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Taxation of a Cayman Islands Company

Updated on Wednesday 20th January 2021

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Taxation-of-a-Cayman-Islands-Company.jpgThe Cayman Islands are one of the most popular offshore centers and one of the countries that are considered a tax haven. This is possible because of the tax-free regime applicable in the Islands. More specifically, the fact that there is no applicable profits tax for the income derived by a registered company. The taxation of a Cayman Islands company is virtually inexistent as there is no corporate tax.
 
A Cayman Islands exempted company is a very attractive legal entity that is not subject to corporate taxation and thus no tax assessments and that has a simplified incorporation procedure. These characteristics, coupled with the fact that the Islands are easily accessible for many investors from the United States, make the Cayman Islands an attractive place to incorporate an offshore business.
 

What are the Cayman Islands taxes for companies?

 
The Cayman Islands laws allow the location to be a tax haven through the fact that there is no corporate income tax, no payroll tax or Cayman Islands capital gains tax and no other direct taxes for companies. 
 
The Cayman Islands tax system is one of the most advantageous for investors. The list below summarizes some of its characteristics, more specifically the types of taxes that are not imposed on companies:
 
  • - no Cayman Islands corporate income tax: there is no taxation on company profits, therefore no corporate income tax.
  • - no dividend taxes: there are no taxes imposed on the dividend income received by a Cayman Islands company from a foreign source; 
  • - no withholding taxes: not only are dividends not subject to a withholding tax, but this also applies to interest and royalty income.
  • - no VAT: the value-added tax is not imposed in the Cayman Islands, thus no filing or registration is needed.
  • - stamp duty: this is a type of tax that can be imposed on property or land transfers and for the purpose of drawing up some types of documents; one of our Cayman Islands incorporation agents can help you with more information.
  • - others: there is no payroll tax, no inheritance or estate tax, no real property tax or transfer tax.
 
Apart from these taxes that are not applicable, investors should also know that the distribution of shares by foreign shareholders (the profits made on the disposal of shares by a foreign shareholder) is not taxable in the Cayman Islands.
 
The Cayman Islands tax rate is effectively inexistant, however companies need to consider the annual licensing of a company incorporated here, as part of the general management expenses for investors who open an offshore company. The licensing fee is payable to the government and will depend on the authorized share capital of the company. One of our Cayman Islands company formation agents can give you more details on the applicable licenses, especially the Cayman Islands Monetary Authority requirements for investment fund licensing. 
 

Are the Cayman Islands a tax haven?

 
Yes. Generally speaking, because of the fact that there is no Cayman Islands income tax or other types of direct taxes, the Cayman Islands are one of the tax havens usually preferred by investors. The Islands are preferred by investors worldwide not only because of their taxation regime or the lack of the Cayman Islands capital gains tax, but also because of the high degree of confidentiality they allow for investors who choose to set up a company here. However, entrepreneurs should know that the Cayman Islands have signed several tax information exchange agreements with countries worldwide and are also part of the Foreign Account Tax Compliance Act imposed by the United States.
 
One of our agents who specialize in Cayman Islands incorporation can give you more information about how these laws may concern you.
 

What are other advantages of doing business apart from the Cayman Islands tax rate?

 
Low company incorporation and management requirements are another reason why the Cayman Islands are a popular location for opening an offshore company. The Cayman Islands exempted company is the most widely-used business form and it can be incorporated by one director who is not bounded by any nationality or residency requirements. The details concerning the company directors and shareholders are not publicly available and neither and the financial statements of the company. Moreover, investors who want to maintain a high degree of confidentiality can use nominee director and nominee shareholder services. 
 
The exempted company has no requirements for a minimum capital or a currency in which it should be subscribed. Because the Cayman Islands taxation regime does not include the usual direct and indirect taxes, there is no need for exempted companies to file a complex annual return or annual accounts with the tax authorities; a very simple annual return suffices.
 

Additional information about doing business in the Cayman Islands

 
Local companies that engage in international business and other types of activities are exempt from Cayman Islands taxes because the jurisdiction imposes no such requirements, however, the Islands do comply with the International Tax Cooperation (Economic Substance) Law (ES Law) and certain companies are required to comply with special conditions when they carry out a “relevant activity”.
 
The list of activities considered “relevant” for these purposes include banking, insurance and fund management, financing and leasing, holding company, shipping company, headquarters, distribution and service centers and others. These companies are not subject to the Cayman Islands income tax, however, they to need to observe the economic substance requirements.
 
The types of companies that are subject to the ES Law include Cayman Islands companies (apart from domestic ones), limited liability partnerships as well as foreign companies registered in the Cayman Islands.
 
The Islands also have in place reporting rules that are in compliance with the Base Erosion and Profit Shifting Project implemented by the Organisation for Economic Co-operation and Development. According to these rules, some multinationals are required to submit a country-by-country report to the Cayman Islands Tax Information Authority.
 
In addition to imposing no Cayman Islands capital gains tax, there is no exit tax in the Cayman Islands and no general anti-avoidance rule.
 

Reporting standards for Cayman Islands companies

 
As previously mentioned, there is no Cayman Islands tax rate for companies incorporated in this jurisdiction, however, the Common Reporting Standards (CRS) are to be observed by companies as they represent a global standard in the automatic exchange of financial information for tax purposes.
 
We have mentioned above that the Cayman Islands implement the United States Foreign Account Tax Compliance Act (FACTA). The CRS builds on this framework and it allows specific information to be exchanges on an annual basis in case of reportable jurisdictions.
 
The list of countries has been updated in 2020 and it includes the following:
 
Andorra, Antigua and Barbuda, Argentina, Aruba, Australia, Austria, Azerbaijan, Barbados, Belgium Belize, Brazil, Brunei, Bulgaria, Canada, Chile, China, Colombia, Cook Islands, Croatia, Curaçao, Cyprus, Czech Republic, Darussalam, Denmark, Dominica, Ecuador, Estonia, Faroe Islands, Finland, France, Germany, Ghana, Gibraltar, Greece, Greenland, Grenada, Guernsey,  Hong Kong (China), Hungary, Iceland, Indonesia, Ireland, Isle of Man, Israel, Italy, Japan, Jersey, Kazakhstan, Korea, Kuwait, Latvia Lebanon, Liechtenstein, Lithuania, Luxembourg, Macau (China), Malaysia, Maldives, Malta, Mauritius, Mexico, Monaco, Montserrat, India, Netherlands, New Zealand, Nigeria, Niue, Norway, Oman, Panama, Peru, Poland, Portugal, Romania, Russian Federation, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Samoa, San Marino, Saudi Arabia, Seychelles, Singapore, Sint Maarten, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Trinidad and Tobago, Turkey, United Kingdom, Uruguay, Vanuatu.
 
CSR reporting is performed using a special portal. Legal entities need to register as users and for this purpose they will submit a Notification to register with the Financial Institution. The reporting is uploaded using the portal.
 
Business entities that fail to submit the CSR compliance form are considered to breach the Part 2 of the CSR Regulations and are subject to an administrative penalty issued by the Tax Authority.
 

Company Statistics in the Cayman Islands

 
The General Registry in The Cayman Islands maintains up-to-date statistics on the number and the types of companies. This allows for a useful overall image on the business environment as well as the overall number of companies currently in business in this jurisdiction. Below, our team of Cayman Islands incorporation agents highlights some of these recent statistics:
 
  • - 12,817 companies registered in 2019;
  • - 111,536 actives companies in Q3 2020;
  • - 10,796 companies terminated in 2019;
  • - 1,094 companies registered in November 2020;
  • - 334 companies terminated in November 2020.
 
Most of the active companies in the Cayman Islands are exempt companies, 83.8%. These are followed by resident companies, 6.3% and foreign companies, 4.9%. Non-resident companies make up for 2.7% of the active entities while limited liability companies for the remaining 2.2%. The difference is represented by other company types.
 
One of our Cayman Islands company formation agents can give you more details on the particularities of the tax regime as well as the advantages for foreign investors. Contact us for complete information as well as assistance throughout the incorporation process.
 

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