The Cayman Islands is a leading jurisdiction for the establishment of private and mutual funds and is also a popular jurisdiction for trust and corporate services. Cayman has zero-rated corporation tax, with no wealth, capital gains or estate tax for entities, which make for an attractive location for organisations to set up in.
While the process of incorporating a company in the Cayman Islands is quick and straightforward, there are certain considerations that must be made both prior to, and during, the incorporation process.
Prior to incorporating in the Cayman Islands
Should you wish to enlist the help of a third party, such as TMF Group, to assist with incorporating your company, Cayman Islands laws require certain 'know your client' checks, in order to disclose the proposed activities of the company.
Certain basic information must be provided on its proposed directors, officers, shareholders and beneficial owners, and due diligence documents must be collected, such as proof of identity, proof of residential address, the sources of funds and the source of wealth of each of these persons. In addition, we require application and due diligence questionnaires.
Once all necessary documents and supporting due diligence questionnaires have been submitted, reviewed and approved, the incorporation process can commence.
Types of entities
There are three types of companies most commonly registered in the Cayman Islands, namely:
- The ordinary resident company
- The ordinary non-resident company
- The exempted company
The latter of these is the subject of this article, as the most commonly incorporated form under the Companies Act (2021 Revision).
Four considerations when incorporating in the Cayman Islands
1. Registered office
An exempted company must have a registered office in the Cayman Islands provided by a licensed service provider in the Cayman Islands, such as TMF (Cayman) Ltd. The company may change its registered office to another address in the Cayman Islands by directors' resolutions. The company must file a certified copy of the resolutions authorising the change in registered office with the Registrar of Companies within 30 days from the date of the resolutions together with the prescribed amendment fee.
2. Directors and Officers
A Cayman Islands company must have at least one director, who need not be ordinarily resident in the Cayman Islands. The subscriber(s) to the Memorandum of Association appoint the first director(s). The subsequent appointment and/or removal of directors are in accordance with the provisions of the Articles of Association. A Cayman Islands company's management is carried out by, and the responsibility of its board of directors. Members can exercise control over the management of the company through their power to dismiss and/or appoint the directors, as provided for in the Articles of Association.
Consequences of breach of directors' fiduciary duties can result in criminal convictions, civil sanctions, disqualification and reputational damage to the company.
The Registrar must be notified of any appointments, resignations and/or removals of directors and officers within 30 days from the date of change.
3. Incorporation procedures
The constitution of an exempted company is contained in two documents, namely the Memorandum of Association and the Articles of Association. The objects of a company may be unrestricted or be specified and limited to the objects specified.
The following documents are to be submitted to the Registrar upon incorporation:
- the Memorandum and Articles of Association signed by the subscriber
- the Section 165 declaration made by the subscriber that the operation of the proposed exempted company will be conducted mainly outside the Cayman Islands
- the appropriate incorporation fee.
If using the standard service, the Registrar takes three to five business days to register an exempted company. Alternatively, an express option is available, which, upon payment of an additional express fee, a company may be registered in one to two business days. Shelf companies are rarely available or used due to the efficiency and speed of the incorporation process in the Cayman Islands.
4. Economic Substance
Economic substance (ES) requirements were introduced in the Cayman Islands in 2019, for certain geographically mobile activities ("relevant activities"). The introduction of such legislation was required for the Cayman Islands to avoid blacklisting on the EU's list of non-cooperative jurisdictions for tax purposes.
Essentially, in-scope entities ("relevant entities") that engage in or carry on relevant activities are required to demonstrate economic substance in the Cayman Islands.
Relevant entities will include most exempted companies, except for:
- domestic companies, ie, companies that are authorised to carry on business locally in the Cayman Islands
- companies that are tax resident outside the Cayman Islands
- investment funds or companies through which investment funds operate or invest, whether directly or indirectly.
Every exempted company will have to file an 'Economic Substance Notification', declaring:
- whether it has conducted any relevant activities in the preceding financial period
- whether or not it is a relevant entity for the purpose of the Economic Substance Act.
In addition, an exempted company that carries on a relevant activity and is tax resident outside the Cayman Islands, is required to provide certain additional prescribed information, but is otherwise not required to demonstrate economic substance in the Cayman Islands. Relevant entities are required to satisfy the economic substance test in respect to every relevant activity. Relevant activities are:
- distribution and service centres
- finance and leasing
- fund management
- intellectual property business
For a deeper dive into economic substance requirements, read our article.
About TMF Group in the 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.