an individual.
Further, an exempted company is required to engage a licensed Cayman Islands corporate services provider ("CSP"), such as TMF Group, to maintain an adequate, accurate and current BOR at its registered office. In turn, the CSP is required to report this information to a secure, non-public centralised registry maintained by the Competent Authority in the Cayman Islands on a monthly basis. Should an exemption under the law apply, the exempted company must provide written confirmation of its exempt status to the CSP, which should also be filed with the Competent Authority.
2. Minutes, meetings and accounting records
The minute book is not required to be maintained in the Cayman Islands but exempted companies are required to keep written minute. This must include all resolutions and proceedings of its shareholders and directors. It is recommended written minutes are submitted to the exempted company's registered office.
Annual meetings of shareholders or directors are not required either, unless otherwise prescribed in the Articles of Association. However, exempted companies required to meet economic substance requirements and/or are regulated investment funds will be subject to different requirements.
As for the accounting records, while the Companies Act does not mandate the form, every exempted company is required to keep proper books of account. These must include underlying documentation covering assets and liabilities, sales and purchases, and receipts and expenditures. The exempted company's accounts must give a true and fair view of the state of its affairs and explain its transactions.
Further, the Companies Act does not require accounts be audited or filed with any authority, unless an exempt company is licensed or regulated by CIMA. In this instance, the exempted company will be required to engage an auditor approved by CIMA to conduct its audit. Such audited financial statements are to be submitted to CIMA within a specific time after the exempted company's year end. Failure to do so can result in administrative penalties being levied by CIMA.
In addition, an exempted company which keeps its books and records outside of the Cayman Islands must provide information regarding its books and records to its registered office annually. A company that fails to do so will incur a penalty, with additional penalties for every day of non-compliance.
3. Annual submissions and regulatory filings
All exempted companies must file:
1. an Annual Return;
2. an Economic Substance ("ES") Notification together with
3. the appropriate annual filing fee with the Registrar in January of each year.
Any Annual Submission, in whole or in part, that has not been made by the last working day of March, will incur a penalty levied by the Registrar, the amount depending on when the complete Annual Submission has been made.
4. If an exempted company is in scope for ES, it must also file the ES return annually, via the Department of International Tax Cooperation's ("DITC") portal, within 12 months after the end of the financial year.
5. If the exempted company is regulated by the Cayman Islands Monetary Authority ("CIMA"), for example a Private Fund, it should:
- settle its annual fees to CIMA by 15 January, and
- submit the previous year end financial statements and a Fund Annual Return ("FAR") return by 30th of June.
For more information on Economic Substance in the Cayman Islands, read our article.
Companies in the Cayman Islands are not currently subject to any income, withholding or capital gains taxes. In addition, shareholders are not subject to any income, withholding or capital gains taxes with respect to their shares and any dividends received. Estate or inheritance taxes are not levied in the Cayman Islands. There are no exchange controls in the Cayman Islands.
An exempted company may apply for an undertaking under the Tax Concessions Act stipulating that essentially no law enacted in the Cayman Islands after the date of the undertaking imposing any tax to be levied shall apply to the company or its operations
The undertaking is normally given for 20 years but may be for a period of no more than 30 years from the date of approval.
FATCA & CRS
When it comes to international tax co-operation, certain foreign entities must report the name, address and taxpayer identification number of certain US persons who own, directly or indirectly, an interest in such entity to the Cayman Islands Tax Information Authority in accordance with the provisions of the Foreign Account tax Compliance Act ("FATCA") as a result of Intergovernmental agreement between the United States and the United Kingdom (the "US IGA").
Similarly, the Common Reporting Standard ("CRS") is a global initiative launched by the OECD with the intention of preventing tax evasion through the use of Automatic Exchange of Information Agreements between the tax authorities of participating countries.
FATCA and CRS are similar in substance and form, which requires that any exempted company's activities are to be reviewed and classified regardless of the location of its activities or its shareholders, to determine whether any notification and reporting requirements exist.
Once your entity has been classified and is required to:
i. Register with the DITC's portal;
ii. The deadline to do so is 30 April for entities that became Financial Institutions the previous year.
iii. Annual FATCA & CRS returns are due by 31st of July of each year;
iv. The annual CRS compliance form is due by the 15th of September.
TMF Group is assisting its clients with the above payment of fees and annual filings. If you have any further questions about ongoing maintenance of your Cayman entity, or if you wish to establish a Cayman company, please feel free to reach out to our TMF Cayman team.
About TMF Cayman Islands
Since opening our doors in 1994, we have incorporated thousands
of companies on behalf of our clients.
We have the expertise to provide full administrative support for your prospective or existing operations in this market, from entity incorporation, to local directorship services, HR and payroll and (fund) accounting and tax services. We assist both local and global companies looking to do business in the Cayman Islands.
Contact our experts today to find out how we can help grow your business.
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.