Cayman Islands Financial Services

The statement of the US business group, “The Business and Investors against Tax Haven Abuse”, which said that low or no-tax jurisdictions hurt the US economy by encouraging tax evasion, caused quite sharp reaction of Cayman Finance. The Cayman Finance response was published as an open letter in a political news agency in Washington, D.C., and addressed to US Senator Carl Levin endorsing the US business group. Mr. Levin and then-Senator Barack Obama were the authors of the proposed “Stop Tax Haven Abuse” bill.

According to Cayman Finance chairman Anthony Travers, the response detailed CI’s impressive compliance with international regulation and transparency legislation and spells out the country’s full income tax transparency agreement with the U.S.

Mr. Travers said that reports of the IMF and the FATF organizations show full adequacy of Cayman’s anti-money laundering regime, and that jurisdiction’s membership in IOSCO ensured proactive regulator-to-regulator disclosure. He said that the laws cited by the US business group in its claim are US laws, and all Cayman Islands companies are required to operate on the basis of complete tax and anti-money laundering transparency under Cayman law, as well as under existing treaties with the U.S. and many other G20 jurisdictions.

Mr. Travers said that, claiming that low or no-tax jurisdictions hurt the US economy through tax evasion, the business group did not take into account the tax transparency treaties and growing number of reports that suggest that international financial centres such as Cayman are well-regulated and neutral jurisdictions facilitating cross-border business and providing liquidity to international markets by increasing investments.

Also, it was stated in the open letter that the changes in US laws in order to apply US tax extra-territorially to Cayman mutual and hedge funds with US fund managers will lead to their relocation outside the US.

The Prime Minister and the Minister of finance, tourism and development of the Cayman Islands, W. McKeeva Bush, is considering the proposal to make it easier for Jamaicans to visit the jurisdiction if they are already holders of a US visa.

Bush said that he believes the rigorous process to which applicants for United States’ visas are subjected should be satisfactory for entering the Cayman Islands, obviating the need for the granting of a Cayman visa. He said: “The US visa process is well scrutinised. If it serves the US, then it serves us. What I do believe needs to be done now is to consider allowing entry to persons with US- issued visas.”

He also stated that there are many business connections between Jamaica and Cayman, so legitimate business people need to move to and from the jurisdiction. Bush noted that “the Cayman Islands has had tremendous and historical connections and relations with Jamaica for many years”.

According to Bush, he could not commit to whether the visa waiver would be limited to business persons.

It will be necessary for United States’ citizens living and working in the Cayman Islands to familiarize themselves with a new legislation as it affects their tax obligations. The legal changes apply to everyone who lives in the Cayman Islands with US citizenship.

According to the Hiring Incentives to Restore Employment Act of 2010 (HIRE act) that was passed by the US Congress in March 2010, new reporting obligations are imposed on US taxpayers in connection with non-US accounts and investments. The legislation will affect US passport holders in Cayman. Also, in accordance with the new legislation, the US tax authority, the Internal Revenue Service, is provided with tools for finding and prosecution of US individuals hiding assets overseas.

Also, the ability of non-US investors to access US markets is limited by the new rules. The legislation limits the ability of non-US investors to access the US markets via derivatives, loan notes and other synthetic arrangements. It will affect the US taxpayers having homes, artwork, planes, yachts and other personal use property held in non-US trust structures.

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.

The government of the Cayman Islands has announced changes to the National Pensions Law to allow a temporary 1-year suspension period of pension contributions for Caymanians and a temporary 2-year suspension period for non-Caymanians.

The amendments are effective since April 26, 2010.

The newly-introduced changes will affect private sector employers, employees, and self-employed individuals.

According to Cayman Pensions Minister Rolston Anglin, “In the current economic climate, pension contributions place a considerable financial burden on employers, employees and self-employed persons.” He said that, as some businesses are facing closure, the relief might enable them to survive in these tough economic conditions.

Businesses must be in compliance with the National Pensions Law in order to participate in the suspension. Another participatory condition is that pension plan membership must be maintained, which means that all employers and employees, regardless of when they are employed, must be members of a registered pension plan.

An extension in the consultation period for responses to proposed changes to the Cayman Insurance Law has been announced by the Cayman Islands Chamber of Commerce.

The consultation that was published on the website of the Cayman Islands Chamber of Commerce is related to the final draft of a bill. The bill aims at enhancing the regulation of the insurance industry as well as ensuring the jurisdiction’s continued compliance and adherence to international regulatory standards.

The following changes to operational aspects of the Insurance Law are included into the draft bill:
- licensing (includes provision for the licensing of persons carrying on insurance business or acting as insurance agents, insurance brokers or managers);
- obligation of licensees (includes continuing obligations for licensees, terms and conditions of contractual agreements and ensuring full compliance by licensees in adhering to regulations set out in the Insurance Law);
- powers and duties of the Authority (includes maintenance of a general review of insurance business in the Islands and increased enforcement powers for the Cayman Islands Monetary Authority).

The draft bill will be presented to the Legislative Assembly at the earliest possible opportunity.

Any comments on the draft bill should be submitted before the extended date of April 23, 2010.

An academic report that examined the fiscal challenges facing the Cayman Islands has rejected the recommendation made by the UK government. According to the recommendation, the Cayman Islands should introduce direct taxation in order to solve its financial difficulties.

The report was compiled by Richard Teather, a senior lecturer in taxation. Noting the effects of historically high taxation on the UK economy, the author of the report has urged the Cayman government to retain its low-tax approach and instead target public spending.

In accordance with the report, the introduction of direct taxation without ensuring public sector expenditure is balanced in relation to then jurisdiction’s population of around 50 000 people. The report notes that Cayman has solely relied on indirect taxation throughout its 200-year history.

The report was commissioned by Cayman Finance – formerly The Cayman Islands Financial Services Association (CIFSA).

The key points in the Teather Report are as follows:
- high taxes damage economies;
- the United Kingdom and United States benefited from lower taxes through the Thatcher/Reagan reforms of the 1980s;
- New Zealand and Ireland thrived under low taxes in the 1990s.

The Teather report rules out debt finance as an ongoing solution because, in the long term, this would be highly damaging to the jurisdiction’s reputation as a place to do business. It also highlights that government spending in Cayman is “totally out of line with its peers, having far higher levels of public spending than any other comparable jurisdiction.” According to statistics n the report show, the Cayman Islands has more than double the government spending per head of population than the average level for comparable countries.

Insurance company United America Indemnity Ltd. has recently announced that it wants to shift its legal home from the offshore financial jurisdiction of Cayman Islands to Ireland.

The Cayman-based insurer is going to ask shareholder to approve the change of place of incorporation at an upcoming meeting.

As to reasons, the insurer says that Ireland offers a sophisticated regulatory environment as well as an extensive network of international treaties, among other reasons. Previously, the insurance company had been considering to move to Switzerland. However, it was finally decided to become a wholly-owned subsidiary of Irish company Global Indemnity PLC.

Earlier this month, Seagate Technology announced its plans to move its legal place of incorporation to Ireland from the Cayman Islands. The reason was the increased international scrutiny of offshore tax havens. It said that, according to proposed US legislation and regulatory measures, tax burden could be increased for companies incorporated in the Cayman Islands.

The representative of the Cayman Islands’ financial services industry, Cayman Finance, has welcomed the amendments that were proposed to immigration laws, announced by the jurisdiction’s Prime Minister McKeeva Bush. These were drafted to encourage foreign financial services companies to remain in Cayman.

This announcement was made to respond to changes to the Cayman regime in the recent budget that were necessary for tackling the jurisdiction’s budget deficit. There are concerns that the substantial hikes in company registration fees and annual charges may damage Cayman’s international competitiveness.

In a statement, Cayman Finance said that it “fully endorses the positive steps the government is taking to strengthen the Cayman economy and its financial services industry in these more challenging economic times.”

New guidelines have been published by Malta. These are guidelines for redomiciling offshore funds to the jurisdiction that were issued because of growing demand from providers for its services.

According to Malta Financial Services Authority (MFSA), the island’s financial regulator, the guidance provided “a simple, one-stop procedure to be followed by funds intending to redomicile to Malta.”

Malta said that one of the attractions for fund managers was that its regime allows to have external administrators and custodians, while other offshore jurisdictions require local service providers to be used. The number of non-Maltese fund managers licensed by the MFSA at the end of 2009 was 66, and 11 out of these had transferred from offshore centres including the Cayman Islands as well as Jersey, Guernsey, and Bermuda.