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.”

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.

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.”

In the end of January, the government of the Cayman Islands announced having entered into a Memorandum of Understanding to establish a free zone. The free zone to be established is to offer attractive terms to those who are aimed at making tax-efficient technology-based investments in the Caribbean and Americas region.

The MoU alloows creating a so-called enterprise city. The contractor, Hon Cayman Property Limited is expected to invest more than USD 500 million over 10 years.

The above-mentioned plans are to be approved by the Cabinet in March. After that, construction will commence at the beginning of 2012. It should be noted that the construction will provide 5 000 new jobs and local high-level training.

The government the Cayman Islands has accepted plans for the 300-acre zone to be partitioned into 6 specialized campuses, which will be as follows:
the Cayman Internet Park;
the CayBiotech, a Biotechnology & Research Park;
the Cayman Media Park;
the Cayman Global Commodities Centre (centralizing the global commodity market in Cayman);
the Cayman International Academic Park (a special economic zone dedicated to higher education);
the the Cayman Outsource Park.

Taxation in 2010 Budget has been only nominally increased by the Cayman Islands. This move reveals the Cayman government’s 3-year plan aimed to bring its budget back to surplus. Besides cuts in expenditure, the government of the jurisdiction has proposed many reforms designed to enhance the jurisdiction’s attractiveness to investors.

When delivering the budget, Cayman’s Premier McKeeva Bush said: “Given the observations of the current fiscal year, it is evident that the economy is at a point where additional taxation will compromise the competitiveness of businesses. Such an outcome would have implications for the economy’s capacity to grow its way out of the recession. There is an awful tendency here to say raise taxes and let business pay, but the harsh reality is that if that is the case, we will run away businesses, and lose more jobs. The only ones to really suffer are Caymanians, particularly those who can’t help themselves. Therefore one of the key tenets upon which government policy would revolve, during the fiscal year 2010/11, is the minimization of any new revenue measures on businesses, especially when it becomes a burden”.

According to the government’s budget forecasts, a small surplus of about USD 11.1 million is expected in the fiscal year 2011-2012. In 2012-2013, a fiscal recovery is foreseen as the surplus is expected to be essential.

To improve the attractiveness of the Cayman Islands to outside investors, the following measures are to be implemented by the government:

- to further modernize and enhance regulation and supervision in order to ensure that the jurisdiction keeps on par with the evolving international regulatory standards and best practices relevant to its various types of business;

- to intensify international cooperation and involvement in order to ensure that the government does its part to ensure the safety and sound regulation of the international financial system, allowing the islands to contribute to the development of international rules and standards that affect it;

- to increase the effectiveness and cost-efficiency with which regulatory agencies operate;

- to facilitate the efforts of government and the private sector to further develop the jurisdiction as an international financial centre;

- to become more business-friendly.

When speaking at a recent conference, Anthony Travers, Cayman Finance Chairman, called for the further relaxation of the highly restrictive immigration and rollover policies of the jurisdiction with a view to encourage professionals to the Cayman Islands and to maximise its offering as a leading international financial centre in light of recent fee hikes.

Tracers recalled that in October 2009 higher fees, including for work permits, were introduced. He noted that the regime is unsustainable and emphasized that it would lead to more competitive offshore jurisdictions taking business from Cayman. As the government is increasingly seeking greater revenues from fewer transactions, he suggested that the jurisdiction’s offering should be of a higher standard. For instance, Travers urged the government to introduce additional reforms in order to provide prospective investors with the chance to set up physical operations in the Cayman Islands that would allow them to further maximise the benefits of investing in the jurisdiction with its low tax regime.

In the conclusion, Travers said that while the Cayman Islands has been in compliance with international standards on transparency and tax information, new scrutiny surrounding the lack of physical operations in the jurisdictions could be the next hurdle for it. By means of encouraging foreign companies to set up operations in Cayman, the jurisdiction could further show its compliance with the changing requirements being placed on offshore territories.

On April 28, 2010, the Immigration (Amendment) Bill 2010 was passed by the Cayman Islands parliament. The new legislation allows 25-year residence to rich individuals who invest in businesses contributing to the prosperity of the jurisdiction, on certain conditions.

The Bill gives the possibility fot foreign individuals to apply for a Residential Certificate for Investment. This will cost KYD 20 000 (USD 24 000), and allows the investor, their spouse and any dependents the right to live in the Cayman Islands without a work permit on certain conditions.

Under the newly-introduced law, investors must:
- have a net worth of at least KYD 6 million;
- invest at least KYD 2.4 million in licensed businesses with workforces comprising of at least 50% Caymanians, contributing to the prosperity of the jurisdiction;
- pass checks on business competence, show financial records of their businesses’ stability, and show that they undertake a managerial role in their given area;
- possess a clean criminal record;
- be of sound health with adequate health insurance.

It should be noted that the Immigration Law previously contained provisions to allow residence to wealthy investors but were retracted as the Cayman Islands received little interest.

Cayman-based offshore legal and fiduciary services firm Ogier Partners organized the 2nd Annual Ogier Global Investment Funds seminar series entitled “The Evolution of Offshore Investment Funds”, devoted to the analysis of the past, present and future of offshore investment funds.

The seminar of the Cayman firm was led by partners Peter Cockhill, James Bergstrom, Colin MacKay and Simon Schilde. During the seminar, the following issues were discussed: proposed structuring and language clarifications, current litigous climate and the issues surrounding claims against funds and their service providers, and various international regulatory initiatives, with an analytical focus on possible outcomes.

The conclusion of the seminar was that, as a result of tax regulatory initiatives being developed by different countries and organizations, including the G-20, OECD, US, EU and UK, the investment managers will need to establish additional management and administration operations in the jurisdictions of their investors and/or move offshore. “Transparency is the new paradigm,” according to James Bergstrom; he said that “In the near future only those offshore financial centres (‘OFCs’) which meet the regulatory and tax transparency requirements of the new Financial Stability Board will be permitted to participate in the international financial system.”

The Ogier seminars traced the origins of the current international initiatives back to 1996 when the OECD’s harmful tax practices project was launched, and defined the key criteria that will need to be met by OFCs and the offshore funds domiciled within them.

Ogier group has presence in eleven jurisdictions around the world, namely Bahrain, British Virgin Islands, Cayman Islands, Guernsey, Hong Kong, Ireland, Jersey, London and Tokyo. Through a global network of offices, it provides advice on all aspects of BVI, Cayman, Guernsey and Jersey law and associated fiduciary services.

Earlier, the Cayman Government proposed to re-develop the George Town port with a view to separate cruise and cargo facilities and install cruise berths. However, the community had mixed feelings about that. Nevertheless, the government is pressing ahead with the project.

On January 8, 2009, the government announced that the 1st phase of public consultation regarding the Environmental Impact Assessment will start next week. The government said that the recommendations on financial modeling options for a public-private partnership will also be ready shortly.

The Leader of Government Business Kurt Tibbetts said that plans with the port project and that environmental assessment were moving ahead. According to him, estimates for the cruise project range from USD 109 to USD 117 million which depends on the design option, and a further USD 71 million for the port facility.

However, the project will not be financed entirely by government. The financial modeling options for the project are being devised by KPMG. Also, in July 2008, the Cayman government entered into an Memorandum of Understanding with investors Atlantic Star that may become the full or limited partner in the port’s development.