In simple terms, the Cayman Islands is a tax haven, because it does not impose a corporate tax. This makes it an ideal location for multinational companies to shield some, or all, of their income from taxation.
Moreover, the Caymans has no income tax, no property taxes, no capital gains taxes, no payroll taxes, and no withholding tax. So, it’s also a good place to live, if you want to enjoy beautiful scenery, amazing beaches, and some of the highest living standards in the Caribbean.
In this article, we explore how the Cayman Islands Exempted Company Law works, its main features, and practical considerations. Before we get into the details, it’s important to note that this article is a general guide, and is not intended to be professional tax advice.
At Nomad Capitalist, we don’t believe in hiding money. We promote fully legal and transparent strategies for offshore tax planning that are tailored to our individual client’s needs. To find out more, get in touch here.
Financial Action Task Force (FAFT) Update
In the past, incorporating in the Cayman Islands brought with it a degree of reputational hazard. But that is changing.
In July 2023, FAFT recommended that the Cayman Islands had successfully fulfilled all 63 recommended actions in its anti-money laundering systems.
The Caymans will, in fact, become eligible for removal from the FATF greylist – jurisdictions under increased monitoring – in October 2023.
So not only does the Cayman Islands offer ideal tax benefits, and one of the most beautiful beach destinations in the Caribbean, the reputational hazzard is declining.
The Corporate Tax Haven: Exempted Companies Law
The main reason the Cayman Islands is an attractive destination for overseas companies is the flexibility of its company law.
It’s a leading offshore financial centre, where financial services are a significant part of the economy. So company law has a much more prominent role than might otherwise be the case.
Today, the most common type of offshore companies in the Cayman Islands are Exempted Companies.
A Cayman Islands exempted company limited by shares is a flexible and multi-purpose company. Setting up this kind of company in the Cayman island is relatively quick and straightforward, and once done, easy to maintain.
Under the Exempted Company law (2021 Revision), a Cayman company should conduct business outside the borders of the Cayman islands.
If it wishes to carry out its business within the Cayman Islands borders, the exempted company must hold a license to do so, and provide a signed declaration to that effect.
Companies that are not registered as “exempted companies” are known as ordinary resident or non-resident companies.
Cayman Islands Exempted Companies Act Benefits
A Cayman Islands Exempted Company is governed by the Companies Law of 2013. According to which, annual corporate general meetings are not required to be physically present in the Cayman Islands and can be held anywhere in the world.
An exempt company can be a “foreign company” of all foreign owners. As such, no audits, accounting standards, and shareholders or directors meetings are officially required.
However, every exempted company must at all times maintain a registered office in the Cayman Islands and provide evidence of such to the Registrar of Companies (ROC). If you change the registered office, your directors must adopt a resolution authorizing such change and pay a fee of US$92.
An exempted company must file an annual return with the ROC at the start of each year together with an annual fee. The fee payable depends on the authorized share capital of the company and is as follows:
- Below $50,000 – $854
- $50,001 to $1,000,000 – $1,220
- $1,000,001 to $2,000,000 – $2,420
- Over $2,000,001 – $3,132
Although penalties will only begin to accrue if the filing of the annual return and annual fee are not made by 31 March of each year, ROC will not issue a Certificate of Good Standing unless the annual return and annual fee are submitted by 31 January.
To make all of this easier, the official language of the Cayman Islands is English.
Segregated Portfolio Company
In the Cayman Islands, an exempted company can specifically choose to be registered as a segregated portfolio company (SPC): segregating the assets and liabilities of shares from each other and from the general assets of the Cayman company.
To do this, the exempted company applicant must declare that no business will be conducted inside the Cayman Islands. Only exempted companies can apply to become Segregated Portfolio Companies.
Exempted Limited Duration Company
To be set as a Limited Duration Company in the registered office, the exempted company must have “LDC” at the end of its name. Special economic zone companies are required to include “Special Economic Zone Company” or “ SEZC” in their name.
The exempted company should also have at least two shareholders or subscribers and have a clause in its Memorandum of Association limiting the duration of the exempted company to 30 years or less.
Exempted Limited Liability Companies Act
You can also register the exempted company as a Limited Liability Company (LLC). In simple terms, LLCs are an exempted company and a limited partnership. LLC do not have shareholders or share capital. And, like a partnership agreement, are run by the majority vote of their members.
Main features of A Cayman Islands Exempted Company
The Memorandum of Association (MoA) has to have all key particulars of the company. Companies law entails that you provide your exempted company name, purpose, registered office address, and subscribers’ name and authorized share capital.
The constitution of a company registered also consists of Articles of Association (AoA). Addition and removal of officers and directors, their responsibilities, and liabilities must be in accordance with the Articles of Association.
Internal rules and regulations:
- Information should be available upon request: issuance, types, the way they were transferred, repurchased, or redeemed.
- Shareholders meetings.
- Shareholders voting rights.
- Appointment of officers and directors as well as their powers, meetings, compensation.
- Payments of dividends.
Every exempted company must have a local registered office with a registered office with its physical location filed with the Registrar of Companies. The ROC should receive two signed copies of the AoA and the MoA, to issue a Certificate of Incorporation.
Shareholders and Directors
At least one shareholder is required, who can also be the director, in an exempted company.It is not compulsory for the shareholder or director to physically reside in the Cayman Islands. They can live in any country.
A Registry of Members, or shareholders, is required. It does not have to be physically present at the registered office, nor does it have to be available for authoritative or public reviewing. The only exception is when an order for production is issued under the Tax Information Authority Law.
Shares may be issued:
- With or without nominal or par value.
- Negotiable or non-negotiable.
- Premium over par value.
- Issued in fractions of shares (with corresponding fractions of rights and liabilities)
- Issued with deferred, preferred, or other special rights.
- Bearer shares (except when the company owns Cayman real property).
Share certificates are proof of ownership, but shares can sometimes be issued without them. It’s also possible to buy registered shares. Shares can be transferred or prohibited by the AoA.
Accounting and Bookkeeping
While the accounting and bookkeeping records are not physically obligated to be in the Cayman Islands, they should be available upon the tax authorities’ request. There is also no requirement for any audits or the appointment of auditors.
Setting up an offshore company under the Cayman Islands exempted companies act will optimize your taxes and protect your assets, legally.
However, expats are still subject to taxes in their home country, such as US expats who must report their worldwide income to the IRS. The Cayman Islands also has agreements with several countries to prevent double taxation, including the US, UK, and Canada.
If you want to no longer pay taxes in the US, you can do so legally by renouncing your US citizenship.
As we at Nomad Capitalist always say, go where you are treated best. If you’re interested in legally paying less tax, and maximizing your financial freedoms, reach out here