Cayman Islands Financial Services

The implementation of a pending tax agreement (TIEA) with the Cayman Islands has been announced by the Indian Income Tax Department. The TIEA will provide both tax authorities with access to tax information on request as soon as the agreement has entered into force. The document was signed on March 21, 2011.

The completion of India’s domestic ratification procedures with the publication of Notification 61/2011 in the nation’s official gazette means that the bilateral TIEA entered into force immediately, on December 27, 2011.

In accordance with the agreement that was negotiated on the basis of the OECD model agreement, Cayman or Indian authorities may request information pertaining to taxation where there is sufficient evidence of the perpetration of fiscal crime.

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.

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.

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 announced by the Cayman Islands that the offshore jurisdiction has entered into an agreement on sharing tax information with China.

On September 26, the signing ceremony was held. At the event, the Cayman Islands’ Premier, McKeeva Bush said that signing this Tax Information Exchange Agreement is a significant step in enhancing the relationship between the Cayman Islands and China. He noted that China is one of the fastest growing economies in the world, so he expressed his confidence that this TIEA will contribute positively to economic activity between the two jurisdictions.

Bush said: “This is 26th signed agreement for exchange of information for tax purposes, and the People’s Republic of China has become another member of the G20 countries to have a TIEA with the Cayman Islands.”

Bush co-signed the agreement with Song Lan, the State Administration of Taxation Deputy Commissioner and Vice Minister. Both parties must conclude their individual ratification procedures before the agreement enters into force.

A request from the government for an across the board visa waiver for Jamaicans coming to the jurisdiction has been rejected by Governor Duncan Taylor.

According to a statement issued by the Office of the Governor, Cabinet had considered a proposal to ease the visa requirements for Jamaican nationals with a view to make it easier for children and the elderly to enter the Cayman Islands. The proposal could also foster business visitor travel from Jamaica. The government had recommended to remove the existing requirement to obtain a visitor’s visa for Jamaicans wishing to visit the Cayman Islands who are under the age of 15 years or over the age of 70 years or in possession of a valid Canadian, UK or US visa.

The statement said that the Governor was content on the first 2 points, however, he did not agree to the visa requirement being waived across the board for those Jamaican citizens holding valid Canadian, UK or US visas. He said: “I know that the vast majority of Jamaicans are law-abiding citizens. This includes residents who make a positive contribution to our society and economy in the Cayman Islands; and short-term visitors, including business visitors, whose visits are welcome and trouble free. There is, unfortunately, a small minority who has the potential to cause problems”. Taylor noted: “The Cayman Islands Immigration Department does not have the capability to determine whether such a visa is genuine or not and the respective countries have indicated that they are unable to provide the Cayman Islands with the access to the resources on which they rely to make these determinations.”

Taylor said that the introduction of a visa regime for Jamaicans in 2005 led directly to a significant reduction in the involvement of Jamaicans in crime in Cayman. He added: “Lifting the visa requirement as proposed could potentially allow unscrupulous Jamaican visitors to gain entry to the Islands using forged or counterfeit visas which could have a significant negative impact on the security of the Cayman Islands”.

It has been discussed that a special economic zone is to be launched by the Cayman Islands, in partnership with Cayman Enterprise City (CEC). The signing of an agreement with CEC has been announced by the government of the Cayman Islands. The newly-signed document allows the developer exclusive rights to construct, develop, operate and maintain a special economic zone (SEZ) in the Cayman islands. The agreement is aimed at attracting global science, technology, commodities and derivatives, media, and educational entities to the Cayman Islands.

McKeeva Bush, the Cayman Island’s Prime Minister said that CEC provides an opportunity for the jurisdiction to diversify its economic base. He also noted that this project requires no government investment because it will be completely privately funded. Also, the developer has not requested waivers for duties on materials or stamp duties.
While SEZs exist in a number of developed and emerging economies, the Cayman Islands’ SEZ will be the 1st in the Caribbean region.

Jason Blick, the CEO of CEC, said that the cooperation and inward investment-friendly attitude of the government of the Cayman Islands and the Civil Service have been outstanding. He noted: “They truly understand the positive effect the zone will have on Cayman, and their support has been incredible.”

The development of CEC’s 5 “parks” (Cayman Internet Park, Cayman Media Park, Cayman Biotech Park, Cayman Commodities Park, and Cayman International Academic Park) will be phased, with construction of the 1st phase expected to begin in 2012.

Currently, the Cayman government is to start establishing the legislative framework for CEC to operate.

The economy of Cayman Islands exceeded growth estimates for the 1st quarter of 2011, which was conditioned by higher levels of company formations and tourism.

In accordance with the figures on the Cayman Islands’ economy for January to March 2011 released by the Economics and Statistics Office, growth of 1.2% was achieved by the jurisdiction in the 1st quarter of 2011. This figure is higher than the 0.9% growth that was forecast for the entire 2011.

The government stated that several positive results contributed to this growth. These results include an increase in new company registrations by 11.9%. Also, the tourism industry experienced strong performance, with air arrivals up by 6.8% and cruise ship passenger numbers increasing by 8.2%. The statistics showed that the number of property transfers rose by 20.3%, which complemented a 271.2% rise in the value of properties transferred in the quarter that amounted to USD 253.9 million.

Premier and Minster for Finance McKeeva Bush commented the following: “I, along with the government, am very upbeat with respect to the future performance of the economy – which is based not only on positive results achieved in the first quarter of 2011 but also on the partnerships and initiatives that the government has forged with the private sector. We are encouraged by the 2011 first quarter results and by the Islands’ bright future prospects.”

A special economic zone is to be launched by the Cayman Islands, in partnership with Cayman Enterprise City (CEC). The zone is aimed to attract global science, technology, commodities and derivatives, media, as well as educational entities to the jurisdiction.

On July 18, an agreement was signed to allow CEC the exclusive right to construct, develop, operate and maintain the special economic zone. The government of the Cayman Islands has announced its intention to start establishing the legislative framework for CEC to operate. More than USD 327 million is to be invested over the next 8 years.

CEC is to develop 5 “parks”: Cayman Internet Park, Cayman Media Park, Cayman Biotech Park, Cayman Commodities Park, and Cayman International Academic Park.

Cayman Premier, McKeeva Bush, commented on the deal: “CEC represents an opportunity for the Cayman Islands to diversify its economic base. It’s also worth noting that this project requires no government investment, as it will be completely privately funded, and the developer also has not requested waivers for duties on materials or stamp duties.”