This chapter provides information about wealth management in Cayman and includes details on investment opportunities on Grand Cayman from asset management to off-shore banking and property investment in the Cayman Islands. We also provide details of private banking and brokerage services to help you with your investment portfolio. Services range from hedge funds, equities, interest accounts, currency transactions and other investment vehicles in Cayman. Additionally we provide details of investing and saving tax considerations and alternative investment opportunites like annuities and property investment in the Cayman Islands.
THE OPPORTUNITIES TO INVEST IN CAYMAN - AN OVERVIEW
Internationally, the Cayman Islands is widely perceived as a jurisdiction without taxation of individuals or businesses. The Cayman Islands is in actuality a tax-neutral jurisdiction in the sense that, although taxes are not levied on income or profits earned locally, an expatriate working in the Cayman Islands who is obligated by the tax laws of his or her home country to report worldwide income still has that obligation, even while not being subject to taxation by the Cayman Islands. In the Cayman Islands, tax is not due on wages earned locally or on profits and capital gains from investments. Moreover, there are no sales, goods and services taxes or VAT, and many luxury goods are either partially or completely duty free. Lastly, there are no death or inheritance taxes.
As is common in all countries, governments need money to meet their expenditures. In the Cayman Islands, the government relies primarily on customs duties, fees for work permits issued to expatriates, a variety of business licences, tourist accommodation tax and various fees imposed on the financial services industry and tourism, the key industries in the Cayman Islands. Typically, import duty is 22% on any item imported into the Cayman Islands, although the levy will vary on certain goods, including vehicles, wines, spirits and some food items.
New residents importing their used household and other personal belongings (which they have owned for more than six months) within six months of their arrival on the Islands will not be subject to import duty. If such items are imported after six months of residence on the Islands, normal tariffs will apply. (See the Preparing to Move chapter for more information.)
Each individual resident has a customs allowance of CI$350 for personal goods each time they enter the Cayman Islands.
Visit www.caymanislandscustoms.com for more information on new resident import allowances, customs allowances and import duties.
WEALTH MANAGEMENT
There are compelling reasons for engaging the services of an investment advisor based in the Cayman Islands, either through a local office of a global firm or the asset management group of a local financial institution: Expert investment guidance can be obtained in the resident's time zone and on a personal basis, and the locally based advisor will be familiar with the asset allocation and types of investments that are appropriate given the resident's new tax status.
A number of overseas wealth management firms have offices in Cayman. Globally renowned private banks such as Barclays Private Bank, Butterfield Bank, HSBC, RBS Coutts, Scotiabank and the asset management arm of the only bank headquartered in Cayman, Cayman National Securities, offer a sophisticated suite of investment solutions for clients with above average net worth. It is always advisable to seek guidance from an investment advisor who understands the tax and regulatory issues in the resident's home country.
Brokerage firms in the Cayman Islands offer a wide range of client accounts and a full suite of products. For example, there is ready access to the full spectrum of offshore hedge funds and funds-of-funds, with choices ranging from low volatility funds to those which are aggressive and specialised. There is access to a wide range of interest bearing securities, structured notes (including equity-linked notes), step-up bonds and Eurobonds denominated in multiple currencies.
As in most major financial centres around the world, investors in the Cayman Islands can establish discretionary managed accounts subject to an annual fee assessed on the volume of assets under management, or self-directed brokerage accounts subject to trading commissions and/or transaction fees based on the size and volume of transactions. In the case of brokerage accounts, the investor may elect to receive information concerning markets, sectors, asset allocation recommendations or specific securities developed by the firm's research team. However, decisions as to specific investments and timing of trades are the responsibility of the client.
Investment accounts that are designed so as to receive monthly contributions are not very common because deferred tax planning is generally not necessary. However, a number of the larger retail banks and brokerage firms can structure traditional brokerage accounts to receive monthly contributions and to invest those contributions in a portfolio of mutual funds.
Some of the leading organisations in the Cayman Islands offering wealth management solutions are listed below.
Barclays Private Bank & Trust (Cayman) Ltd.
PO Box 487, Grand Cayman KY1-1106
Tel: (345) 914 5403
Email: ashley.cox@bpb.barclays.com
Services offered: Private banking, wealth structuring, trusts and international estate planning.
Butterfield Bank (Cayman) Limited
Butterfield House, 68 Fort Street
PO Box 705, Grand Cayman KY1-1107
Tel: (345) 815 7604
Email: investments@butterfieldgroup.com
Cayman National Securities Ltd.
62 Forum Lane, Camana Bay
PO Box 275, Grand Cayman KY1-1104
Tel: (345) 949 7722
Email: info@cnifs.com
HSBC
HSBC House, 68 West Bay Road
PO Box 1109, Grand Cayman KY1-1102
Tel: (345) 949 7755
RBC Global Private Banking
Royal Bank House, 4th Floor
PO Box 1095, Grand Cayman KY1-1102
Tel: (345) 814 8145
Email: gpbcayman@rbc.com
RBS Coutts Cayman
Coutts House, Trafalgar Place
1446 West Bay Road
PO Box 707, Grand Cayman KY1-1107
Tel: (345) 945 4777
Email: david.foster@rbscoutts.com
Services provided: Private banking, trust services, investment management. (discretionary, advisory and bespoke).
Scotiabank & Trust (Cayman) Ltd.
PO Box 689, Grand Cayman KY1-1107
Tel: (345) 949 7666 Fax: (345) 949 0020
Email: scotiaci@candw.ky
www.scotiabank.com/ky
Services provided: Private banking including customised lending solutions and financial planning, investment advice and management, wealth structuring including private trusts, foundations, private investment companies and custody.
SAVING & INVESTING IN CAYMAN
Working in the Cayman Islands, especially in financial services and tourism, is about being in a first-world environment while enjoying the year-long tropical climate, white sand beaches and warm, crystal-clear seas. Working in Cayman is also particularly rewarding as earnings and any savings or income and gains from investments are tax-free. Nevertheless, as the Cayman Islands is a tax-neutral jurisdiction, it is strongly recommended that all new residents taking up employment here take the following steps:
1) Seek tax advice in your home country. The tax authorities in Canada, the UK and the US treat income differently when their residents are physically working outside of the country. All newcomers to the Cayman Islands should determine if it is advantageous to transfer savings and investments to Cayman or keep them at home. It is also very important to determine how long one needs to be a non-resident before securing tax-free benefits, if it is possible at all. Tax legislation is continually changing, so it is imperative to have the latest information before making decisions on investing. For example, at the time of going to press, in the UK one has to be a non-resident for one full tax year in order to avoid tax on income. There are restrictions on the number of days one can visit the UK in any given year while residing and working abroad. Visit www.hmrc.gov.uk for more information. US citizens are liable to be taxed on worldwide income, irrespective of where that income is physically earned, although one may be eligible for a tax allowance on the first US$87,600 of income earned outside of the US. Canadian citizens have to prove that they have severed ties with Canada to avoid paying tax. If not planning to take up residence in the Cayman Islands but still interested in opening a bank or investment account here, it is important to seek tax reporting guidance from an advisor in the country of residence. Financial institutions in Cayman are alert to and are obligated to report on known tax avoidance and will want to be assured that there is full compliance at all times with the tax laws of the home country.
2) As soon as practical after arrival in the Cayman Islands, a local bank account should be established. This will enable the new resident to have a cheque book, a debit card and to use ATMs. A note regarding checking accounts: Most local banks impose significant monthly and transaction fees on checking accounts unless fairly significant average balances are maintained. Butterfield Bank (Cayman), for example, points out to new customers that the bank maintains the payment details of several hundred local merchants and service providers. This, together with easily accessible online banking, can mitigate the need for having a checking account, since bills may be paid electronically. In this instance, customers are granted savings accounts in either US$ of CI$. Funds maintained in these accounts are fully liquid at all times and the accounts can be readily accessed online or at ATMs. Several banks in Cayman offer online and direct-debit banking services. (Note that banks in Cayman are strictly regulated by the Government run Cayman Islands' Monetary Authority, which has the regulatory and oversight functions of a central bank, but there is no equivalent in Cayman to Federal Deposit Insurance in the US, which means that deposits are not protected if a bank should be declared bankrupt.)
3) Consider the establishment of an investment account. This will enable new residents to take advantage of some of the other services that banks offer, such as investment advice, brokerage services and, for those with significant assets, discretionary investment management. Most of the retail banks in Cayman have a full range of financial services and there are an increasing number of specialised financial institutions that advise individuals who are looking for private banking or wealth management facilities.
4) Arrive prepared to meet local requirements for establishing banking and investment relationships. Local due diligence calls for having readily available documents that confirm the personal identity and other particulars of an applicant. The requirements may vary with each institution, but generally the following are required:
a) Valid original passport. Most financial institutions need to see and maintain a copy of original passports in their client records, although some banks will allow a notarised copy of the photo page of the passport if the applicant is unable to apply in person.
b) A second photo ID, duly notarised.
c) Confirmation of residential address in the Cayman Islands. This would be difficult if a local residence has not been established at the time of application; in such an eventuality, this requirement is likely to be waived.
d) A reference from a bank where the applicant has been a client for more than three years.
e) A professional reference from an accountant or lawyer who has known the applicant for more than three years. (References should be addressed to the bank where the account is being established and, therefore, it is advisable to determine which bank this will be before arrival in Cayman. Banks and financial institutions in Cayman do not generally accept a reference addressed 'To Whom It May Concern').
f) Evidence of the source of funds. It is strongly recommended to avoid bringing large amounts of currency or traveller's cheques into the country. Cayman banks are extremely vigilant about money-laundering and would rather not have new business than take the slightest risk of accepting tainted funds. It is customary for Cayman banks to ask a new client, at the time a new account is established, to estimate the average account balances going forward and to specify the usual source of incoming funds, e.g. regular salary payments. It is not uncommon for banks to periodically call a client and inquire as to the source of incoming funds when an unusually large transaction takes place in an account
5) Consider future plans. If planning to return to a country that is not US dollar denominated, consider converting CI$ or US$ denominated earnings to the home country currency on a regular basis. If all your savings are in CI$ and you only convert it upon returning to the home country, it is possible that exchange rates could move adversely and negatively impact the value of your savings once converted into your home currency. Converting funds on a regular basis will tend to mitigate this. A broker or financial advisor will be able to provide guidance in this regard.
6) Determine the willingness to accept a higher level of investment risk, in exchange for potentially higher returns. One basic approach is investing in a conservatively managed portfolio with the expectation of receiving average or, possibly, below-average returns, but with limited possibility of significant capital loss. Alternatively, considerably higher returns may be possible with a more aggressive, growth-oriented portfolio, but the risk of significant capital loss increases accordingly, depending on market conditions and manager performance.
7) Factor into investment planning an eventual return to the home country. At that time, it would not necessarily be advisable to liquidate all investments held locally and repatriate the funds. To make the appropriate decision at that time, it is very important to be fully aware of one's individual tax situation and what one is legally allowed to do. Whilst in Cayman, it may be advantageous to establish a Cayman-registered company or trust to own investments; these could potentially provide tax advantages upon returning to the home country. Most local banks have a trust department that can provide expert guidance and they will advise on the best strategy based each client's personal situation.
8) Consider the opportunity of buying property in the Cayman Islands. If in all reality your probable length of stay is five years, it is likely that your monthly outlay in rent will be similar to that for a mortgage and if you buy there is the obvious potential for capital appreciation. Obviously, it is important to take into account all the other expenses involved "beyond a mortgage payment" that are incurred with home ownership, including property insurance (more expensive if considering ocean-front property), life insurance on all obligors on the mortgage note, maintenance and improvements. Although there are no property taxes in the Cayman Islands, real estate purchases are subject to a one-time Stamp Duty (normally between 5% and 7.5% of the purchase price after deducting the value of any chattels included by the seller in the sale). After leaving the Cayman Islands, it is always possible to rent owned property for income and keep the investment for future capital appreciation. Cayman banks are eager to grant mortgages to suitably qualified applicants, although the maximum loan-to-value will tend to be lower for non-Caymanians, and the mortgage terms will tend to be 15-20 years. The section on Finding a Home will give you more information.
ANNUITIES
Life insurance is designed to protect the insured against premature death, an annuity is designed to protect the annuitant against the risk of living too long and possibly outliving his or her financial resources during retirement. An annuity is a legally enforceable written contract between an insurance company and a contract owner under which the insurer promises to make a series of periodic payments to a named person in exchange for a lump sum premium or series of premiums. In the US, annuities receive favourable tax treatment and are a means to accumulate and protect wealth prior to retirement.
There are a number of classifications for annuities, three of which are fixed, variable, and equity-indexed.
For a fixed annuity, the insurance company guarantees that the contract owner will earn a minimum rate of interest during the time that the account is growing. The insurance company also guarantees the dollar amount of the periodic payments during the payout period. These periodic payments may last for a definite period, such as 20 years, or an indefinite period, such as the payee's lifetime.
In a variable annuity, by contrast, the contract owner can select, from among a range of fund options - typically mutual funds - how the insurer invests the premiums. The rate of return on the purchase premiums, and the amount of the periodic payments to be received will vary depending on the performance of the investment options selected. There is usually no guarantee as the risk is taken by the contract owner and not the insurer, but there is also the potential for higher earnings.
The equity-indexed annuity is a special type of annuity for which the insurer credits the contract owner's account with returns based on changes in an equity index, such as the S&P 500 Composite Stock Price Index during the accumulation period - when either a lump sum payment or a series of payments are made. The insurance company typically guarantees a minimum return, which may vary by circumstance. After the accumulation period, the insurer will make periodic payments to the designated payee under the terms of the contract, unless the choice was for a lump sum payment.
Traditionally, annuities were also known as an 'income for life' as the periodic payments could be planned to pay an individual for life. However, annuities can also be used for establishing a pension and for funding for advanced education for children.
One insurance company which provides annuities in Cayman is:
Sagicor Life of the Cayman Islands
3rd Floor Harbour Place, George Town
PO Box 2171, Grand Cayman KY1-1104
Tel: (345) 949 8211 Fax: (345) 949 8262
Email: customerservicecayman@sagicor.com
Products offered: Immediate and deferred annuities and investments.
INVESTING IN PROPERTY
Over the last year, despite the global financial collapse and recession, Cayman Islands real estate sales prices have only been discounted by 9% on average from their listing prices. Cayman has not experienced the melt-down in property prices which places such as Florida has experienced. This was because the market in Cayman never encountered excessive speculation that was experienced in some countries and so while the property market has slowed it has maintained most of its value. Sustainable returns of 8%-12% on rental properties are not unrealistic and many investors feel that the temporary slowdown is an opportunity to invest in property in the Cayman Islands while prices are very affordable.
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