The Cayman Islands were colonized from Jamaica by the British during the 18th and 19th centuries. Administered by Jamaica since 1863, they remained a British dependency after 1962 when the former became independent.

With no direct taxation, the islands are a thriving offshore financial center. More than 40,000 companies were registered in the Cayman Islands as of 1998, including almost 600 banks and trust companies; banking assets exceed $500 billion. A stock exchange was opened in 1997. Tourism is also a mainstay, accounting for about 70% of GDP and 75% of foreign currency earnings. The tourist industry is aimed at the luxury market and caters mainly to visitors from North America. Total tourist arrivals exceeded 1.2 million in 1997, with 600,000 from the US. About 90% of the islands' food and consumer goods must be imported. The Caymanians enjoy one of the highest outputs per capita and one of the highest standards of living in the world.

Cayman is the largest offshore banking centre in the world with 350 banks and deposits worth US$1 trillion. It is the second largest captive insurance base after Bermuda, with assets worth $20 bn. The Cayman Islands trust sector is thought to manage more than $500 bn. Mutual funds are a growing sector, especially since the opening of the Cayman Islands Stock Exchange in 1997.

The Caymanian dollar is fixed against the US dollar at CI$1.00 to US$1.20. There is no exchange control. Cayman is an expensive jurisdiction with an established commercial infrastructure in place and a flexible approach to regulation, within its strong desire to maintain respectability. There are two international airports, one in George Town, Grand Cayman and the other in Cayman Brac. Six airlines fly to Cayman and there are daily flights to Miami and weekly flights to major North American and European cities.

The Cayman Islands have quite a good reputation in the Western hemisphere, but in Europe have tended to exemplify 'tax havens', largely perhaps as a media stereotype rather than as a matter of objective reality. The truth is that Cayman has tried hard with a large number of statutes to keep up with the international pressure for offshore centres to keep themselves clean, even accepting in 2001 the need to allow investigation of fiscal wrong-doing, at least when criminality is in evidence both internationally and in Cayman itself. The prevailing attitude in Cayman however is still to protect confidentiality in the absence of demonstrated criminality.

Although the Cayman Islands was briefly included on the FATF list of jurisdictions with inadequate defences against money laundering, in 2001 the Cayman Islands was praised by the FATF for its substantial efforts to conform to forty recommendations set out by the FATF in a code of good practice governing money laundering, including the issuance of money laundering regulations and amendments to the Monetary Authority Law and the Proceeds of Criminal Conduct Law. Amendments have also been made to the Banks and Trust Companies Law and the Companies Management Law; and compulsory licensing for financial firms was introduced in late 2002.

It remains to be seen what impact will be felt in the Cayman Islands from the Savings Tax Directive when it goes 'live' in July, 2005.

Entry and Residence

Citizens of the US, Canada and of Britain and its dependent territories do not require visas to enter Cayman; passport or birth certificate plus photo ID is sufficient, along with a return or ongoing travel ticket. Other nationals require a passport plus ticket. Visitors may remain for up to six months.

Foreigners without Caymanian status seeking employment must apply for a work permit from the Immigration Board. Not all applications are successful. Work permits are usually valid for 2-3 years for senior positions. Caymanian status is granted on a quota basis to citizens from the UK and British Dependent Territories, and certain other countries including the US, Eire, Australia and New Zealand.

The Cayman Islands Government has constructed a regulatory regime that is highly favorable to offshore operations, especially since there is no taxation in Cayman other than stamp duty and import duties. There are about 40,000 companies registered in Cayman, along with 350 banks and 450 insurance companies. In this section offshore corporate forms are summarized, along with details of the fees payable by the various types of financial institution.

In June 2000, the Cayman Islands was identified by the FATF as non-cooperative in the fight against global money laundering. The result of this is that the Cayman Islands was one of fifteen tax jurisdictions placed on a blacklist. Each offending tax haven had a year in which to correct its tax regulations and legislation. The FATF released its next annual report in June 2001, in which the organization revised its list of countries and territories deemed non-cooperative. Only four were removed from the list, including the Cayman Islands (the other three being the Bahamas, Liechtenstein and Panama). The Cayman Islands was praised by the FATF for its substantial efforts to conform to forty recommendations set out by the FATF in a code of good practice governing money laundering.

During 2003 the Cayman government battled to avoid inclusion in the scope of the EU's Savings Tax Directive, but in the end was forced to give in by the UK Treasury, and will apply the information exchange model under the Directive from 1st July, 2005, when it is due to come into force. This means that information about interest on savings paid to citizens of European member states will be forwarded to the tax authorities of the member state in question.

The Cayman Islands authorities have put a brave face on this development, which they tried hard to avoid.

The Cayman Islands Financial Services Association expressed support for the government’s decision to opt for exchange of banking information: "Should the Directive become fully implemented as planned, we believe that automatic information exchange would be consistent with the Cayman Islands' promotion of transparency in its financial services industry", commented Eduardo D'Angelo P. Silva, a Director of CIFSA.

The Cayman Island’s Financial Secretary Mr George McCarthy said: "International business is attracted to the Cayman Islands because of the critical mass of experienced professional advisers, our robust and effective regulatory system, innovative products and services and an approach to tax which is business-friendly. We have signed and implemented commitments on tax transparency. We have consistently asked for fairness - a level playing field and equitable treatment. It is not a case of us asking to be let into your ports 'for a bit of financial raiding', but of the Cayman Islands correcting decades of negative spin by competing onshore financial centers."

In February 2004 the Cayman Islands Legislative Assembly voted to accept the terms of the European Savings Directive, the culmination of weeks of talks with the United Kingdom government who had threatened legislative action against the jurisdiction. Leader of Government Business McKeeva Bush urged members to vote for the motion, telling them that the Cayman no longer has a mandate to go it alone. Despite his plea however, the opposition People’s Progressive Movement (PPM) chose to abstain. "I am not one that is normally pushed around," observed Mr Bush of a dispute that saw the Caymans challenge the right of the EU to impose the Directive on offshore dependent territories. I believe that you can only push so much. In effect then, our two alternatives are that we either reject the proposal and allow the UK government to put it in to place, or we agree, take what is offered and say, 'I live to fight another day.' "

OFFSHORE OPERATIONS

An ordinary non-resident company is subject to the same rules as a resident company, but under the terms of the Local Companies (Control) Law 1995, must not conduct any business within the islands. This form or that of the exempt company is the usual choice for offshore operations. The Financial Secretary will grant a certificate of non-residence if he is satisfied that the company does not and does not intend to trade onshore. The company is then relieved of the licensing requirement and the need to provide lists of shareholders to the Immigration Department. An annual list must still be provided to the Registrar, but it is quite usual to appoint proxies.

The normal minimum capital requirement is CI$40,000, and the minimum capital duty levied on incorporation of a nonresident company and annually thereafter is CI$400. There are no restrictions on the location of general meetings or of directors or the secretary, if there is one, except that one shareholders' meeting must be held in Cayman each year.

Records of members, directors, mortgages and charges must be kept. Financial records must be maintained although no audit is necessary and there are no filing requirements.

Ordinary non-resident companies can apply to convert to exempted companies.

Exempt Company 

The differences between a non-resident company and an exempted company are as follows:

• An exempted Caymans company does not have to use Ltd or Limited in its name;

• it may issue bearer shares in addition to registered shares;

• it has to hold one directors' meeting a year in Cayman (but may use proxies); it does not have to hold a shareholders' meeting in Cayman;

• it need not file a list of shareholders annually, and does not even have to keep such a list;

• it may obtain a Certificate of Tax Exemption (ie against any future Cayman taxation)

An exempted company (or limited duration exempted company) is the normal form of choice for collective investment vehicles. Incorporation fees depend on capital as follows:

• CI$410 for capital less than CI$42,000

• CI$574 for capital up to CI$1.7m

• CI$1,435 thereafter

Limited Duration Exempt Company

Limited duration exempted companies are like exempted companies except that:

• the Memorandum of Association must limit the life of the company to 30 years or less;

• certain events are specified which automatically precipitate its voluntary winding-up and dissolution;

• it must at all times have not fewer than two members;

• the Articles may provide that no shares may be transferred without the agreement of all shareholders; and

• management may be carried out by the shareholders or may be delegated to a board of directors.

Fees are as for exempted companies, plus $200.

Foreign Company 

Foreign companies are companies incorporated outside the Cayman Islands which establish a place of business, or carry on business in Cayman (which includes the sale by or on behalf of the company of its shares or debentures). Under the Companies Law a foreign company must register, providing the following information:

• a copy of its incorporation documentation in English;

• the names and addresses of its directors; and

• the name of a person in Cayman who can accept service on the company's behalf.

There is a fee of CI$850 on registration, and CI$500 annually thereafter.

A company can also transfer its domicile to the Cayman Islands 'by way of continuance' which obviates the need to incorporate afresh. The reverse process is also possible.

Limited Partnership

Cayman Islands partnership law is based on English law, with recent amendments. Limited Partnerships are formed under the Partnership Law 1995. One or more general partners have unlimited liability and are responsible for management; limited partners are liable only to the extent of their contributions.

To form a limited partnership a declaration must be filed with the Registrar of Limited Partnerships which describes all the partners and gives other information; this declaration is also published in the Cayman Gazette.

Exempted Limited Partnership

A limited partnership may become an exempted limited partnership, or one can be formed de novo, by filing a statement with the Registrar. Unlike the Limited Partnership declaration, this does not need to include the names of the limited partners or the amounts of their contributions.

An exempted limited partnership must not do business with the public in Cayman. An exempted limited partnership may obtain a 50-year Certificate of Tax Exemption (ie against any future Caymans taxation).

Trusts

Trust law in the Cayman Islands is based on English trust law, with some recent modifications in the Trusts Law 1996. Other recent changes include the Perpetuities Law 1985 which increased the perpetuity period to 150 years, the Special Trusts (Alternative Regimes) Law which introduced purpose trusts, the Trust (Foreign Element) Law 1987 which provided inter alia for the importation and exportation of trusts, and the Fraudulent Dispositions Law 1989 which includes specific asset protection provisions. 

Trusts do not have to be registered; a company offering trust services must obtain a licence under the Banks and Trust Companies Law 1995; individuals do not have to do so. 

Trusts can be exempt, like companies and limited partnerships, but must then be registered with the Registrar of Trusts, and pay a fee of CI$400 (CI$100 annually thereafter). The Governor gives a 50-year undertaking to the Trustees that no taxation will be imposed on the trust.

The Hague Convention has not been implemented in Cayman. Specific provisions exist for the non-recognition of foreign judgments and the exclusion of forced heir ship.