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1. Tax
1.1 Tax Regimes
The Cayman Islands
The Cayman Islands comprise three islands: Grand Cayman, Cayman Brac and Little Cayman. They are located in the Western Caribbean Sea, approximately 500 miles south of Miami, Florida. The capital city, George Town, is located on the south-west shore of Grand Cayman. The Cayman Islands is a British Overseas Territory, run as a parliamentary democracy with judicial, executive and legislative branches. The Cayman Islands has its own constitution and bill of rights. The local legislature, called the Parliament, has 19 elected members, from which a Premier, Deputy Premier and Speaker are appointed.
A Governor, appointed by the Government of the United Kingdom, presides over meetings of the cabinet and has special responsibility for defence, external affairs, internal security, the police and the civil service. The Deputy Governor who, along with the Attorney General, is a non-voting ex of Ïcio member of the Legislative Assembly, is appointed by the Governor pursuant to advice from the Crown. The Governor also appoints members of the judiciary.
The Cayman Islands has a sophisticated judicial system presided over by a Chief Justice, and has a number of full and part-time judges and justices of the peace, some of whom serve as lay magistrates. There are three courts: the Summary Court (which has jurisdiction over all civil disputes having a subject matter of under KYD20,000), the Grand Court (which has a number of divisions including a dedicated Financial Services Division established in 2009) and the Court of Appeal (from which appeals from the Grand Court – the islands' final local Court of Appeal lie), which sits in the Cayman Islands three times per year. Final rights of appeal, in certain circumstances, lie to the Judicial Committee of the Privy Council in London.
Taxing Regime
There are no income, capital gains, corporate, wealth, withholding, estate or inheritance taxes levied in the Cayman Islands. Import duties are payable on most items brought into the territory. Stamp duty is payable on the purchase of land in the Cayman Islands and is also levied on certain documents executed within, brought into, or produced before the court in, the Cayman Islands. Stamp duty on deeds and documents ranges from KYD40 to KYD100.
The stamp duty calculated on the purchase of property is currently 7.5% of the purchase price or the market value of the property, whichever is higher; the Lands and Survey Department may carry out property assessment to establish the applicable rate. There are time limits for the payment of stamp duty on property purchases, with fines and penalties for late payment. Stamp duty exemptions are available in certain instances. Exemptions currently do not apply to overseas first-time buyers.
1.2 Exemptions
See 1.1 Tax Regimes.
1.3 Income Tax Planning
See 1.1 Tax Regimes.
1.4 Taxation of Real Estate Owned by Non-residents
See 1.1 Tax Regimes.
1.5 Stability of Tax Laws
There are no income, capital gains, corporate, wealth, withholding, estate or inheritance taxes levied in the Cayman Islands, and the jurisdiction is widely recognised as having a stable economic and political system as is independently verified annually. Moody's 2023 Report on the Cayman Islands reaffirmed its international credit rating as Aa3. Accordingly, the fear of future tax uncertainty in the Cayman Islands is of low consideration as a feature of tax and estate planning.
Exempted Trusts
A trustee of a trust that satisfies the conditions set out in Sections 73 to 86 of the Trusts Act (2021 Revision) can apply for such trust to be registered as an exempted trust with the Registrar of Trusts. The register is not open to public inspection.
On payment of a fee, the Financial Secretary may provide an undertaking to the trustee of an exempted trust. The undertaking provides that no law imposing any tax or duty to be levied on income, capital asset gains or appreciation or any estate duty, or inheritance tax that comes into effect for a period not exceeding 50 years from the date of creation of the exempted trust, will apply to any property in or any income arising under such exempted trust or to the trustees or the beneficiaries thereof in respect of any such property or income.
1.6 Transparency and Increased Global Reporting
Common Reporting Standard
The Cayman Islands was an "early adopter" of the Common Reporting Standard (CRS). As such, CRS regulations were issued in October 2015 and again in December 2016 to effect the implementation of the OECD Standard for Automatic Exchange of Financial Account Information.
EU DAC 6
The Cayman Islands does not have DAC 6.
Tax Information Exchange
The Cayman Islands has signed, along with over 100 other countries, a multilateral competent authority agreement to implement CRS, which requires "Financial Institutions" to identify and report information in respect of specified persons in the jurisdictions which sign and implement the CRS, and adopt and implement written policies and procedures setting out how it will address its obligations under CRS.
The Cayman Islands established a dedicated Tax Information Authority (TIA) in 2005 to assist in the discharge of the country's tax information exchange obligations. The TIA is the sole dedicated channel in the Cayman Islands for international co-operation on matters involving the provision of tax-related information. The TIA is a function of the Department for International Tax Co-operation and has statutory responsibility under the Tax Information Authority Act (2021 Revision).
Beneficial Ownership
To comply with international standards and commitments to combat money laundering, tax evasion and terrorist financing, the Cayman Islands' implemented the beneficial ownership register (BOR) regime in July 2017. This regime required certain Cayman Islands companies or LLCs to maintain a BOR, which included details of the individuals and certain intermediate holding companies which owned or controlled 25% or more of the equity interests or voting rights in that company, or had rights to appoint or remove a majority of the company directors or LLC managers, together with details of certain intermediate holding companies.
On 24 November 2023, the Parliament of the Cayman Islands passed the Beneficial Ownership Transparency Act, 2023, which was later gazetted on 15 December 2023 (the "BOT Act"). The BOT Act was later brought into force on 31 July 2024, with a delay on enforcement of the new requirements of the BOT Act until 1 January 2025.
The BOT Act brings fundamental changes to the existing Cayman Islands beneficial ownership regime. Key changes will include consolidation of the beneficial ownership regime under a single Act, and the application of the beneficial ownership regime to new entity types including exempted limited partnerships, limited partnerships and foundation companies, which are currently not within scope. The definition of "beneficial owner" is also amended to align more closely with that under the Cayman Islands Anti- Money Laundering Regulations.
The majority of the exemptions which applied under the previous beneficial ownership regime have been removed or significantly restricted in favour of "alternative routes to compliance". Notably, Cayman Islands legal persons which are registered as mutual funds or private funds may provide their corporate services provider with details of a contact person rather than their registrable beneficial owners. Cayman Islands legal persons licensed under certain Cayman Islands "regulatory laws" or listed on the Cayman Islands Stock Exchange or an approved stock exchange or which are a subsidiary of an entity listed on such an exchange may provide their corporate services provider with details of their licensed or listed status rather than their registrable beneficial owners. Alternatively, such Cayman Islands legal persons may opt in to providing details of their registrable beneficial owners. All other Cayman Islands legal persons are required to identify and provide details of their registrable beneficial owners to their corporate services providers.
The BOT Act also provides that the Cabinet may, subject to resolution in Parliament, make further regulations empowering the Cayman Islands Registrar to provide public access to certain required particulars of registrable persons identified on a BOR.
Economic Substance
On 1 January 2019, the International Tax Cooperation (Economic Substance) Act 2018, now in its 2024 Revision (the "ITC Act"), came into force, with accompanying regulations. "Relevant entities" undertaking "relevant activities" (as defined in the ITC Act) must provide an annual report of their activities to the TIA and satisfy the "economic substance test" set out in Section 4 of the ITC Act.
2. Succession
2.1 Cultural Considerations in Succession Planning
There are no notable cultural factors playing a part in succession planning in the Cayman Islands. Cayman Islands' succession law is based upon the principle of testamentary freedom, meaning that a testator or testatrix can leave their estate in their will to anyone that they wish, if they have the necessary capacity to do so.
The relevant statutes in connection with succession matters are the Wills Act (2021 Revision), the Succession Act (2021 Revision) and the Probate and Administration Rules (2008 Revision). Broadly, these laws set out the practice and procedure for obtaining grants of probate, letters of administration and the resealing of foreign grants, as well as the rules relating to the disposition of an intestate's estate.
If a deceased dies leaving a will, the executors will apply for a grant of probate, which will authorise them to access the estate of the deceased and distribute it in accordance with the terms of the will. If a deceased dies without a will, various relatives in order of priority are entitled to apply for the grant of letters of administration. Other grants of representation are available to deal with less common situations.
The Formal Validity of Wills (Persons Dying Abroad) Act, 2018 ("2018 Act") applies to any will that is executed by a person who dies after the commencement of the 2018 Act and provides that a will shall be regarded as properly executed if it complies with any of the eight different options set out in the 2018 Act (so giving effect as a matter of Cayman Islands law to the Convention of 5 October 1961 on the Conflicts of Laws Relating to the Form of Testamentary Dispositions (Hague)).
2.2 International Planning
As high net worth families and their businesses have become increasingly global, the focus on international planning has benefited the Cayman Islands as a centre of excellence in financial services.
The jurisdiction offers a diverse range of succession planning vehicles and highly experienced service providers who are accustomed to working closely with a family's advisers in their home jurisdiction(s) to tailor a structure to suit the family's requirements.
2.3 Forced Heirship Laws
There are no "forced heirship" laws in the Cayman Islands. Succession law is based upon the principle of testamentary freedom.
When a person dies without a will, the intestacy rules provide that the surviving spouse will share the estate with the surviving children of the deceased. Close relatives, starting with the surviving parents of the deceased, will benefit in order of priority if no spouse or child survives the deceased.
2.4 Marital Property
Divorce in the Cayman Islands
A couple can divorce in the Cayman Islands if they have been "domiciled" there for at least a year on the date that one of them petitions for divorce. Domicile in this context means that one or other of the parties can demonstrate an intention to reside in the Cayman Islands permanently.
Alternatively, a wife can petition for divorce if she has been "ordinarily resident" in the Cayman Islands for at least two years prior to filing the petition, regardless of where the other spouse lives.
Divorce in the Cayman Islands is based on the Matrimonial Causes Act (2005 Revision) (MCA), the Maintenance Act (1996 Revision) and supplemental Matrimonial Causes Rules, currently in their 2021 Revision. Parties in Cayman Islands divorce proceedings are still required to provide fault-based grounds for divorce – for example, adultery, desertion and unreasonable behaviour.
Division of Assets on Divorce
There is no community property regime in force and the court has broad discretion under Sections 19 and 21 of the MCA to decide the division of assets on divorce, taking into account a number of factors set out in local statute and derived from the common law.
In Billes v Anco [2011] (2) CILR 74 (subsequently confirmed by the Court of Appeal in McTaggart v McTaggart [2011] (2) CILR 366) it was established that the court will approach the division of assets on divorce in accordance with the "modern view". That is, there should be no discrimination based upon the nature of the roles undertaken by the parties to the marriage. The court should "aim for equality", derogating from that principle only in "exceptional circumstances". Family law reform has been under discussion for some time, but the proposals have yet to become statute.
While there is no specific legislation in relation to pre or postnuptial agreements, the court is likely to afford them a similar status as the English Supreme Court in Radmacher v Granatino [2010] UKSC 42. Again, in Billes v Anco, the judge found that the court should give weight to what was in that case an unsigned copy of what he referred to as a "marriage contract" or prenuptial agreement, in the division of assets upon divorce. The court thus retains discretion to disregard pre or postnuptial agreements or to lend them less weight, if they are found to be unfair to the children of the marriage or if there was some injustice in the way that the agreement was reached between the parties.
2.5 Transfer of Property
As there are no income, capital gains, corporate, wealth, withholding, estate or inheritance taxes levied in the Cayman Islands, a transfer of property either on death or during a person's lifetime has no effect on the cost basis of the property being transferred. In the case of transfers of property after death, in the case of a non-domiciled person, it will first be necessary to obtain a grant of Letters of Administration, Grant of Probate or resealing of an earlier grant from the courts of the deceased person's domicile at the time of their death.
2.6 Transfer of Assets: Vehicle and Planning Mechanisms
As there is currently no form of direct taxation on income, capital gains, corporate, wealth, withholding, estate or inheritance taxes levied in the Cayman Islands, the mitigation of local taxes on the transfer of assets to younger generations is not a primary driver in succession planning.
However, the ability to access very long dates of guaranteed exemption from taxation – in the case of exempted companies via the Tax Concessions Act (2018 Revision) which exempts companies for a period not exceeding 30 years from the date of the approval and pursuant to the Trusts Act (2021 Revision) in the case of exempted trusts, for a period not exceeding 50 years from the date of creation of the exempted trust, have both proven to be significant attractors for the use of these vehicles for use in transfer planning of next generational wealth.
2.7 Transfer of Assets: Digital Assets
There is no statutory regime in the Cayman Islands that applies specifically to the treatment of digital assets for the purposes of succession. If Cayman Islands law governs succession to the digital assets, then they will be treated in the same way as any other asset transferred pursuant to a will or the intestacy rules.
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Originally published in the 2024 Private Wealth guide published by Chambers and Partners in September 2024.
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.
