COUNTRY. Doing Business in. the Cayman Islands

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COUNTRY

Doing Business in

the Cayman Islands

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Preface This guide has been prepared by Baker Tilly (Cayman) Ltd., an independent member of Baker Tilly International. It is designed to provide information on a number of subjects important to those considering investing or doing business in the Cayman Islands. Baker Tilly International is the world’s 8th largest accountancy and business advisory network by combined fee income, and is represented by 150 firms in 120 countries and over 25,000 personnel worldwide. Its members are high quality, independent accountancy and business services firms, all of whom are committed to providing the best possible service to their clients, both in their own marketplace and across the world. This guide is one of a series of country profiles compiled for use by Baker Tilly International member firms’ clients and professional staff. Copies may be downloaded from www.bakertillyinternational.com. Doing Business in the Cayman Islands has been designed for the information of readers. Whilst every effort has been made to ensure accuracy, information contained in this guide may not be comprehensive and recipients should not act upon it without seeking professional advice. Facts and figures as presented are correct at the time of writing. Up-to-date advice and general assistance on Cayman Islands matters can be obtained from Baker Tilly (Cayman) Ltd.; contact details can be found at the end of this guide.

July 2011

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Contents Page

2

1

Fact Sheet

4

2

Business Entities and Accounting

6

2.1

Types of Business Structures Available

6

2.2

Auditing, Accounting and Filing Requirements

7

3

Finance and Investment

9

3.1

Exchange Control

9

3.2

Banking and Sources of Finance

9

3.3

Tariffs

10

3.4

Foreign Investment Incentives/Restrictions

10

4

Employment Regulation and Social Security

11

4.1

Entry Visa and Work Permit Requirements

11

4.2

Hiring Local Employees

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4.3

Trade Unions

12

4.4

Social Security System

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Page

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Taxation

13

5.1

General Principles

13

5.2

Corporate Taxation

13

5.3

Individual Taxation

13

5.4

Indirect Taxation

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1

Fact Sheet

Geography Location

The Cayman Islands comprise the three islands of Grand Cayman, Cayman Brac, and Little Cayman, situated in the western Caribbean, 480 miles southwest of Miami and 180 miles northwest of Jamaica

Area

In total 101m². At 22 miles long and four miles wide, Grand Cayman is the largest of the Cayman Islands

Climate

Tropical climate with average temperatures ranging between 25°C-32°C throughout the year.

Terrain

All three islands have relatively flat terrain

Time zone

GMT -5

People Population

Approximately 55,000 (2010)

Ethnic groups

More than 100 different nationalities are represented in the Cayman Islands. The majority of the population is Caymanian (approximately 60%), Jamaican, British, American, Canadian, Filipino and South American

Religion

Christianity is the prevailing religion

Language

English is the official language

Government

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Country name

Cayman Islands

Government type

The Cayman Islands is a self-governing British Overseas Territory. Government is a parliamentary democracy with judicial, executive and legislative branches, headed by the Governor. There is no second tier of local government, although Cayman Brac and Little Cayman have district representatives. The Governor is the appointed representative of Her Majesty Queen Elizabeth II and presides over the Cabinet, the ruling body of the country. The Premier is the highest elected official

Capital

George Town (Grand Cayman)

Political situation

Stable

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Economy GDP – per capita

Approximately US$47,000 (2010)

GDP – real growth rate

1.10% (2008 est)

Labour force

39,000 (est), of which 55% are foreign nationals on work permit

Unemployment

6% (2010 est)

Currency (code)

Cayman Islands Dollar (KYD or CI$)

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Business Entities and Accounting

2.1

Types of Business Structures Available

The most common structures for Cayman entities are: ●

Companies



Partnerships



Trusts.

Companies and limited partnerships are the most common structures for the majority of foreign investors. 2.1.1

Companies

Companies incorporated in the Cayman Islands are governed by the Cayman Islands Company Law. They may be formed either with unlimited liability or may be limited by guarantee or, most commonly, limited by shares. There are three types of company that may be incorporated and registered in the Cayman Islands: ●

Exempted company – this is the most popular type of company used for offshore operations, where the business activity of the company is primarily outside the Cayman Islands. Hedge funds and insurance companies are examples of entities which commonly use this structure. Exempt companies have the advantage of being able to apply for a tax exemption certificate covering a period 20 years from incorporation, regardless of any changes in Cayman Islands tax rules. There is no requirement for shareholder meetings and there are fewer filing formalities than other company types below



Ordinary resident company – may be used where the business is to take place within the Cayman Islands. These companies generally require 60% participation/ownership by Caymanians and require an application for a trade and business licence. This type of company is generally used by local business and professional services firms operating on the island



Ordinary non-resident company – this is similar to an exempted company, however an ordinary non-resident company must have at least one general shareholders’ meeting per year. The register of members is open to the public for this type of

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company. In addition, an annual report must be filed with the Registrar of Companies listing the shareholders, directors and officers. In addition, companies incorporated outside of the Cayman Islands may apply for registration as a foreign company. 2.1.2

Limited partnerships

Limited partnerships are governed by the Partnership Law (2009 Revision), which requires them to be registered with the Registrar of Limited Partnerships. A limited partnership may be established by two or more persons or entities for the transaction of any mercantile, mechanical, land holding and development, agricultural or manufacturing business, or any business for the development of tourism. It must consist of one or more general partners, who are liable for all debts and obligations, and one or more limited partners, who are not liable for more than the actual cash they contribute. To operate a business in the Cayman Islands a partnership requires a licence under the Local Companies (Control) Law. Such licences are granted by the Trade and Business Licensing Board. The Exempted Limited Partnership Law means it is possible to form limited partnerships for offshore investors. Such a partnership may not undertake business with the public in the Cayman Islands, other than as necessary for the carrying on of business outside Cayman. There are no inheritance, income, or capital gains taxes, nor estate duties applicable to partnerships, including exempted limited partnerships and partners thereof.

2.2

Auditing, Accounting and Filing Requirements

2.2.1

Non-registered Entities

For non-registered Cayman Islands companies and partnerships, the reporting requirements as provided by the Companies Law and Partnership Law are relatively limited and straightforward. The basic statutory requirements for all companies, which are often outsourced to service providers based in the Cayman Islands, include: ●

Maintaining a registered office or place of business in the islands



Maintaining registers of members and directors and minutes of meetings



Maintaining accounting records



Filing an annual return and payment of the annual statutory fee.

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There is no statutory requirement for filing financial statements for non-registered companies, and the requirement for an audit may be waived upon agreement by the shareholders. 2.2.2

Registered entities

Certain types of entities may be required to register with the Cayman Islands Monetary Authority (CIMA), the primary financial services regulator in the Cayman Islands. CIMA regulates the following businesses operating in and from the Cayman Islands: ●

Banking and related services: including banks and development banks, money services businesses, building societies and co-operative societies such as credit unions



Fiduciary services: trust companies, trust services providers, corporate service providers



Insurance services: insurance companies, insurance managers, agents, sub-agents, brokers and principal representatives



Investment funds and fund administrators (certain exemptions apply to investment funds)



Securities investment businesses: including broker-dealers, market-makers, securities arrangers, securities advisors and securities managers.

In addition to the requirements for non-registered companies and partnerships listed above, registered entities in these categories have additional reporting requirements. These include the requirements for an annual audit by a CIMA-approved Cayman-based auditor. Audited financial statements must be filed with CIMA between 60-180 days of year-end depending on the category of registration. Additional fees are charged for registration with CIMA. Please contact us to obtain an up to date list of the registration fees for the business structures described above.

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Finance and Investment

3.1

Exchange Control

There are no exchange controls in the Cayman Islands. The Cayman Islands Dollar (KYD or CI$) is pegged to the US$ at the rate of CI$1.00 = US$1.25.

3.2

Banking and Sources of Finance

The Cayman Islands is the largest offshore banking jurisdiction and one of the largest banking centres in the world based on banking assets and liabilities. There are over 250 banks licensed in the Cayman Islands, including 40 of the top 50 global banks, although the majority of these are licensed to operate on an international basis with limited local activity. There is a select group of major local banks providing full banking services to Cayman Islands residents and businesses, most of which are subsidiaries of large banks operating throughout the Caribbean and globally. CIMA is responsible for licensing and regulating banking business in the Cayman Islands. Banking licences are issued by CIMA under a number of categories, including: ●

Category A banking licence – allows the holder to provide banking services to both domestic and international markets. This type of licence is generally only granted to major international banks with value of greater than US$50m



Category B banking licence – this is an unrestricted offshore banking licence which allows the holder to carry on banking business internationally, but not in the Cayman Islands



Restricted Category B licence – this licence is restricted to allow the bank to service specific named clients only, with no intention of taking third party deposits



Trust licences – in addition to the banking licences above, various forms of Trust licence are also available, and are similar in the level of restriction to Restricted Category B licences described above.

Licensed Cayman Islands banks must comply with the Banks and Trust Companies Law, which covers both domestic and international banking business. The Cayman Islands operates under robust anti-money laundering legislation, and regulatory oversight of the banking industry is conducted within the Basel Core principles.

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3.3

Tariffs

Duties are payable on the majority of goods imported into the Cayman Islands, with exemptions for certain items. Duty charges range from 10%-25% of the item’s value, depending on the type of product. No duties are payable on goods brought into the Cayman Islands by new residents who are moving to the islands for a period in excess of 12 months, however such goods must be imported within six months of initial entry.

3.4

Foreign Investment Incentives/Restrictions

The favourable tax regime, established banking and financial services industry and access to professional service providers provide inherent incentives for foreign investors to invest in the Cayman Islands. In addition, the Government, through the Department of Commerce and Investment, provides a number of incentives to attract significant foreign investors. These are provided on a case-by-case basis, depending on the expected benefit to the Cayman Islands economy, and may include: ●

Reduction or waiver of business licences and fees



Reduction or waiver of stamp duty on office rental space



Reduction or waiver of import duty on materials for tourism development



Expedited turnaround for processing work permits



Access to two consecutive 3-5 year work permits for accredited professional staff potentially enabling them to live and work in Cayman for up to ten years



Expedited processing periods for time sensitive applications to CIMA.

In addition, certain high-net worth individuals may be offered a Certificate of Direct Investment (CDI). This is offered to individuals who have made, or propose to make, an investment of at least CI$2.4m in any licensed, employment-generating businesses in the Cayman Islands. The CDI allows the holder to reside in the Cayman Islands permanently with their families and to work in the business or businesses in which they have invested for up to 25 years, after which the certificate can be renewed. Restrictions on foreign investment are limited, subject to compliance with strict anti-money laundering regulations and compliance with licensing requirements enforced by CIMA, as described above.

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Employment Regulation and Social Security

4.1

Entry Visa and Work Permit Requirements

Anyone who is not born in the Cayman Islands, or otherwise recognised as a Caymanian citizen, requires immigration approval to enter and work in the Cayman Islands. Work permits are approved and issued by the Government through the Immigration Department. Fees for annual work permits range from CI$300 for positions such as kitchen hands, to CI$24,000 per year for senior executives. Temporary work permits for period ranging from 3-6 months are also available for certain positions. Dependants may accompany the employee to live in the Cayman Islands subject to the employee meeting certain salary thresholds and being able to support the dependants financially. Work permits may be renewed annually for up to seven years. After seven years, the foreign worker will not be granted another work permit renewal until they have ceased to be a resident in the Cayman Islands for at least one year. The exception to this rule is for workers who obtain Key Employee or Permanent Residence status. These exemptions allow a longer stay in the Cayman Islands beyond the seven years, and are generally issued to senior executives primarily in the financial services industry. The legislation relating to the work permit periods and Key Employee exemptions are currently under review. Further information relating to immigration and work permit requirements can be found at www.immigration.gov.ky.

4.2

Hiring Local Employees

The Cayman Islands is very protective of the rights and employment prospects of local Caymanian citizens given the influx of foreign financial service professionals over the last 20-30 years. Local and foreign businesses are encouraged to employ Caymanians before considering employment of foreigners. Large businesses operating in the islands are generally expected to have a reasonable representation of Caymanian employees in their staff. Before all foreign work permits are approved, the employer must prove to the Immigration Department that the position cannot be filled by a Caymanian national, and must advertise the position locally for a set period before the work permit will be approved.

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4.3

Trade Unions

The Cayman Airlines Pilots Association is the only formally recognised trade union in the Cayman Islands.

4.4

Social Security System

There is no social security system. However The Cayman Islands Government does have schemes in place to protect Caymanian nationals from financial distress.

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5

Taxation

5.1

General Principles

There are no income taxes or other forms of direct taxation in the Cayman Islands. There are no taxes on profits, capital gains, income, or any withholding taxes charged to foreign investors. There are no estate or death duties payable on Cayman Islands real estate or other assets held in the Cayman Islands. The majority of the Cayman Islands Government revenue comes from indirect taxes, work permit fees and registration and licensing fees for companies.

5.2

Corporate Taxation

All corporations, partnerships and other Cayman Islands entities are currently exempt from taxation. As described in section 3.1 above, exempted companies can apply for a 20-year exemption from taxation should any corporate taxation be introduced in the Cayman Islands in future.

5.3

Individual Taxation

There is no income tax or other forms of employment taxation.

5.4

Indirect Taxation

Indirect taxes are one of the Cayman Islands Government’s main sources of income and include the following: ●

Duties on the majority of goods imported into the Cayman Islands, generally at a rate of 22%-25% depending on the items being imported. Duties on imported motor vehicles can be as high as 42% for luxury vehicles



Stamp duty on property transfers and commercial leases, with certain exemptions for Caymanian nationals



Excise duties on tobacco and alcohol



Hotel accommodation is taxed at a rate of 10%



A departure tax for tourists.

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Member Firm Contact Details Richard Reading, director

Baker Tilly (Cayman) Ltd. Chartered Accountants Governor's Square 2nd Floor, Building 4 P.O. Box 888 Grand Cayman KY1 1103 Cayman Islands T. +1 345 946 7853 F. +1 345 946 7854 E. [email protected]

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WorldHeadquarters 25 Farringdon Street London EC4A 4AB United Kingdom

T. +44 (0)20 3201 8800 F. +44 (0)20 3201 8801

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© 2011 Baker Tilly International Limited, all rights reserved.

E. [email protected]

Baker Tilly is a trademark of the UK firm, Baker Tilly UK Group LLP, used under licence

www.bakertillyinternational.com

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