Cayman Islands

The Cayman Islands has an excellent legal, fiscal, financial and professional environment for the incorporation of international companies.

Cayman is a world-leading offshore financial services jurisdiction. due to its political and economic stability, and its broad offer of banking, trust, hedge fund formation and investment, structured finance and securitization, captive insurance, and international business services.

The Limited Liability Companies Law 2016, came into force on July 8^th, 2016, creating a new hybrid entity with separate legal personality and limited liability of its members but with greater structure flexibility than a corporation and taxed as a partnership.

An LLC requires minimal corporate formation requirements and a fast registration procedure. It may be incorporated as a single-member LLC, and there are no company structure requirements for its management, nor are there provisions for company meetings, directors, secretary, or capital. Its operating agreement may be arranged by its members according to their needs.

LLCs can conclude contracts in Cayman or exercise any of its powers in Cayman to carry out business outside the Islands, including opening and maintaining bank accounts and rental or ownership of real estate in the jurisdiction.

In the Cayman Islands, there are no direct taxes. No corporation tax, income tax, capital gains tax, inheritance tax, gift tax, nor wealth tax. Certain documents may be subject to nominal stamp duty.

There is no exchange control and no restrictions on the movement of funds to or from the Islands.

Annual reporting filings are minimal, there is no need to file financial statements and audits are not required unless the company is regulated by the Cayman Islands Monetary Authority.

Companies incorporated in Cayman also benefit from a wide range offer of financial and professional services. There are hundreds of banks and trust companies licensed in Islands, lawyers, accountants, insurance managers, mutual fund managers, and administrators, among others.

The Cayman Islands has implemented the OECD’s automatic exchange of information for tax purposes (AEoI) via common reporting standard (CRS).

The Cayman Islands LLC is an excellent entity for movable and immovable assets holding, asset protection, investment funds, joint venture companies, private equity transactions, securitizations and other corporate transactions and international structures.

On January 1st, 2019, entered into force the International Tax Co-operation (Economic Substance) Law, 2018 – requiring companies (e.g. Exempted companies, LLCs and LLPs) conducting relevant activities to satisfy substance requirements.

Relevant activities include fund management, banking, insurance, finance and leasing, distribution and service center business, headquarters business, intellectual property business, shipping, and holding company business.

This specifically affects companies carrying out financial, insurance services and investment business; corporate management services to affiliates; operating, renting or chartering ships transporting passengers, goods and mail by sea, or using, maintaining or renting containers; companies trading goods with and/or providing services to affiliate companies; companies deriving income from the exploitation of IP rights; and pure equity holding companies.

Note that investment fund vehicles are explicitly excluded from this legislation.

Companies that carry out relevant activities must satisfy the economic substance test – they must:

• conduct its core income-generating activities in Cayman (which are defined in the law).
• be directed and managed from within Cayman.
• have an adequate amount of operating expenditures incurred in or from within the Islands.
• have an adequate physical presence (including maintaining a place of business or plant, property, and equipment) in the Islands.
• have an adequate number of full-time employees or other personnel with appropriate qualifications in the Islands.

Holding companies which only hold equity participations in other entities and only earn dividends and capital gains will be subject to a reduced economic substance test – it must have complied with all applicable filing requirements and must have adequate human resources and adequate premises in the Islands for holding and managing equity participations.

With respect to IP holding companies – companies that are exploiting IP rights and:

• have not created such IP
• have acquired the IP from a company of the same group structure or from a third-party that has conducted research and development out of Cayman Islands
• and licenses the IP to a company(s) of the same group

or does not carry out research and development, branding or distribution as part of its Cayman Islands core income generating activities – are considered high-risk intellectual property businesses and may be subject to an enhanced substance requirements test.

All Cayman companies are required to notify annually the Authority – stating whether or not they are carrying out relevant activities.

Companies carrying out relevant activities are required to file a basic return related to the amount and type of income with respect to the relevant activity, expenses, assets, management, employees, and physical presence, among other requirements. Existing companies incorporated on or before December 31, 2018, will need to comply with substance requirements by June 30, 2019.

Substance requirements filings will be reviewed by the designated authority to ensure that such entities have adequate economic substance in the Islands. Companies failing the substance test will be given direction on how to meet the test and may face a fine of up to KYD 10,000.

Continued failure to meet the test in the following year may result in higher fines of up to KYD 100,000.