Cayman Islands and Irish off balance sheet and on balance sheet special purpose vehicles ("SPVs") are often used in aircraft financings.  The SPV's role in the transaction is normally to act either as an owner or as an intermediate lessor in a lease chain so that the rent paid by the operator can be used to repay the borrowings used to acquire the aircraft.  SPVs have a role to play in both finance and operating lease structures. 

The reasons for using an SPV are varied and include establishing bankruptcy remoteness, ring-fencing assets and liabilities of the SPV owner/lessor and the overall credit enhancement of the SPV owner/lessor. 

This update looks at the advantages of using a Cayman Islands incorporated, Irish tax resident company as an SPV. 

Why use a Cayman Islands SPV? 

A Cayman Islands exempted company is a popular SPV entity because it has a flexible corporate structure which includes the following: 

(a)       No statutory prohibition on financial assistance to acquire its own shares (the directors just have to act in the best interests of the company).

(b)       Any Cayman Islands company may migrate out of the Cayman Islands into any other jurisdiction that allows migration in.

(c)       A Cayman Islands company can merge with a company from any other jurisdiction that allows mergers and it does not need to be the surviving entity.

(d)       No requirement to appoint auditors under Cayman Islands law.

(e)       No requirement for an annual general meeting.

(f)        Ability to use share premium to fund dividends.

(g)       Ability to maintain the share register outside of the Cayman Islands.

(h)       Ability to maintain minute book outside of the Cayman Islands.

(i)         No requirement for any directors or officers to be resident in the Cayman Islands. 

Aside from maintaining a registered office and certain registers in the Cayman Islands, the ongoing statutory requirements under local law are simple and cost-effective. 

Additionally, a non-EU incorporated company may be entitled to adopt non-IFRS accounting treatment, and certain restrictive Irish company law rules will not apply to non-Irish incorporated companies. 

The benefits of using an Irish tax resident company 

Ireland is one of the leading locations in the world for all forms of asset/aircraft finance and leasing activities.  This is due to the very favourable tax environment including, in particular, a low 12.5% rate of corporation tax on trading profits, coupled with beneficial tax depreciation and interest deductibility rules, or in certain cases access to Ireland's "section 110" tax regime for financing activities which can effectively eliminate Irish corporation tax at the SPV level. 

As an EU and OECD country, Ireland benefits from a large and growing double taxation treaty network (currently 69, including Asia and the GCC region, and most of the world's major economies) and a range EU tax directives.  Access to these treaties is crucial in aircraft leasing and can eliminate foreign withholding tax on lease rentals.  Ireland also has a long and successful tradition in the aviation industry with the required skills, knowledge and expertise located in Ireland. 

Tax residency under Irish double taxation treaties 

To fall within the Irish tax regime and benefit from Ireland's double taxation treaties, the Cayman Islands incorporated SPV must be resident in Ireland for tax purposes.  Irish tax residency is primarily determined by the "central management and control test".  Management and control relates to the high level strategic decisions of the SPV as opposed to the day to day administration of the SPV. In practice, the board of directors of the SPV should meet regularly in Ireland and ideally the SPV should have a majority of Irish resident directors on the board in order to achieve Irish tax residence.  Our affiliate MaplesFS is able to provide directors and other fiduciary services out of their office in Dublin and is a leading player in this market. 

Irish double taxation treaties generally protect an Irish based lessor from double tax in their international operations and, in particular, often allow a foreign lessee to make lease rental payments to an Irish lessor free from foreign withholding tax and protect the Irish lessor from creating a taxable presence in the country where the lessee is based.  This ability to eliminate or reduce foreign withholding tax on lease rentals is critical to the commercial success of a lessor leasing to lessees in multiple jurisdictions. 

The SPV will also be required to register as an external company with the Irish Companies Registration Office (the "CRO").  Such registration can take the form of a branch or a place of business and must be made within one (1) month of establishment of such branch or place of business in Ireland.  The filing can be effected by providing the relevant form and fee to the CRO with the required constitutional documents and company information of the SPV. 

Cape Town Convention 

The Convention on International Interests in Mobile Equipment signed in Cape Town on 16 November 2001 and the Protocol to the Convention on Matters Specific to Aircraft Equipment (the "Cape Town Convention") is an international treaty intended to standardise transactions involving aircraft and aircraft engines.  The Cape Town Convention creates international standards for the registration of ownership, security interests, leases and conditional sales contracts, and various legal remedies for default in financing agreements, including repossession and the effect of particular contracting states' bankruptcy laws. 

Under both the Cape Town Convention and the Irish International Interests in Mobile Equipment (Cape Town Convention) Act 2005, the Cape Town Convention applies if the debtor (which covers a chargor, conditional buyer or a lessee of an aircraft object) has its COMI, principal place of business or its habitual residence in Ireland.

Miscellaneous benefit: no examinership issues 

If using Ireland as the double taxation jurisdiction, it should also be borne in mind that a possible benefit of using an SPV incorporated in the Cayman Islands that is tax resident in Ireland is the elimination of Irish examinership risk.  The Irish Companies (Amendment) Act 1990 (the "Examiner Act") extends court protection to Irish-origin "distressed companies" (i.e. companies that are insolvent or close to insolvency) so that an independent court appointed officer or examiner can carry out an examination of the undertaking of the distressed company to determine whether a scheme of arrangement could be put in place to facilitate the survival of all or part of that undertaking.  Irish-origin companies are, broadly, those companies incorporated under the Irish Companies Acts or existing at the time of the enactment of the Irish Companies Act 1963 as a result of legislation that applied to Ireland before that date. 

The Examiner Act permits the appointment of an examiner to a related (by being a holding company, subsidiary, sister company or has some other group connection) company (whether incorporated in Ireland or not) of an Irish-origin distressed company if that related company:

(a)       has its COMI in Ireland; or

(b)       has a significantly close connection with Ireland (often, but not necessarily, if it has assets in Ireland) if its COMI is in a country to which the EU insolvency regulation does not apply (i.e. Denmark and non-EU member states). 

However, it is a pre-requisite to the making of a related company appointment that an examiner should stand appointed to an Irish-origin company.  Therefore, if an offshore SPV is neither an Irish-origin company nor related to an Irish-origin company, it should not be possible to have an examiner appointed to it. 

While it is held that examinership should not be a risk for an SPV that does not have employees, such as an aircraft offshore SPV, some parties may wish to avoid any theoretical risk of examinership by using a structure that has no Irish-origin company in it. 


Airlines, lessors and banks structuring aircraft transactions that need access to double taxation treaties should consider using a Cayman Islands SPV tax resident in Ireland; it offers the best of both worlds.

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.