Written By: Ruth E. Hatt, Esq.

Thorp Alberga

Cayman Islands

A Champion in the Arena

The Cayman Islands continues to be one of the leading offshore jurisdictions for international business. While strong across all business sectors, the Cayman Islands are perhaps best known for being one of the leading offshore jurisdictions for banking and hedge funds. The Cayman Islands are the sixth largest banking center by assets at $1.75 trillion USD with 40 of the top 50 international banking organizations holding licenses in the Cayman Islands.¹ The fund industry really needs little introduction, as there are 9,431 licensed investment funds in the Cayman Islands as of September 30, 2011. Insurance is another success story, with the Cayman Islands being the leader for health care captives, with health care being the primary line of business for 256 of the 730 licensed captives.²

Why the Cayman Islands?

While the beautiful beaches and close proximity to the United States are an obvious draw, the Cayman Islands offer a first class business platform from which to do business.

The Cayman Islands legal statutory provisions together with the application of the English common law system have created an excellent legal framework to conduct business. The integrity and robustness of the Cayman Islands legal system and enforcement by the courts has proved a vital factor in attracting business.

The Cayman Islands are a tax neutral jurisdiction. The Government of the Cayman Islands relies on indirect taxation and does not levy income, profit or corporation taxes on businesses or individuals, there is no withholding or deduction of tax on payments to foreign investors and no exchange controls.

Cayman’s Regulatory and Transparency Standards are among the Best in the World

Internationally acknowledged, the Cayman Islands have full tax transparency with the United States and proactive tax reporting with the 27 European Union member states. The Cayman Islands have entered into bilateral agreements with 27 countries for the provision of tax information including major economies such as the United States, the United Kingdom, Japan, China, Germany and Canada. The Cayman Islands are also on the Organisation for Economic Co-operation and Development’s so-called “white list” of jurisdictions that substantially implement international tax standards.

The anti-money laundering legislation of the Cayman Islands has been evaluated by the International Monetary Fund and by the Financial Action Task Force and is found to be robust.

Regulatory Regime

The Cayman Islands Monetary Authority (CIMA) regulates certain activities such as the carrying on of banking business, the carrying on of trust business, the carrying on of insurance business, investment advisory business, company management and the offering of shares to the public through investment vehicles such as mutual funds or hedge funds. Before these activities can be conducted, the appropriate registrations or full applications must be made and licenses obtained from CIMA. CIMA has a reputation of sensible regulation comparable to other international financial centers with a focus on flexible relevant regulation. CIMA has actively participated in the setting of international regulatory standards and sharing of best practices. As a member of the International Organization of Securities Commissions (IOSCO) Cayman has full regulator to regulator disclosure with all IOSCO members.

The Exempted Company

Cayman Islands investment vehicles are varied and have been developed to work in complicated and innovative international business structures. The Companies Law and other legislation of the Cayman Islands are reviewed constantly to ensure that the Cayman Islands keep abreast of the evolving economy.

The most popular company in the Cayman Islands is known as an exempted company. It is usually incorporated with a share capital and allows investors to limit their liability to the amount unpaid on their shares. To incorporate an exempted company, an individual may retain an attorney, accounting firm or other licensed service provider. After the relevant information has been provided, including references, identification material, source of funds certifications and business purpose, a service provider may cause the relevant corporate governance documentation which regulates the exempted company’s affairs to be filed with the Registrar of Companies. The exempted company is formed on the same day of filing. An exempted company need only have one shareholder and that shareholder may appoint a director. More than one director is not required for unregulated exempted companies. The board of directors will run and manage the day-to-day operations of the company. There is no requirement to have Cayman Island resident directors or hold meetings in the Cayman Islands as a matter of Cayman Islands law.

The exempted company is required to maintain a registered office in the Cayman Islands where its books and records are kept and where documents may be served. Unregulated exempted companies are not required to have an annual audit or file annual accounts with the Registrar of Companies. Every year the company is required to file returns with the Registrar of Companies and pay a fee to maintain its registrations. The exempted company needs no governmental permission for incorporation or to carry on business in the Cayman Islands in furtherance of its international objectives. On application to the Governor in Cabinet it is possible to obtain a guarantee from the Government of the Cayman Islands that it will not be taxed for 20 years from the date of the certificate and an application to renew the guarantee may be made during the 20 years.

Alternative Investment Vehicles

In addition to the exempted companies, the Companies Law and other statutory provisions allow for a variety of corporate investment vehicles and structures. These include companies limited by guarantee, companies limited by duration, limited partnerships which provide limited liability protection for investors who hold partnership interests. The Cayman Islands, like other jurisdictions, has seen an increasing use of segregated portfolio companies. These companies allow for the creation of one or more segregated portfolios in order to segregate the assets and liabilities of the segregated portfolio company held within or on behalf of a segregated portfolio from the assets and liabilities of the segregated portfolio company held within or on behalf of any other segregated portfolio of the company. These types of structures are convenient for hedge fund operators and captive insurers, as investors in one segregated portfolio do not bear the risks of investors in another segregated portfolio within the same segregated portfolio company. Investment vehicles are used for many purposes and, subject to compliance with the

Companies Law and corporate governance documentation, the company can remit capital or income earned to and from the Cayman Islands. Provided business is carried on in a legitimate manner, the laws of the Cayman Islands do not permit confidential information belonging to the company or an individual to be provided to third parties without the consent of management and or shareholders.

When considering establishing any structure to include incorporating an entity in the Cayman Islands, the promoter should not only take the appropriate legal and regulatory advice in the Cayman Islands, but they should also obtain competent advice on the relevant statutory provisions in their own jurisdiction or in those jurisdictions which the Cayman Islands entity is doing or will  do business.

For more information on Thorp Alberga, please visit thorpalberga.com or the International Society of Primerus Law Firms

1  The Bank of International Settlements July 2011 Report

2  CIMA published information see website www.cimoney.com.ky