History
On the dark and moonless night of February 8th 1794, a navigational error resulted in ten British Royal Navy ships being wrecked on the treacherous coral reefs off East End, Grand Cayman. The local people saved everyone aboard the ships, including, so the story goes, a royal prince. When King George heard of this act of gallantry, he is said to have decreed that the people of the Cayman Islands should forever be free from taxes and war conscription. There is no doubt that the Wreck of the Ten Sails took place, but there is no documented evidence of the royal decree.
The real reason for the Cayman Islands being a tax-free jurisdiction is rather more prosaic. Until the mid 1960s, the population was less than 8,000, and Caymanians made their living from subsistence farming, fishing, turtling and making thatch-rope, while many of the men served as merchant seamen on ocean going ships, usually flying the American or Liberian flag.
This basically meant that most of the residents in Cayman were living on meagre earnings, there were few companies and capital gains were virtually non-existent, so there was nothing worth taxing. In fact, Cayman’s status as an international financial centre derives from the foresight of some early legal practitioners and a receptive government who, in the mid 1960s, together drafted and enacted legislation to take advantage of the absence of any form of direct taxation on individuals and corporations based on income or wealth.
In the following decades more international banks were attracted to Cayman, together with law and accountancy firms. When the Bahamas became independent from the UK in 1973, a number of expatriate workers from that jurisdiction were attracted to Cayman as a stable place to do business.
By this time, in 1952 an aircraft runway was constructed and in 1953 Barclays Bank opened a branch on Grand Cayman. It is notable that cooperation between the Government and the private sector has continued to this day. This, combined with a policy of welcoming expatriates with special skills to the Islands and a growing population of well-educated Caymanians, has propelled the Cayman Islands into the forefront of the international financial industry.
To this day there are no income, inheritance, sales, corporation, capital gains or withholding taxes in the Cayman Islands.
Jurisdiction of Choice
The Cayman Islands is currently the world’s fifth largest financial centre. To be successful in this competitive industry requires political and economic stability, tax neutrality, a responsive legal system, a stable banking environment, a sound regulatory regime, absence of exchange controls, and the presence of highly sophisticated service providers. All these factors, as well as Cayman’s continued status as an overseas territory of the United Kingdom and its cooperation with the United States and the European Union to prevent tax evasion and money-laundering, provide the necessary level of confidence to ensure a hospitable financial environment.
Cayman continues to attract service providers such as lawyers, accountants, and administrators of the highest calibre, which makes the jurisdiction very attractive to foreign investors. The wealth of international expertise available in Cayman is one of the key factors making Cayman a jurisdiction of choice. Clients have access to a wide array of services including banking, trusts, mutual funds, company management, structured finance, vessel and aircraft registration, insurance and stock exchange listings. More details are provided below.
Banking
Regulated by the Cayman Islands Monetary Authority (CIMA), banking in the Cayman Islands is big business, with almost 300 banks registered and around one trillion US dollars on deposit and booked through the Cayman Islands. The majority of these banks are branches or subsidiaries of established international financial institutions conducting business in the international markets. Over 80% of this one trillion dollars represents inter-bank bookings between onshore banks and their Cayman Islands branches or subsidiaries. Cayman Islands banks are bound by strict anti-money laundering laws, which together with know-your-customer (KYC) regulations, are recognised as meeting or exceeding those of all major onshore jurisdictions.
There are currently 426 bank and trust companies licensed in Cayman. Bank licences are split into A and B classes, with the former licence permitting banks to carry out local and international business. There are currently 16 Class A licensed banks in the Cayman Islands with seven of those carrying out retail services. The other banks hold Class B licences and are mainly restricted to offshore transactions with non-residents.
Investment Funds
Like the story of the Cayman Islands, the mutual funds industry has risen from small beginnings (since the enactment of the Mutual Funds Law in 1993) to become the jurisdiction of choice for alternative investment funds. The Cayman Islands is now the number one jurisdiction for hedge funds, both in terms of funds formed here and net assets held by these funds. As of 2006 there are over 8,000 funds registered with the CIMA including many of the world’s largest multi-billion dollar hedge funds. This is due to the clear Mutual Funds Law and the efficient and highly skilled hedge fund industry service providers including lawyers, accountants and directors. The industry employs in excess of 700 people directly in the Cayman Islands.
It is possible to establish a hedge fund in the Cayman Islands on a same day basis and the Securities Investment Business Law enables investment managers to be located in Cayman. The majority of funds are registered with the CIMA and are subject to strict audit requirements. It should also be noted that hedge funds established in the Cayman Islands are, and have always been, subject to one of the world’s toughest anti-money laundering regimes, both in terms of the due diligence required on those forming the hedge fund and on the investors in those funds, and reporting requirements for any suspicious activities. In fact, the exacting standards have assisted the growth as investors are confident in the knowledge of a reputable and stable regulatory regime.
Captive Insurance
The Cayman Islands is the leading domicile for healthcare captive insurance companies and, with 740 companies registered, is the second largest offshore centre for captive insurance. Healthcare captives have traditionally formed up to 30 per cent of the Cayman Islands captive insurance sector, and the jurisdiction is gaining prominence in a number of other areas of insurance such as workers’ compensation and benefits.
Trusts
The management of private and commercial trusts is important business, with 135 trust companies registered in Cayman. The Cayman Islands Trusts Law is widely regarded as being one of the most modern and flexible in the world. Client services include the establishment and administration of personal and commercial trusts, and trustee and custodial services. Some institutions also offer investment management.
Companies & Partnerships
Cayman’s Companies Registry has enjoyed steady growth, with current registrations at over 80,000 companies, of which just over 12,000 were new companies registered in 2006. Governed by the Companies Law, the Registry also registers limited partnerships and segregated portfolio companies. There are many highly qualified professional firms licensed to provide company services in the Cayman Islands and the provision of these services is a regulated activity requiring either a Trust licence or a licence under the Companies Management Law. In addition to incorporation and management of ordinary and exempted companies and the establishment of limited and exempted limited partnerships, these firms provide services such as registered offices, directors, officers and nominee shareholders and the maintenance of corporate records, accounts and financial statements.
Structured Finance
Several of Cayman’s law firms specialise in capital markets and structured finance transactions for international clients. Cayman has become one of the world’s leading providers of Special Purpose Vehicles (SPVs) for structured finance transactions.
Cayman Islands Stock Exchange (CSX)
Established in 1997, the CSX has gained international recognition by various regulatory bodies, such as the UK Inland Revenue and is also an affiliate member of the International Organisation of Securities Commissions (IOSCO). The CSX has posted a strong growth in listings year-on-year and is becoming a key player in the listing of blue chip hedge funds, as well as a whole host of Cayman Islands specialist products, such as specialist debt securities, depositary receipts, derivative warrants, international equity and Eurobonds. The CSX is also able to list domestic equity if it satisfies certain requirements.
Stock listings rose by 15.2% (or 154 listings) to a total of 1,169 during 2006. Stock market capitalisation increased by 41% (or approximately US$30.6 billion) to US$106.2 billion. The growth of the CSX is mainly a result of the increasing growth in mutual funds that are listed on the exchange. Mutual funds represent 75.5% of the total capitalisation, with the remainder accounted for by specialist debt, Eurobonds, and domestic and international equity.
The Cayman Islands Investment Bureau (CIIB)
This organisation provides a single source of information, investment marketing materials and services to Cayman businesses, as well as potential investors in the Cayman Islands, to help interested parties make business investment decisions.
The CIIB’s professional staff provide a broad range of consultation, liaison and coordination services, helping investors to proceed smoothly with their ventures. The Cayman Islands has an investment climate supported by a sound regulatory framework, a modern infrastructure, high quality telecommunications, an extensive professional workforce and a dynamic economy, and as such, is more than able to compete with other business environments around the world.
Currency
The Cayman Islands Monetary Authority (CIMA) is the issuing authority of the Cayman Islands Dollar (denoted CI$). The Currency Operations division of the CIMA is responsible for the issue and withdrawal of notes and coins, which is done primarily through the seven local retail banks. The official currency is the Cayman Islands dollar, however the United States dollar, with a fixed rate of exchange, is widely used in local finance and commerce.
The Cayman dollar rate is freely convertible and tied to the US dollar at the mid rate CI$1.00 = US$1.20. Trading takes place at both sides of this rate with cash at a discount. The Cayman Islands Dollar is backed 100% by the United States Dollar.
Shipping Registry
The Cayman Islands has a seafaring history, which goes back more than a century. This tradition is preserved by the Maritime Authority of the Cayman Islands (MACI), which has oversight of the Cayman Islands Shipping Registry (CISR).
The MACI is a first-class international organisation with a world-wide reputation for excellence and efficiency in global shipping and maintains its headquarters in Grand Cayman. It operates through offices and representatives in Southampton, Athens, Amsterdam and Tokyo.
As a Category One British Registry, the CISR is qualified to register vessels of all sizes and classes, from yachts to supertankers. In the super yacht range the Cayman Islands is the word’s leading offshore luxury yacht registry.
Aircraft Registry
Like the Shipping Registry, aeroplanes registered in the Cayman Islands are also classified as British. Registering an aircraft in Cayman can provide tax savings and anonymity of ownership. Just over 130 privately-owned planes are currently registered in the Cayman Islands. There is no requirement for a Cayman registered plane to be physically located in the jurisdiction. The Civil Aviation Authority is the statutory authority that oversees this registry in the Cayman Islands.
Airports
The Owen Roberts International Airport located on Grand Cayman is a fully equipped commercial facility that handles over 800,000 international and domestic passenger movements annually. The Sister Islands are served by the Gerrard-Smith International Airport on Cayman Brac and there is a grass runway at Edward Bodden Airfield on Little Cayman.
Financial Services Increases (2006)
Increases were seen in insurance company licences (1.1%), mutual funds (14.5%), stock exchange listings (15.2%), stock exchange capitalisation (41%) and new company registrations (20.2%). The only exception was bank and trust licences which declined by 4.6% in 2006.
Utilities Consumption (2006)
Increases in utilities consumption were noted during 2006. Electricity consumption rose by 0.7% to 491.4 megawatts per hour (MWh) and water usage expanded by 2.7% to 1,639.6 million US gallons.
Real Estate (2006)
The total value of property transfers declined from $450.8 million in 2005 to $342.0 million in 2006. Building permits grew by 33.3%, moving from 968 in 2005 to 1,290 in 2006 while total value of planning approvals reached $638.9 million, representing an expansion of 22.7% over the value in 2005.
Chamber of Commerce
The Cayman Islands Chamber of Commerce (CICC) is regarded as the definitive business resource in the Cayman Islands. A member-driven organisation, the Chamber regularly assesses the needs of local business owners and executives. Programmes, training sessions and events are created to deliver strategic solutions to those needs, including the hosting of an annual Business Expo, where local businesses get the chance to showcase their goods and services to the public. CICC is the largest, most influential business organization in the Cayman Islands. Of its 600+ members, 85 percent are small businesses with 25 or fewer employees.
