Cayman Islands Financial Services

In his New Year’s address, McKeeva Bush, the Premier of the Cayman Islands, has noted that the jurisdiction is planning attract additional investment as a result of the Cayman Enterprise City – the 1st special economic zone in the Caribbean. This means that companies will be admitted this month.

According to Bush, the Cayman Enterprise City has made a noticeable progress since the signing of a Memorandum of Understanding between the government and the organisers 11 months ago.

Bush said that the extraordinary progress by CEC stakeholders has meant that the CEC zone is now operational. In September 2011, the Special Economic Zones Law was passed by the legislative assembly. The 1st meeting of the Special Economic Zone Authority was held in the end of December. It has confirmed that it is prepared to license the 1st zone companies in January 2012.

Investors located in the zone have the following benefits:
• exemptions from income tax;
• exemptions from corporate tax;
• exemptions from capital gains tax;
• exemptions from tax on the repatriation of capital and profits;
• exemptions from work permits;
• companies will be permitted to be 100% foreign owned.

In the recent Hedge Funds Review’s Service Provider Rankings, the Cayman Islands was named as the most favoured hedge fund domicile.

The survey revealed that the Cayman Islands is the most favoured domicile in terms of the quality of service provided by local practitioners. The Cayman Islands was ranked as the top domicile by 52.9% of the survey respondents.

The jurisdiction is followed by Luxembourg and Ireland.

The results of the survey were based on the opinions of more than 1 000 hedge funds, funds of hedge funds and investors who invest into hedge funds, or asset managers allocating to hedge funds and funds of hedge funds.

The Chairman of Cayman Finance, Richard Coles, welcomed the findings of the survey, saying: “It is welcome yet unsurprising news that the Cayman Islands was named the most favoured domicile in the recent Hedge Funds Review’s Service Provider Rankings. The survey underscores Cayman’s ongoing relevance in the worldwide financial industry and role as a key player in the funds industry in particular.”

Cayman Premier McKeeva Bush has announced plans to introduce a streamlined work permit regime aimed at encouraging reinsurance business to the Cayman Islands.

At the recent Cayman Captive Forum, Bush noted that the Cayman government would introduce a number of incentives for reinsurance businesses. The incentives are 10-year work permits for senior executives of companies and reduced work permit fees.

When announcing the incoming regime, Bush indicated, in contrast to other offshore jurisdictions like Bermuda, the Cayman Islands will not seek equivalency with the EU’s stringent capital adequacy requirements under Solvency II, providing appeal for reinsurers seeking to bypass the strict capital controls.

According to a new report entitled United Kingdom and Cayman Islands Relationship Review, the United Kingdom must do more to support the Cayman Islands as well as help dispel myths like “it is an ideal tax haven for terrorists and drug traffickers”.

This report was based on a public consultation with the people of the Cayman Islands. The study revealed that loyalty to the Crown is still strong, however, there is dissatisfaction among the people.

The feedback will be used by the government of the United Kingdom to prepare a new white paper outlining the UK’s strategy for the Overseas Territories.

The biggest concern among Caymanians was the deterioration in relations with the UK. It was said in the report that “The dissatisfaction with the way in which the relationship is presently operating has largely coalesced around the perception that the two parties have often appeared to be at ‘loggerheads’ with one-another and that as a consequence, the Cayman Islands may simply be left to ‘sink or swim”.

“Thus, when the Cayman Islands came under pressure from the international financial community, there seems, amongst several contributors, a sense that the Cayman Islands was let down by a failure on the part of the United Kingdom Government to fully represent the interests of the Cayman Islands and indeed protect these where necessary.”

To remind, the Cayman Islands was criticised as being the second most secretive finance jurisdiction worldwide by a Tax Justice Network (TJN) report in October 2011.

The report highlighted the need to diversify away from the two current main areas of economic activity – tourism and financial services, both of which have come under significant pressure in the wake of the world’s economic recession. According to the United Kingdom and Cayman Islands Relationship Review, “The Cayman Islands needs a long term economic strategy to ensure a stable source of revenue as well as a strategy to diversify away from the two current pillars of economic activity. Also, the report said that the jurisdiction needs a comprehensive long-term strategy to ensure that its tourism and financial services continue to thrive.

The government of the Cayman Islands says that it supports a document drafted by the UK’s Foreign and Commonwealth Office. The above-mentioned policy document requires that the administration in the Cayman Islands manages the jurisdiction’s fiscal affairs prudently, but has serious reservations over some elements of the plan.

The document is to be known as the Framework for Fiscal Responsibility. It is being negotiated between the United Kingdom and the Cayman Islands. It is expected to be signed following the document redrafting aimed to take into account the Cayman Islands’ government’s initial concerns.

Commenting on the document, the Cayman Islands Premier, McKeeva Bush said: “This government took over from a previous government that had borrowed and its overspending had placed this country in a dangerous financial position. Because of this, the United Kingdom government has asked us to sign an agreement with them. Based on the historical evidence of what can happen when a financially irresponsible government spends without any thought process or a carefully thought out plan, I am in favour of signing such a mutually-agreed Framework for Fiscal Responsibility.” According to him, it is understood that the government of the UK has seen the need to restrict their exposure in such circumstances because there is no guarantee as to what kind of spendthrift government will be elected in the future.

Bush said that the Framework for Fiscal Responsibility has been based on 4 fundamental tenets:
1. the government should undertake effective medium-term planning to ensure that the full impact of fiscal decisions is understood;
2. it should put value for money considerations at the heart of the decision-making process;
3. it should demonstrate effective management of risk;
4. the government should drive the delivery of improved accountability in all public sector operations.

The Cayman Islands’ adherence to global regulatory and supervisory standards on international cooperation and information exchange has been found “sufficiently strong” by the Financial Stability Board (FSB). This was revealed in a report commissioned by the G20. It is worth mentioning that “sufficiently strong” is the highest assessment possible.

The FSB, a supranational body whose membership includes the OECD and the Committee on the Global Financial System, suggested that the Cayman Islands is one of 41 jurisdictions that, in the most recent International Monetary Fund-World Bank assessment reports, was determined to be compliant or largely compliant with all, except one, of the relevant cooperation and information exchange standards. As many as 61 jurisdictions were evaluated by the FSB.

According to Premier and Minister for Finance, McKeeva Bush, the FSB’s conclusions on the Cayman regime are a “robust affirmation that the jurisdiction is well-respected, and a good place to conduct business”. He also noted that, in terms of cooperation, the jurisdiction is placed alongside the giant economies of the G7 and G20 countries.

Chairman of the CIMA, George McCarthy, added that the assessment validates the extensive focus placed by the Cayman Islands on international cooperation and involvement in regulatory matters. He said that CIMA has put significant resources to ensure that the offshore jurisdiction meets international standards that relate to all the sectors we supervise.

The Maritime Authority of the Cayman Islands (MACI) is introducing a new Annual Tonnage Fee (ATF) structure, to become effective on January 1, 2012.

With a view to remain competitive with other jurisdictions, a detailed investigation has been carried out by the Maritime Authority of its current ATF system. It particularly focus on comparison with the other key jurisdictions. The net result of this exercise will be a simplified and very competitive structure which provides 2 different formulations, one for merchant vessels and one for pleasure yachts, including those engaged in trade.

According to MACI, the new structure will benefit its clients as well as ensure that the Cayman Islands remain an attractive place for ship registration.

A 93%-increase in captive insurance company formations has been reported by the Cayman Islands Monetary Authority (CIMA) during the 1st 9 months of 2011, as compared to the same period in 2010.

CIMA published statistics revealing that a total of 29 captive insurance companies set up operations in the Cayman Islands during 2011, which is an increase from 14 in the 1st 3 quarters of 2010. This growth reflects the continued resilience of captive insurance sector in the Cayman Islands.

Total premiums breached records, which amounted to USD 9.6 billion as at September 30, a 12%-increase on that recorded at the end of 2010. Total assets have grown only marginally since the beginning of the year, to USD 58.3 billion.

According to CIMA’s Managing Director, Cindy Scotland, “This 93% increase in captive formations and close to USD 10 billion in premiums are indicators of the health of our captive insurance industry, despite the generally soft international insurance market conditions. In all of 2010 there were 25 new captives formed, so for our 2011 numbers to already be at 29, and with new applications pending, we anticipate this calendar year to reflect significant growth in new captives.”

It was noted by the statistics that the Cayman Islands has remained the leading jurisdiction for health care captives. As at September 2011, health care was the primary line of business for 256 companies (35%).

A tax information exchange agreement (TIEA) between the Cayman Islands and Japan will come into effect November 13, 2011 as the two governments have completed necessary domestic procedures.

On October 14, Japan notified the Cayman Islands of the completion of its internal procedures necessary for the entry into effect of the agreement. On the same date, the Japanese Embassy in the UK received a similar notification from the Cayman Islands.

The tax treaty was signed February 7 with a view to prevent international tax evasion between the Cayman Islands and Japan.

The British territory in the Caribbean is the 4th offshore tax haven that Japan has concluded such a treaty with. Previously, Japan signed tax agreements with the Isle of Man, the Bahamas, and Bermuda.

It has been discussed that a recent report named the Cayman Islands the world’s 2nd most secretive finance jurisdiction. This has led Cayman industry insider to call for a better defence against “those who would bury places like Cayman”.

The ex-chairman of the Cayman Islands Monetary Authority (CIMA), Tim Ridley has spoken to comment on the publication of the Tax Justice Network ‘s (TJN) Secrecy Index that accused the offshore jurisdiction of making “shallow efforts” in cracking down on fiscal evasion.

Mr Ridley said: “The recent, highly subjective and somewhat ‘short on substance’ secrecy report by the Tax Justice Network underscores how essential it is that Cayman presents the accurate position whenever and wherever possible and to those that matter”. He stated that “those who would bury places like Cayman are in deadly earnest”, so the future of Cayman financial services industry is at stake.

Carlos de Serpa Pimentel, chairman of STEP Cayman Islands, suggested that the Cayman Island’s dealings as an offshore jurisidiction actually helped the world’s economy by providing a tax neutral platform for international transactions. “In other words, the existence of Cayman facilitates the workings of the world’s financial system and makes it more efficient,” he said.