Exempted Company (Company limited by shares)
The Cayman Islands is a leading offshore financial jurisdiction recognized for its well-established legal infrastructure, political stability, and mature professional services sector.
At the heart of its corporate regime lies the Exempted Company, a legal entity commonly used for international business, investment, and finance-related activities.
Exempted Companies are governed under the Companies Act (formerly the Companies Law of 1961), which is based on English common law principles.
These entities are designed to conduct business outside of the Cayman Islands and are not permitted to trade locally except in limited circumstances such as operating a registered office or engaging local service providers or doing business with other exempted companies, exempted limited partnerships or LLCs. For that reason, they are exempt from obtaining a domestic trade license.
An Exempted Company must maintain a registered office within the jurisdiction, but there is no requirement for resident directors or officers. It may be incorporated with a single shareholder and a single director, both of whom can be individuals or corporate entities, and neither needs to be resident in the Cayman Islands.
One of the attractive features of Exempted Companies is their structural flexibility. They can issue shares with or without par value, at a premium over par value, and in multiple classes with varying rights relating to voting, dividends, and distributions on winding up. These features make them suitable for sophisticated governance arrangements and capital-raising structures.
The standard aggregate par value of the authorized share capital is typically set at USD 50,000, often divided into five million shares of USD 0.01 each. This threshold ensures the lowest tier of government fees. However, the actual capital issued may be much lower—companies are only required to issue at least one share upon incorporation.
Importantly, shares can be issued at a premium above their par value, and such premiums are not counted towards government fee calculations. These premium reserves may also be distributed to shareholders without undergoing a formal capital reduction process.
Amendments to the authorized capital are permitted through changes to the Memorandum of Association, subject to increased government fees when applicable.
Directors of Exempted Companies are subject to fiduciary obligations consistent with common law expectations. These duties include acting in good faith and in the best interest of the company. While directors have discretion over company affairs, shareholder approval is typically required for key matters such as amendments to constitutional documents and major corporate actions.
The Articles of Association often mirror statutory requirements but may be tailored to suit specific investor or business needs. This customization allows for variations in voting rights, dividend entitlements, and governance processes, facilitating use in private equity, joint ventures, or holding structures.
Annual filing requirements are minimal. Companies must file an annual return confirming they have not conducted business within the Cayman Islands. Financial statements are not required to be filed, and audits are unnecessary unless the entity is a regulated entity.
The Cayman Islands imposes no direct taxes on income, capital gains, or inheritances. There are also no withholding taxes on dividends or interest payments. Exempted Companies can apply for a tax undertaking certificate, which guarantees exemption from future Cayman Islands taxation for a period of up to 20 years.
Additionally, the jurisdiction does not impose foreign exchange controls, allowing the free movement of capital in and out of the Islands. This openness contributes to the Cayman Islands’ role in global capital markets and financial structuring.
Exempted Companies are frequently used for a range of cross-border transactions and investment purposes. Their popularity spans multiple sectors, including private equity, hedge funds, venture capital, and structured finance.
Many multinational groups, particularly in North America, Asia, and the Middle East, use Cayman companies as holding or listing vehicles. A significant proportion of companies listed on the Hong Kong Stock Exchange (HKEX) and major U.S. exchanges such as NASDAQ and NYSE are incorporated in the Cayman Islands.
The jurisdiction is also a preferred domicile for offshore funds, ranking alongside the United States and Luxembourg. Cayman Special Purpose Vehicles (SPVs) are routinely employed in structured finance arrangements, including asset-backed securities and other capital market instruments.
A distinguishing feature of Cayman corporate law is the ability to register Exempted Companies as Segregated Portfolio Companies. SPCs allow for the legal separation of assets and liabilities across multiple portfolios within the same legal entity. Each portfolio operates independently, and creditors of one portfolio have no recourse to assets held in others or in the general account of the company.
This legal ring-fencing mechanism is particularly useful for fund managers offering multiple investment strategies under a single legal umbrella, providing efficiency in administration while maintaining asset protection.
In compliance with international standards, the Cayman Islands enacted the International Tax Co-operation (Economic Substance) Act in 2018. Under this regime, companies conducting certain “relevant activities” must maintain a demonstrable economic presence in the jurisdiction.
Relevant activities include banking, insurance, fund management, shipping, financing and leasing, distribution and service center operations, headquarters activities, intellectual property businesses, and pure equity holding.
Entities engaged in these sectors must carry out core income-generating activities in the Cayman Islands, be directed and managed locally, and maintain adequate physical presence and expenditure in the jurisdiction. Companies that do not meet these standards may face financial penalties and regulatory scrutiny.
Notably, investment funds are exempt from economic substance requirements, although related management entities may still fall within the scope of the law.
The Cayman Islands Exempted Company remains a cornerstone of international corporate structuring due to its legal predictability, regulatory efficiency, and fiscal neutrality. Its versatile framework supports a wide array of legitimate business and investment activities, while ongoing legal reforms ensure compliance with global standards of transparency and economic substance.
For businesses, investment managers, and multinational enterprises seeking a stable and flexible offshore platform, the Exempted Company continues to be a preferred legal vehicle in an increasingly complex global environment.
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 Base legal
- 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.