‘Tax haven’ is a phrase that is often thrown around in the media and politics, and incorrectly assigned to the Cayman Islands. Cayman does not meet any of the tax haven definitions set out by the OECD, Transparency International or Tax Justice Network. It does not offer tax incentives designed to favour non-resident individuals and businesses.
Cayman has an effective tax system whereby total government tax revenues, as a percentage of GDP, are similar to tax rates in G20 countries and sufficient to fund government operations. This makes additional taxes unnecessary. To be specific, the Cayman Islands Government raises more than US$1 billion dollars annually through a series of business licensing fees, work permit fees, a tourist tax fee, car licensing fees and charging a 22% import duty fee on the many things that are imported to Cayman. Owing to the fact that very little is produced in Cayman, a lot is imported. This revenue is sufficient to pay the Government's annual expenditure (in the region of US$795 million) and leaves some left over for capital improvements and loan repayments.
Cayman does not have differing tax rates for foreign entities. Cayman does not have legal mechanisms or treaties (such as double taxation agreements) in place with other countries to legally transfer tax bases from one country to another in order to aggressively reduce taxes. Cayman does not promote itself as a jurisdiction for aggressive tax planning. Cayman offers no tax incentives designed to favour non-resident individuals or businesses.
Cayman signed its first Mutual Legal Assistance Treaty with the USA in the 1980s and has tax information exchange agreements with 36 jurisdictions; the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, which allows tax information exchange with more than 90 countries; automatic data exchange as part of the European Union Savings Directive; and has adopted US FATCA, UK FATCA and the OECD’s Common Reporting Standard.
International policy makers continue to recognise the vital role Cayman’s financial services industry plays as a strong international partner in combatting corruption, money laundering, terrorist financing and tax evasion.