‘Tax haven’ is a phrase that is often thrown around in the global media and by overseas politicians but it is incorrectly assigned to the Cayman Islands. Rather, Cayman is a tax-neutral jurisdiction that has an impressive record of complying with international tax transparency regimes.
Cayman imposes no income, capital gains, payroll or other direct tax on corporations or individuals resident in the Cayman Islands. The government generates revenue primarily through the following means:
- Import duties are levied on most goods imported to the Islands
- Stamp duty (especially on direct and indirect transfers of Cayman Islands real estate)
- Work permit fees for expatriate workers
- Financial services licensing fees
- Annual company registration fees
- Tourism-related fees
Through this system, total Government revenues, as a percentage of GDP, are similar to other G20 countries and are sufficient to fund Government operations. This makes additional, direct taxation unnecessary.
The Cayman Islands is, however, committed to tax transparency and has an impressive history when it comes to the implementation of and reporting under international tax transparency regimes.
Cayman signed its first Mutual Legal Assistance Treaty in the 1980s and now has bilateral tax information exchange agreements with 36 jurisdictions. In 2013, Cayman signed a Model 1 Intergovernmental Agreement with the US. In the same year, Cayman joined the Multilateral Convention on Mutual Administrative Assistance in Tax Matters. These initiatives provided the legal basis for Cayman to adopt and implement US FATCA and the OECD’s Common Reporting Standard (CRS) which are designed to combat tax evasion and avoidance through cooperation and exchange of information.
Cayman also joined the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in 2017 and continues to implement and comply with BEPS global minimum standards which are primarily aimed at tackling tax avoidance, for example, country by country reporting and the economic substance regime.
A Tax Haven?
‘Tax haven’ is a phrase that is often thrown around in the global media and by overseas politicians; however, it is 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. For example, it does not offer tax incentives designed to favour non-resident individuals and businesses, nor does it have differing tax rates for foreign entities or legal mechanisms in place that affect the transfer of tax bases from one country to another in order to reduce taxes.
Cayman is more suitably described as tax neutral and provides a tax-neutral environment in which to conduct transactions This is particularly beneficial for global transactions involving multiple parties in numerous countries, all of which may be subject to various tax rules and requirements. Take for example an investment fund, a tax neutral jurisdiction is important to ensure the fund is not subject to tax at various levels and instead only subject to tax when proceeds are received from the fund at the level of the investor.
