If you are looking for a tax-efficient and internationally recognized business structure in an offshore jurisdiction, a company in the Cayman Islands is an excellent choice.
What makes the Cayman Islands such a popular jurisdiction?
First of all, it is important to note that as of October 2023, the Cayman Islands were officially removed from the FATF grey list of jurisdictions under increased monitoring, as well as from the EU grey list. This has made the Cayman Islands even more attractive for clients seeking to establish business structures since then.
In this article, we will focus on Exempted Companies (hereinafter – CIECs), since this type of company is considered the ideal choice due to tax benefits and the opportunity to take full advantage of an offshore jurisdiction for those who do not plan to sell products or provide services within the territory of the Cayman Islands.
Advantages of registering a company in the Cayman Islands:
- Only one shareholder and one director are required, with no restrictions regarding nationality or residency.
- The Cayman Islands ensure the confidentiality of shareholders’ and directors’ personal information. The Register of Directors and Officers, as well as the Register of Shareholders of exempted companies, are not available for public inspection.
- There is no requirement for public disclosure of accounts or financial statements.
- The process of registering a CIEC is quick and simple (about one week).
- The financial year can end on any chosen date. Filing and auditing of reports are not mandatory unless stipulated by the articles of association or directors’ decision.
- There is no corporate tax, income tax, capital gains tax, inheritance tax, gift tax, wealth tax, or any other applicable tax for exempted companies engaged in offshore business.
- No minimum capital requirements.
Who is a Cayman company suitable for?
It is difficult to give a single answer, as Cayman-registered companies can be used for multiple purposes, including:
- Establishing holding companies for international investments
- Managing intellectual property rights
- Supporting international trade
- Estate planning strategies aimed at reducing inheritance tax
However, it is important to note that, similar to Belize, the Cayman Islands have enacted special Economic Substance legislation. This limits the types of businesses for which the Cayman Islands are considered optimal. This legislation was introduced to avoid blacklisting by the EU for non-cooperation in tax matters.
If you plan to engage in any of the following activities, you should consider additional requirements:
- Banking
- Distribution and service centers
- Financing and leasing
- Fund management
- Holding
- Insurance
- Intellectual property business
- Shipping
What does the Economic Substance Act require?
According to the Economic Substance Act, companies carrying out relevant activities in the Cayman Islands must:
- Conduct core income-generating activities (CIGAs) within the Cayman Islands.
- Be properly directed and managed in the Cayman Islands concerning such activities.
- Incur adequate operating expenses in the Cayman Islands, proportional to the level of income earned there.
- Ensure physical presence in the Cayman Islands, including business premises, equipment, and real estate.
- Have sufficient qualified employees or other personnel in the Cayman Islands.
For companies engaged solely in holding activities (owning shares of other companies and receiving dividends or capital gains), fewer requirements apply. They must comply with filing requirements under the Companies Act and maintain adequate human resources and premises in the Cayman Islands to manage their investments.
Financial sanctions for non-compliance
Failure to comply with the Economic Substance Act may lead to significant financial penalties. Persistent violations may result in the authorities applying to the Grand Court to have the company struck off.
General requirements for CIECs
The Cayman Islands provide favorable conditions for registering CIECs; however, these companies have a limited duration specified in the memorandum of association (usually up to 30 years). In practice, this limitation rarely deters clients, but it is worth considering.
Each CIEC must file an annual return with the Registrar of Companies (ROC) at the beginning of the year and pay the relevant annual fee. The amount depends on the authorized share capital:
- Less than CI$42,000 (approx. US$50,400): US$1,110
- From CI$42,001 to CI$82,000 (approx. US$50,401 to US$98,400): US$1,470
- From CI$82,001 to CI$1,640,000 (approx. US$98,401 to US$1,968,000): US$2,651
- Over CI$1,640,000 (approx. US$1,968,001): US$3,352
Every January, the company must submit:
- An Economic Substance (ES Act) status notification
- An annual return and payment of the registration fee
Fidustria is ready to assist you at every stage of registering a company in the Cayman Islands. Our team of experts will explain all the legal nuances, prepare the required documentation, and ensure full compliance with local regulations.