1. General

1.1 General Overview of Jurisdiction

Over the last 40 years, the Cayman Islands has matured into one of the world's largest international financial centres, providing institutionally focused services to a global client base. The Cayman Islands' competitive strength in financial services lies in its ability to provide an effective, cost-efficient and tax-neutral platform for international capital flows in an environment of legal, political and economic stability. The blend of flexibility and certainty of legal structures, compliance with international regulatory standards and a well-regarded corporate governance regime ensures Cayman remains at the front and centre as the choice for investment funds, managers and investors.

Respected Legal System and Political Stability

The Cayman Islands is a British Overseas Territory and enjoys the security and stability traditionally associated with its status as such, while remaining responsible for its own internal affairs and government. The Islands have an independent judicial system based on a combination of English common law and local legislation. The court of final appeal is the Judicial Committee of the Privy Council. The government and the private sector work closely to ensure the continued development of the jurisdiction as a place where business can be conducted efficiently and effectively.

Client-Centred Structures, Institutions and Advice

Legal structures used for alternative funds offer flexibility to managers and are well understood by sophisticated investors. Such structures allow for the management of entities with numerous investors and multiple layers of debt and equity. The jurisdiction benefits from the availability of a wide range of professional service providers from internationally respected firms and institutions.

Transparency and the Regulatory Regime

Regulation in the Cayman Islands is focused on the management of systemic risk, the prevention of money laundering and the promotion of regulatory and financial transparency. A discussion of the regulatory regime is included later in this chapter.

Tax Neutrality and Transparency

There are no local corporation, capital gains, income, profits, withholding or inheritance taxes attaching to vehicles established in the Cayman Islands, nor to investors in such vehicles. Taxation may be imposed on investors or investments by jurisdictions outside of the Cayman Islands.

2. Funds

2.1 Types of Alternative Funds

In the Cayman Islands, both open-ended and closed-ended funds are common.

Historically, the Cayman Islands have been the principal jurisdiction for the establishment of hedge funds, which are subject to the registration regime provided by the long-established Mutual Funds Act (the MFA). More recently, a regime for the registration and regulation of private funds formed in the Cayman Islands has been introduced: the Private Funds Act (PFA) now sits alongside the MFA and promises to offer the same level of sensible and proportionate oversight and regulation that the jurisdiction has provided for hedge funds for more than two decades.

2.2 Fund Structures

In the Cayman Islands, alternative investment funds are commonly established using four types of vehicles. These are:

  • exempted companies (including segregated portfolio companies);
  • exempted limited partnerships;
  • unit trusts; and
  • limited liability companies.

Typically, these vehicles are used in a variety of fund structures, with their most common designations including standalone funds, master or feeder funds, parallel funds, alternative investment vehicles (AIVs), co-investment funds, and umbrella funds. In the Cayman Islands, fund structures tend to be flexible and are typically driven by onshore considerations such as taxation and investor qualification requirements.

While each type of vehicle may be used, the most popular vehicle for open-ended fund structures is the exempted company and the most popular vehicle for closed-ended funds structures is the exempted limited partnership.

Standalone Funds

These are the simplest structures, being a single vehicle, usually with a single investment strategy. Funds of this nature are often used in start-up situations or where the target market does not require further complexity. A standalone fund may itself invest as a "fund of funds" in another fund, but for Cayman Islands purposes will still be a standalone vehicle as it will function on an independent basis, with its investment strategy being to invest in other funds.

Master-Feeder Structures

A master-feeder fund is usually structured so that the combined assets of two or more "feeder funds" (which may be domiciled in the Cayman Islands or in another jurisdiction, typically Delaware) are substantially invested in a separate vehicle known as the "master fund", which is managed by the same investment manager. The pooling of the assets then allows the master fund to act as the investment vehicle for its feeder funds. Structurally, this is achieved by investors purchasing shares or interests in the relevant feeder fund and the feeder fund, in turn, purchasing shares or interests for equivalent consideration in the master fund. Even though there may be direct investments made by investors into the master fund, in most cases the only direct investors are the feeders.

Master-feeder structures provide for certain cost efficiencies whilst allowing for the investment manager to pursue the same investment strategy for both feeder funds. This also allows for different categories of investors to invest through the structure. A Cayman Islands exempted company or partnership is often established as the feeder fund for non-US investors and US tax-exempt investors, and a Delaware limited liability company or partnership is established as the feeder fund for US taxable investors. An investment manager may also opt to set up a master fund as an onshore vehicle and then subsequently wish to admit a non-US or tax-exempt investor via a Cayman Islands feeder fund.

Parallel Funds, Co-investment Funds and AIVs

Parallel structures consist of single investment vehicles that invest alongside each other and are most common in the closed-ended space. These may be used to accommodate the needs of a particular investor or group of investors and may consist of Cayman Islands and onshore vehicles.

Co-investment funds are generally formed for a specific investment in order to invest alongside a main fund. The participation in co-investment funds is typically initially offered to investors in the main fund, allowing them to increase their exposure to the relevant investment and increase the amount of capital the fund structure can commit to the investment as a whole. Co-investment funds are usually fee-free vehicles.

AIVs are often formed alongside main funds in order to facilitate the structuring requirements for specific transactions and/or investors. Although the investors will have made contractual commitments to the main fund, the general partner of the main fund can exercise discretion granted under the main fund documents to route a proportion of contributed capital through one or more AIVs.

Umbrella Funds

Umbrella funds are typically open-ended vehicles that pursue multiple strategies and provide scope for investors to invest in one or more strategies and to switch their investment strategy at particular times. For corporate vehicles, this may be achieved by using separate share classes and entrenching segregation in the constitutional documents of the relevant company (to the extent possible). However, segregated portfolio companies provide an appropriate corporate vehicle for such funds that are grouped into multiple segregated portfolios with a variety of strategies, thereby achieving statutory segregation. Investors in such vehicles can be given the ability to switch between portfolios (typically by redemption or repurchase of shares in one segregated portfolio and a new issuance of shares in another). Unit trusts are also commonly used for umbrella structures, with the trust documentation describing the ring-fencing and fund-switching arrangements between separate sub-trusts. Umbrella structures are also used for multi-issuance fund programmes.

2.3 Funds: Regulatory Regime

Broadly, Cayman Islands open-ended funds are regulated under the MFA and closed-ended private funds are regulated under the PFA.

Funds Regulated under the MFA

The MFA defines a "mutual fund" as "a company, unit trust or partnership that issues equity interests, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors in the mutual fund to receive profits or gains from the acquisition, holding, management or disposal of investments..."

For these purposes, an "equity interest" is defined as "a share, trust unit or partnership interest that (a) carries an entitlement to participate in the profits or gains of the company, unit trust or partnership and (b) is redeemable or repurchasable at the option of the investor... before the commencement of winding up or dissolution of the company... but does not include debt." Accordingly, the two key components of the definition are:

  • the option on the part of an investor to redeem or withdraw; and
  • the pooling of assets.

The MFA makes it clear that debt-issuance vehicles do not fall within its scope (unless they also issue relevant equity interests). The vast majority of Cayman Islands hedge funds are regulated under the MFA (see "Highly Restricted Placement or Exempted Funds", below), although they are not necessarily "mutual funds" as the term is used in certain onshore jurisdictions.

There are four categories of regulated mutual funds in the Cayman Islands, with the distinction based on the way in which they are regulated under the MFA, rather than on the type of vehicle or configuration of vehicles regulated.

These four categories are as follows.

Funds with a USD100,000 Minimum Investment Threshold

The vast majority of regulated mutual funds are registered with the Cayman Islands Monetary Authority (CIMA) under this category, and it is likely that a hedge fund with a sophisticated client base will fall within this category.

These are mutual funds where either:

  • the minimum equity interest purchasable by a prospective investor is USD100,000 or its equivalent in another currency (the Minimum Equity Interest Requirement); or
  • the equity interests are listed on an approved stock exchange or over-the-counter market.

They are required to produce an offering document, appoint an administrator and have their financial statements signed off by a CIMA-approved auditor in the Cayman Islands. There is no prior approval process required by CIMA before the launch of such a fund, but it must be registered with CIMA as described in 2.6 Regulatory Approval Process below and care should be taken in relation to 2.5 Non-traditional Assets. In the event CIMA deems a registration application incomplete, it typically allows up to 24 hours to respond to any requests for additional information before requiring that application to be re-submitted.

Licensed Funds

Licensed mutual funds are funds that hold a licence under the MFA and must have either a registered office in the Cayman Islands or, if a unit trust, a trustee who is licensed under the Banks and Trust Companies Act of the Cayman Islands. They are subject to a prior approval process, requiring CIMA to be satisfied with the experience and reputation of the promoter and administrator and that the business of the fund and the offering of its interests will be carried out in a proper way.

These types of funds are relatively rare (and in terms of the total number of the Cayman Islands mutual funds, a de minimis percentage) and tend to be used by certain types of retail funds as there is no minimum investment threshold. However, in practice, retail funds are more commonly dealt with under the third category of mutual funds, as described below.

Funds with No Minimum Investment Threshold

Save for Limited Investor Funds (as detailed under "Highly Restricted Placement or Exempted Funds", below), mutual funds with a minimum subscription level of less than USD100,000 must have a licensed mutual fund administrator providing their principal office in the Cayman Islands. Again, given the usual hedge fund investor profile, funds regulated in this manner are fairly rare.

Highly Restricted Placement or Exempted Funds

Finally, although not appropriate for a fund that will be widely placed, there is scope for registering an open-ended vehicle that is not required to satisfy the Minimum Equity Interest Requirement (referred to here as a Limited Investor Fund). The equity interests in a Limited Investor Fund must be held by 15 or fewer investors, the majority of whom have the right to appoint or remove the "operator" of the fund (which means the trustee, general partner or directors, depending on the structure of the relevant vehicle). These investor rights are built into the constitutional documents for the relevant Limited Investor Fund.

Master funds in master-feeder structures that do not have a CIMA-regulated feeder may also be structured in this way.

Single investor funds are not required to register under the MFA as there is no pooling of investor funds as required by the MFA.

Funds Regulated under the PFA

The recently enacted PFA applies to "private funds", which for these purposes refers to any company (including LLCs), unit trust or partnership that offers or issues investment interests, the purpose or effect of which is the pooling of investor funds with the aim of enabling investors to receive profits or gains from such entity's acquisition, holding, management or disposal of investments where:

  • the holders of investment interests do not have day-to-day control over the acquisition, holding, management or disposal of the investments; and
  • the investments are managed as a whole by or on behalf of the operator of the private fund, directly or indirectly.

The PFA includes a substantial list of "non-fund arrangements" that are excluded from the definition of private funds and are therefore outside of the scope of the PFA altogether.

Unlike the MFA, the PFA does not provide for differing categories of regulation at CIMA depending on minimum investment thresholds.

2.4 Loan Origination

Generally speaking, there are no restrictions on the origination of loans by funds established in the Cayman Islands, so long as a fund is otherwise in compliance with all of its regulatory obligations. Lenders to Cayman Islands funds may also take the benefit of security interests but may seek to utilise the services of an administrative or security agent for such a purpose.

2.5 Non-traditional Assets

Generally, Cayman Islands laws and regulations do not impose limitations on the assets in which a fund may invest. However, there are some notable areas where special attention needs to be taken in order to comply with the Cayman Islands laws regarding investment, such as the ones listed below.

  • "Virtual assets". The fund should ensure it does not engage in the business of providing financial services or transferring "virtual assets" on behalf of another person. Such activity would require registration or licensing under the Virtual Asset (Service Providers) Act. For this purpose, a "virtual asset" is a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes.
  • Cannabis. The sale of cannabis (including CBD), where not in a medical context, is currently a criminal offence in the Cayman Islands under the Misuse of Drugs Act (as amended). The sale of such items is therefore classed as criminal conduct and any resulting proceeds will be criminal property. Under the Proceeds of Crime Act, it is an offence to acquire criminal property. However, this may not be an offence where the fund knows that the sale of the cannabis occurred outside the Cayman Islands and that the sale is not an offence under the laws of the country where the cannabis is produced and sold.

2.6 Regulatory Approval Process

Private funds and mutual funds registered with CIMA under the most common categories of registration can be submitted to CIMA for registration. CIMA will typically honour the date on which the application is submitted as the registration date for the fund.

There is no pre-approval process for these categories of registration. The application is submitted online through CIMA's REEFS system, along with the relevant documents and the requisite fee.

2.7 Requirement for Local Investment Managers

There is no requirement in the Cayman Islands for a fund to appoint a local investment manager. A Cayman Islands investment management company must comply with the requirements of the Securities Investment Business Act and may also need a degree of physical substance if it falls under the relevant provisions of the Economic Substance Act. Please see 3.7 Local Substance Requirements.

2.8 Other Local Requirements

The Cayman Islands require all entities used in investment fund structures to maintain a registered office provided by a licensed service provider on island. They are not required to appoint local directors, and the funds themselves are not required to demonstrate substance nor maintain a physical presence, other than through their registered office provider.

While no legal requirement exists to appoint local directors for open-ended funds, it is common for experienced independent directors to be appointed from the Cayman Islands.

In investment funds with a partnership structure, the general partner must be either a Cayman Islands entity or a foreign entity registered as such in the Cayman Islands.

2.9 Rules Concerning Other Service Providers

Aside from the requirement to maintain a registered office in the Cayman Islands, investment funds are not required to have other service providers located on the Islands, subject to limited exceptions.

As noted under 2.8 Other Local Requirements, there are large numbers of services providers located in the Cayman Islands, including those focused on fund administration and director services, so it is common for investment funds to use local service providers for these functions.

2.10 Requirements for Non-local Service Providers

Directors or managers of funds registered under the MFA are required to be registered or licensed with CIMA under the Directors Registration and Licensing Act. This requirement does not apply to funds registered under the PFA.

There are three categories of registered directors, namely:

  • Registered director (a natural person who does not fall into the category of a professional director).
  • Professional director (a person appointed to 20 or more covered entities).
  • Corporate Director (refers to corporate bodies that serve as directors of covered entities).

Under the Directors Registration and Licensing Act, directors or managers of general partners of funds structured as partnerships and registered under the MFA are not required to be registered or licensed with CIMA.

In certain circumstances, non-local service providers, such as administrators or custodians, may become subject to regulation if they are conducting business within or from the Cayman Islands.

2.11 Funds: Tax Regime

There is currently no direct taxation in the Cayman Islands, and interest, dividends and gains payable to alternative funds will be received free from all Cayman Islands taxes. For investors, this means that resources can be pooled to invest, without returns on that investment being subject to an additional layer of taxation beyond that imposed by the investor's home jurisdiction and the jurisdictions where trading profits are generated.

Funds are typically established as exempted companies, exempted limited partnerships, exempted limited liability companies or exempted trusts and, as such, are eligible to apply for (and can expect to receive) an undertaking from the government of the Cayman Islands confirming this status for a period of years. The undertaking will be valid for 30 years from the date of the undertaking for exempted company and for 50 years for an exempted limited partnership or a limited liability company (LLC). For an exempted trust, an undertaking will be 50 years from the date of creation of the trust. Such an undertaking will provide that, for the relevant period, no law that is thereafter enacted in the Cayman Islands imposing any tax or duty to be levied on profits, income or on gains or appreciation, or any tax in the nature of estate duty or inheritance tax, will apply to any property comprised in or any income arising under the fund, or to the share, interest or unit holders thereof, in respect of any such property or income.

FATCA and CRS have each been implemented into the Cayman Islands and for more detail please see 4.8 FATCA/CRS Compliance Regime.

2.12 Double-Tax Treaties

The Cayman Islands is a tax neutral jurisdiction and consequently is not party to any double-tax treaties that are relevant to investment funds.

2.13 Use of Subsidiaries for Investment Purposes

Subsidiaries established in the Cayman Islands are often used for investment purposes or for the segregation of assets and liabilities. Cayman Islands may be a suitable location for the formation of entities acting as holding or trading vehicles for internationally sourced and generated business due to the absence of corporation tax and withholding taxes or levies.

2.14 Origin of Promoters/Sponsors of Alternative Funds

The Cayman Islands is the most popular non-US jurisdiction for US fund sponsors. There is also a tendency for fund sponsors in Asia to establish fund vehicles in the Cayman Islands.

2.15 Origin of Investors in Alternative Funds

Cayman Islands investment funds are commonly used by US tax-exempt investors and other non-US investors. Investors from many different jurisdictions invest through Cayman Islands structures, particularly investors from North America and Asia, who are very familiar with Cayman Islands funds.

2.16 Key Trends

According to statistics produced by CIMA, the number of registered mutual funds of all categories is 13,016 as of 30 September 2022, once again confirming the Cayman Islands as the domicile of choice for hedge funds. Furthermore, there has been a steady increase in the number of closed-ended funds that are registered with 15,662 funds registered as of 30 September 2022. The Cayman Islands remains the offshore financial centre of choice for global fund managers domiciling their funds in the Cayman Islands. That trend can be expected to continue.

2.17 Disclosure/Reporting Requirements

As a starting point, sophisticated investors should be aware of the risks associated with their investments in regulated funds. The MFA requires an offering document for the relevant fund to describe the equity interests in all material respects and to include such other information as necessary so a prospective investor can make informed decisions as to whether or not to subscribe for or purchase the equity interests. Furthermore, CIMA has issued Rules on the Contents of Offering Document for both Regulated Mutual Funds and Registered Private Funds, which contain comprehensive lists of certain minimum disclosure requirements for fund marketing materials.

2.18 Anticipated Changes

In recent years, Cayman legislation and regulation have evolved considerably and continue to respond to trends and challenges in current market practice, and to embrace transparency and anti-avoidance initiatives.

3. Managers

3.1 Legal Structures Used by Fund Managers

The majority of investment fund managers of Cayman Islands alternative funds are located onshore and are not required to register or otherwise be regulated in the Cayman Islands. Whilst this is not typical, where managers choose to be established or registered in the Cayman Islands, the flexibility of Cayman structures allows for fund managers to choose the vehicle depending on their preference, whether this is for a partnership structure with a general partner, or a company with directors or managers.

3.2 Managers: Regulatory Regime

Under the Securities Investment Business Act (the SIBA), alternative fund managers established or with a place of business in the Cayman Islands dealing in securities, arranging deals in securities, advising on securities or managing securities, are required to register with, or be licensed by, CIMA. This will be the case for the vast majority of managers, unless they do not manage "securities", which is broadly defined but with some exceptions (eg, real estate). However, if the manager is not regulated under SIBA on this basis, then it may be necessary for the manager to be regulated under the Companies Management Act.

Fund managers that solely provide services to funds that are sophisticated or high net worth persons (as defined) will only need to be registered under SIBA; other managers will need to obtain a full licence under SIBA.

Fund managers will need to comply with the Anti-Money Laundering, Counter-Terrorist Financing, and Proliferation Financing regime in the Cayman Islands as a result of conducting "relevant financial business". The sanctions regime will also apply to the managers.

The Economic Substance framework will apply in some capacity and fund managers will likely need to take certain steps to establish economic substance in the Cayman Islands. Please see 3.7 Local Substance Requirements.

In addition, the fund manager will have certain notification (and possibly reporting) obligations under FATCA and the Common Reporting Standard (CRS) as implemented in the Cayman Islands.

The fund manager will also be subject to the Data Protection Act (DPA), the obligations under which are similar to those under the GDPR.

3.3 Managers: Tax Regime

Please see 2.11 Tax Regime.

3.4 Rules Concerning Permanent Establishments

The Cayman Islands does not have legislation on permanent establishments as there is no taxation of investment managers.

3.5 Taxation of Carried Interest

Please see 2.11 Tax Regime.

3.6 Outsourcing of Investment Functions/Business Operations

Managers can outsource functions and business operations.

CIMA's Statement of Guidance on Outsourcing will apply to managers regulated under SIBA. This requires entities to take certain steps when outsourcing and includes a requirement to have a written outsourcing agreement in place that meets certain criteria.

Any outsourcing may also have an impact on the application of the Economic Substance Act, particularly the need to conduct certain activities in the Cayman Islands. Please see 3.7 Local Substance Requirements.

3.7 Local Substance Requirements

The Economic Substance Act will likely apply to a person who is registered as "managing securities" for an investment fund under SIBA, as set out in 3.2 Regulatory Regime.

As a result, the manager may, depending on the operation of the Economic Substance Act, be required to:

  • conduct core income-generating activities relating to managing securities in the Cayman Islands;
  • be "directed and managed" in the Cayman Islands (which will include having board meetings in Cayman); and
  • have regard to the level of relevant income derived from the relevant activity carried out in the Islands, such as:
  1. have an adequate amount of operating expenditure incurred in the Cayman Islands;
  2. have an adequate physical presence in the Cayman Islands; and
  3. have an adequate number of full-time employees or other personnel with appropriate qualifications in the Cayman Islands.

What is considered adequate and appropriate will depend on the particular facts and level of activity carried out by the manager.

This is only a summary and if the manager is tax resident in another jurisdiction, for example, it may not need to comply with the above requirements.

The manager will also have associated record-keeping, notification and filing requirements.

3.8 Local Regulatory Requirements for Non-local Managers

Please see 3.1 Legal Structures Used by Fund Managers and 4.3 Local Investors.

4. Investors

4.1 Types of Investors in Alternative Funds

A broad spectrum of investors invest in Cayman Islands investment funds. Investors will often include non-US and tax-exempt institutions.

4.2 Marketing of Alternative Funds

Different rules apply to the following in the Cayman Islands:

  • Cayman Islands domiciled funds;
  • non-Cayman Islands domiciled funds; and
  • a sponsor or manager marketing interests on behalf of a fund (whether Cayman Islands domiciled or non-Cayman Islands domiciled).

Please refer to 4.3 Rules Concerning Marketing of Alternative Funds and 4.4 Local Investors for the position of sponsors and managers and Cayman Islands domiciled funds.

Non-Cayman Islands domiciled funds (ie, "overseas funds") are permitted to invite persons who are not the "public in the Cayman Islands" to subscribe for their interests without restrictions under the MFA or the PFA. These Acts do not specifically define the meaning of "public in the Cayman Islands" and simply state, non-exhaustively, that this expression does not include certain types of persons and entities (for example, sophisticated or high net worth persons and companies, foreign companies or partnerships that are incorporated, established or registered in the Cayman Islands).

Overseas funds are only permitted to invite members of the "public in the Cayman Islands" to subscribe for their interests in one of two circumstances:

  • if the invitation is made by or through a person who is the holder of a licence under the SIBA (please see 4.3 Rules Concerning Marketing of Alternative Funds); and
    • the interests are listed on a stock exchange (including an over-the counter market) specified by CIMA by notice in the Gazette; or
    • the overseas fund is regulated by a recognised overseas authority approved by CIMA; or
  • if the overseas fund becomes regulated by CIMA under the MFA or the PFA (as applicable).

4.3 Rules Concerning Marketing of Alternative Funds

A sponsor or manager marketing interests on behalf of an investment (whether domiciled in Cayman Islands or not) must register with or be licensed by CIMA if they fall within SIBA's scope. The SIBA does not contain an express definition of "marketing", but instead lists a number of activities that constitute "securities investment business". The marketing of interests in a fund will generally constitute "securities investment business".

A sponsor or manager carrying on "securities investment business" will be an "In-scope Entity" under the SIBA if it is:

  • a company, foreign company or partnership that is incorporated, established or registered in the Cayman Islands; or
  • a person that has otherwise "established a place of business in the Islands" through which such activities are carried out.

Those in-scope entities that do not qualify for an exemption within the SIBA must either register with CIMA (if eligible, eg, if they conduct securities investment business exclusively for sophisticated or high net worth investors) or apply for a full licence from CIMA (if not eligible for registration alone).

4.4 Local Investors

Specific rules apply under Cayman Islands law to each type of vehicle that a Cayman Islands domiciled fund could be established as (for example, exempted companies and exempted limited partnerships). These laws generally only permit the vehicle to carry on business in the Cayman Islands in narrow circumstances, such as where any business in the Cayman Islands is ultimately in furtherance of business that is exterior to the Cayman Islands. In view of the restrictions on conduct of business in the Cayman Islands, funds domiciled in Cayman Islands are generally not permitted to offer their interests to the public there. However, it is common for these vehicles to invest in other vehicles in the Cayman Islands that are subject to the same or similar restrictions (for example, other exempted companies or exempted limited partnerships).

4.5 Investors: Regulatory Regime

Please refer to 4.2 Marketing of Alternative Funds, 4.3 Rules Concerning Marketing of Alternative Funds and 4.4 Local Investors. There are no regulatory filing obligations that are specific to marketing into the Cayman Islands.

The Cayman Islands has also implemented a robust legal and regulatory regime with respect to anti-money laundering, counter-terrorist and proliferation financing, and compliance with targeted financial sanctions. This is contained within the Proceeds of Crime Act, the Terrorism Act, the Proliferation Financing (Prohibition) Act, the Anti-Money Laundering Regulations (each as amended from time-to-time) and supported by guidance notes published by CIMA (the "AML Regime").

Investment funds will typically need to comply with the AML Regime. This includes establishing, implementing and complying with written policies and procedures and documenting and keeping current a risk assessment in accordance with the requirements in the AML Regime. Compliance will encompass the implementation of certain procedures, including due diligence on investors, and internal controls, including the appointment of natural persons to fulfil key roles. CIMA is responsible for supervising compliance with the AML Regime.

4.6 Disclosure Requirements

Please see 2.17 Disclosure/Reporting Requirements.

4.7 Investors: Tax Regime

Please see 2.11 Tax Regime.

4.8 Foreign Account Tax Compliance Act (FATCA)/Common Reporting Standard (CRS) Compliance Regime

FATCA and CRS have each been implemented into the Cayman Islands via the Tax Information Authority (International Tax Compliance) (United States of America) Regulations, 2014 (as amended) and the Tax Information Authority (International Tax Compliance) (Common Reporting Standard) Regulations, 2015 (as amended) (together and as applicable in the Cayman Islands, the "FATCA and CRS Regime"). The Cayman Islands Tax Information Authority (TIA) is responsible for overseeing compliance with the FATCA and CRS Regime.

An alternative investment fund will typically be classified as an "Investment Entity" under the FATCA and CRS Regime and, therefore, will be subject to a number of obligations, including:

  • registering with the United States Internal Revenue Service to obtain a Global Intermediary Identification Number (including appointing a "Responsible Officer");
  • submitting a notification to the TIA providing specified information (including appointing a "Principal Point of Contact" and "Authorising Person");
  • establishing, implementing and complying with written policies and procedures to comply with CRS;
  • implementing a due diligence programme to facilitate the identification of any reportable account holders (including the collection of "self-certification forms") and reporting on any such accounts to the TIA or providing "nil returns" if no reportable accounts have been identified; and
  • submitting an annual "CRS Compliance Form" to the TIA.

Originally published by Chambers Global Practice Guides.

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.