Exempted Company (Company limited by shares)
The Cayman Islands has an excellent legal, fiscal, financial and professional environment for the incorporation of international business companies.
The jurisdiction 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 Companies Law 1961 (as amended in 1990, 1995, 2004, 2007 and 2010) is based on English Common law and governs the incorporation of the Exempted Companies, Cayman’s most popular offshore company.
Exempted companies are entitled to do business outside the Cayman Islands and may have restrictions to trade with Cayman residents. However, exempted companies are allowed to conclude contracts in Cayman or exercise any of its powers in Cayman to carry out business outside the Islands, including open and maintain bank accounts and rental or ownership of real estate in the jurisdiction.
Exempted companies are not allowed to make any invitation to the public in Cayman to subscribe its shares or debentures.
In the Cayman Islands, there are no direct taxes. No corporation tax, income tax, capital gains tax, inheritance tax, gift tax, nor wealth tax. Transfer of shares is not subject to stamp duty unless the Exempted company holds property within the islands. Certain documents may also be subject to nominal stamp duty.
There is no exchange control and no restrictions on the movement of funds to or from the Islands.
In addition, exempted companies may request to the government a Certificate of up to 50 years tax exemption against any future Cayman Islands taxation.
Exempted companies are flexible corporate structures, not requiring any resident directors or officers, the register of shareholders and minute books can be held anywhere and annual general meetings of shareholders are not mandatory and can be held anywhere.
No minimum capital requirements and shares may be with or without par value, issued at a premium over par value, in fractions of a share, preferred, deferred, or other special rights.
Annual reporting filings are minimal, there is no need to file financial statements and audits are not required unless the company is an investment fund regulated by the Cayman Islands Monetary Authority.
Reporting requirements are limited to an annual return stating whether there has been a modification of the Memorandum of Association and confirming that no business has been conducted within the jurisdiction.
Exempted companies also benefit from confidentiality. Details of company members are not required to be filed with the Registrar of Companies and the Confidential Relationships (Preservations) Law 1976 makes it a criminal offense for any person to divulge confidential information to a third party.
Exempted companies are an excellent vehicle for fund and international investment management, as they may be registered as Segregated Portfolio Companies (sometimes referred to as protected cell companies).
This company structure separates the assets and liabilities held in one portfolio from other held in another portfolio and/or from the assets of the company not attributable to any particular portfolio.
Creditors of a “portfolio” are unable to seek recourse from the assets of any of other or from the general assets of the company. This corporate vehicle provides protection contagion to fund promoters as an umbrella unit trust.
In addition, this corporate structure provides several cost savings such as avoiding to setting up new entities, lower costs on corporate governance, company administration and compliance.
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.
Furthermore, the Cayman Islands has also an internationally renowned ship and aircraft registries.
The Cayman Islands passed 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 affiliated 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.
The Cayman Islands is a sophisticated financial center and its exempted company, a powerful corporate vehicle for international investment, fund and wealth management.
Legal
Country code – KY
Legal Basis – Common law
Legal framework – Companies Act
Company form – Exempted Company (Company limited by shares)
Liability - The liability of the shareholders for the company is limited to the amount of their respective shareholdings.
Economic Substance – Under the International Tax Co-operation (Economic Substance) Act, 2018 – companies conducting relevant activities to must meet substance requirements.
'Relevant activities' include:
- banking i.e. banking business
- insurance i.e. insurer
- finance and leasing i.e. business of providing financing or leasing of assets
- fund management i.e. management of collective investment schemes
- distribution and service center business i.e. reselling goods to affiliated companies or providing services to affiliated companies. Affiliated company is defined as a company which is part of the same group (e.g. parent-subsidiary, sister entity with common parent company, etc).
- headquartering i.e. providing management services to affiliated companies
- intellectual-property business i.e. holding and exploiting IP assets, generating identifiable revenue from such assets. Please note that the provision of services for developing IP assets or holding or using IP assets for ordinary commercial or service business is not considered an intellectual property business. IP businesses are those that generate separate and identifiable revenue from IP assets (e.g. patent licensing)
- shipping i.e. transportation by sea of persons, animals, goods or mail, the renting or chartering of ships for such transportation, management of ship crew, sale of travel tickets, the use, maintenance or rental of containers, including trailers and other vehicles or equipment for the transport of containers, used for the transport of anything by sea
- and pure equity holding company, companies that only own equity interests in other companies, and only earn dividends and capital gains.
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.
All Cayman companies are required to notify annually the Department of International Tax Co-Operation – stating whether or not they are carrying out relevant activities.
Companies carrying out relevant activities are required to file a 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.
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.
Share capital – There is no minimum authorized share capital other than at least 1 share. Most companies are incorporated with the aggregate par value of its authorized shares not exceeding USD 50,000 to avoid higher government fees. Shares may be with or without nominal or par value, issued at a premium over par value, in fractions of a share, of different classes with different rights on voting, dividend and surplus assets upon liquidation, preferred, deferred, or other special rights. Bearer shares are not allowed.
Shareholders – Exempted companies may have one or more shareholders, who can be either natural or legal persons, residents or non-residents, without restrictions. Details of shareholders are not publicly disclosed.
Directors – At least one director is required, who may be a natural person or a legal entity. Active directors’ names are available to the public. Nominee directors are permitted.
Secretary – The appointment of officers such as a secretary is optional, and if a secretary is appointed, it may be an individual or a company, resident or non-resident.
Registered Address – An exempted company must have a registered office in the Cayman Islands, provided by a corporate service provider.
General Meeting – Annual general meetings are not mandatory. However, if meetings are held, they can be anywhere in the world and maybe by proxy. Minutes of the meeting must be taken but the minute book can be kept anywhere.
Electronic Signature – Permitted.
Re-domiciliation – Inward and outward re-domiciliation is allowed.
Compliance – Cayman Islands’ exempted companies must keep accounting records. The records may not be kept in Cayman, but must be made available at the registered office if an order or notice for production under the Tax Information Authority Act is made.
Exempted companies are not required to file financial statements or tax returns. An annual return must be submitted every January stating whether there has been a modification of the Memorandum of Association and confirming that no business has been conducted within the jurisdiction. Exempted companies are also required to pay an annual government fee, of which its amount will be according to the company's authorized share capital.
An economic substance notification must also be filed outlining whether the company has been carrying on a relevant activity for the purposes of economic substance during the previous financial year. If the company has been subject to economic substance, an economic substance return must be completed and filed with the DITC on or before 31 December.
- Shareholders not disclosed
- Directors not disclosed
- Corporate shareholders permitted
- Corporate directors permitted
- Local director required
- Secretary required
- Local secretary required
- Annual general meetings required
- Redomiciliation permitted
- Electronic signature
- Annual return
- Audited accounts
- Audited accounts exemption
- Exchange controls
- Common law Legal basis
- 1 Minimum shareholders
- 1 Minimum directors
- - Minimum issued capital
- - Minimum paid up capital
- USDAny Capital currency
- Anywhere Location of annual general meeting
- 2017 AEOI
Taxes
Corporate income tax - Cayman Islands does not levy corporate income tax. In addition, an Exempted company may apply for an undertaking from the Governor that no law enacted in Cayman imposing any tax to be levied on profits or income or gains or appreciations shall apply to the Exempted company. The undertaking will be for a maximum of 20 years and will also cover estate duty or inheritance tax.
No withholding tax is levied on dividend, interest and royalty payments to non-residents.
Other taxes - There is no personal income tax nor capital gains nor corporation tax nor value added tax. The only existing taxes in the Cayman Islands are:
- Stamp duty on the lease of the property from 5 to 20% of the annual average rent.
- Stamp duty on the lease of land, 5% of the value of the property if the term is more than 30 years, or 5% of the average annual rent if less than 30 years.
- Tourist Accommodation Tax: 10% of the income obtained by renting tourists or USD 10 per day for each room occupied in timeshare properties
- Stamp duty on the transfer of a property of 7.50% on its value.
- Import duty tariffs between 22% and 27%.
- Offshore Income Tax Exemption
- Offshore capital gains tax exemption
- Offshore dividends tax exemption
- CFC Rules
- Thin Capitalisation Rules
- Patent Box
- Tax Incentives & Credits
- Property Tax
- Wealth tax
- Estate inheritance tax
- Transfer tax
- Capital duties
- 0% Offshore Income Tax Rate
- 0% Corporate Tax Rate
- 0% Capital Gains Tax Rate
- 0% Dividends Received
- 0% Dividends Withholding Tax Rate
- 0% Interests Withholding Tax Rate
- 0% Royalties Withholding Tax Rate
- 0 Losses carryback (years)
- 0 Losses carryforward (years)
- 0% Personal Income Tax Rate
- 0% VAT Rate
- 0 Tax Treaties
Country details
The Cayman Islands is a British Overseas Territory dependent on the United Kingdom and located northwest of Jamaica between the island of Cuba and the coast of Honduras in the waters of the Caribbean Sea. The Cayman Islands is a member of the CARICOM single market.
The 264-square-kilometer (102-square-mile) territory comprises three islands, Grand Cayman, Cayman Brac and Little Cayman, where about 69,000 people live, 55,000 of which live in its capital, George Town (Grand Cayman).
Its official currency is the Cayman Islands Dollar (KYD), pegged to the US dollar at a 1,227:1 ratio.
The Cayman Islands are a British overseas territory, designated by the UN Decolonization Committee as one of the last Non-Self-Governing Territories. The fifteen representatives who compose the Legislative Assembly are elected by the people every four years, they are in charge of managing the internal affairs. Of the elected members of the Legislative Assembly, five are elected to serve as ministers in a Cabinet headed by the Governor. The head of government is the Prime Minister.
The governor is appointed by the King/Queen of the United Kingdom on the advice of the British Government to represent the monarch.
The Cayman Islands has a solid economy, with one of the highest per capita income worldwide. Being also one of the most expensive places to live, since most products are imported and are subject to high tariffs.
Its main sectors are luxury tourism for its pristine beaches, scuba diving and high-end gastronomy, and offshore financial and insurance services, with hundreds of licensed banks, which handle about $500 billion in assets.
The Cayman Islands is one of the 5 largest financial centers in the world by deposits and the world’s largest financial center for investment funds, with the presence of the global largest financial institutions.
Main financial services available in the territory are private banking, hedge fund formation, and investment, trust services, structured finance and securitization, captive insurance, and international business company services.