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.
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.
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.