CAYMAN ISLANDS : COUNTRY AND FOREIGN INVESTMENT REGIME

Cayman Islands Population, Language and Culture

The population was estimated at a little under 48,000 in July, 2008. The majority live on Grand Cayman with about 1,200 people on Cayman Brac and only about 120 on Little Cayman. The capital is George Town, on Grand Cayman. Just over a third of the population are non-Caymanians, from 113 different countries. English is the official language with a brogue reflecting Welsh, Scottish and English origins. Jamaican patois is also common among the substantial part of the population that has immigrated from Jamaica.

The islands were discovered by Columbus in May 1503. He named them "Las Tortugas" after the abundance of sea turtles. On a voyage between 1585-86, Sir Francis Drake visited the islands and re-named them The Cayman Islands after the local word for crocodile.

In 1655 Cayman officially became part of the British Empire under the Treaty of Madrid and for the next 300 years the islands were administered as a dependency of Jamaica. King George III granted the Cayman Islands freedom from taxation after the courageous rescue of ten merchant vessels in the Royal fleet which ran aground in rough seas on 8 February, 1794.

The Caymanians are more of a maritime people than many Caribbean nations; having few native inland resources they have tended to live from the sea, and are good sailors. Perhaps this is why recreational scuba diving is said to have originated on Cayman; now it is a staple of the islands' pervasive tourist industry.

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Cayman Islands Government

When Jamaica became independent in 1962, the Cayman Islands chose to remain a British Crown Colony. Under the Constitution established in 1972 Cayman is a British Dependent Territory, with a Governor appointed by the Queen for a term of 4 years. There is an Executive Council consisting of three official members appointed by the Governor and five elected members selected from the 15 elected representatives of the Legislative Assembly. Elections are held every four years, most recently in 2005.

In the 2005 elections, the People's Progressive Movement led by Kurt Tibbetts swept away the government of McKeeva Bush, winning nine out of the fifteen seats. While Tibbetts was in favour of a referendum on independence, in 2008 discussions began between the governments of the Cayman Islands and the UK on a new constitution for the jurisdiction. This constitution seeks to strengthen self governance in the Cayman Islands, while retaining strong links to the UK. Agreement has been reached on key issues, such as increasing cabinet representatives from five to seven and the Legislative Assembly from fifteen to eighteen, adding a Minister of Finance as a Cabinet-level position, with the Financial Secretary retained in an advisory role, and establishing a National Security Council (to handle policy matters surrounding national security issues and a Judicial and Legal Services Commission to appoint the Attorney General and other key legal and judicial officials.

An amendment to the constitution in 1994 paved the way for a new ministerial form of government. The five elected members of the Council are now referred to as Ministers with portfolio responsibilities assigned by the Governor. A District Commissioner represents the Governor in the two sister islands. Government offices are located in George Town.

Attending a CARICOM meeting in July, 2005, Kurt Tibbetts, Leader of Government Business of the Cayman Islands, said that his country will keep its current relationship with the Community. Cayman has associate membership of CARICOM. It did not sign the Treaty of Chaguaramas in 1973 and does not participate in voting although its representatives attend CARICOM meetings with observer status.

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Cayman Islands Economy and Currency

The prosperous Cayman Islands economy is dominated by tourism (70% of GDP) and financial services. The standard of living is one of the highest in the region; unemployment was 4.4% in 2008.

The upmarket Cayman tourist industry attracts more than 1m people yearly, largely from the US. Cruise ship visitors make up a significant proportion of the total.

The Government has worked for 25 years to develop Cayman into a top financial jurisdiction, assisted by the fact that Cayman has never had any kind of taxation (stamp duty, import duties and registration fees being the only exceptions). Banking, insurance, trust management and mutual funds are the key sectors making up the financial services industry. More than 80,000 foreign companies are registered in Cayman. The financial sector is regulated by the independent Cayman Monetary Authority.

Cayman has tried hard to legislate away doubtful business based on drugs or money-laundering and has maintained a good reputation in this respect. It is a leading member of the CFATF (Caribbean Financial Action Task Force), and has signed Mutual Legal Assistance Treaties with the US and UK.

The Cayman Islands' currency is the Cayman dollar at a rate of US$1 = CI$0.84.

The economy experienced a period of difficulty in 2001, aggravated by the 9/11 terrorist attacks in the US, which cut heavily into tourist arrivals and affected international banking. The government responded with temporary cuts in some import tariffs and stamp duty. However, GDP remains one of the highest in the world at more than USD40,000 per head. The economy was projected to grow by 1.7% in 2008.

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Cayman Islands Stock Exchange

The Cayman Islands Stock Exchange (CSX) is a private limited company owned by the government but operated as an independent entity under the Stock Exchange Law 1996. The CSX, which commenced operations in July 1997, was originally set up to provide a listing facility for the specialist products of the Cayman Islands, namely offshore mutual funds and specialist debt securities (known as SPVs = Special Purpose Vehicles). See Offshore Business Sectors.

By mid-2007, the CSX had more than 1,400 listings and a market capitalisation of more than $123 billion.

The CSX is regulated by the Cayman Islands Stock Exchange Authority and is not bound by European Union Listing Directives or US SEC regulations. Members must be local entities, either Listing Agents or Brokers, who have met the licensing requirements and have adequate staff. The CSX has approved a number of Listing Agents who are Cayman Islands based lawyers, accountants or other financial-based service providers. All issuers, other than issuers of international debt securities and securities which are subject of a secondary listing, must appoint a Listing Agent in connection with their application for listing. The Listing Agent will provide a formal link between the Issuer and the Exchange and will be responsible for advising the Issuer on all aspects of the listing process. To obtain a listing on the CSX the Issuer of a Security is required to pay a fee, both at the point of application and annually to maintain the listing.

In conjunction with Bloomberg, the CSX has developed a fully electronic listing and trading platform and a dedicated news wire service. The trading facility is "order driven", displaying a buy and sell price throughout the trading day. Investors trade with orders being displayed on-screen through the central system and the trades are executed automatically when buyers and sellers are matched.

In July 1999, the CSX was granted approved organization status by the London Stock Exchange. The CSX was able to demonstrate that its regime for listed securities meets all the detailed criteria for inclusion on the list of approved organizations. This is the first time an offshore stock exchange has been added to the list. The approved organization designation means that securities listed on the CSX are eligible for trading in the LSE's international equity market and for quotation on the SEAQ (Stock Exchange Automatic Quotation) international trading system.

More recently, the facility has been expanded to include global depositary receipts and derivative warrants. The CSX has developed rules for these specialist products, which are designed to raise capital from institutional investors. Issues of depositary receipts and derivative warrants may have to be listed to meet the investment requirements of such investors.

Unsponsored depositary receipts are created when a broker or bank believes there is sufficient investor interest in a foreign stock to make it worthwhile to set up a deposit programme. The broker or bank purchases the underlying shares, deposits them in the home country and sells depositary receipts. The foreign company itself is not directly involved. By introducing a listing facility for unsponsored depositary receipts, the CSX offers an opportunity for investors to participate in this market to an even greater extent.

Derivative warrants give the holder the right - but not the obligation - to buy or sell a share, or any other asset, at a fixed price on or before a specified date. The CSX listing rules deal with issues of warrants which relate to equity securities, debt securities, baskets of securities and indices. Derivative warrants meet specialised investment needs and are usually issued by a third party, often using a Cayman Islands special purpose vehicle.

In September, 2003, the CSX introduced rules that will allow the listing of shares in foreign firms on the CSX which previously was restricted only to the listing of domestic stock. "This move was a direct result of expressed requests from international companies for listing and trading on the CSX," said the CSX in its Autumn newsletter. "This change now permits a company incorporated outside the Cayman Islands (a “foreign company”) which is (i) a foreign company registered under Part IX of the Companies Law (2003 Revision) and (ii) an exempted or non-resident company to apply for listing and trading on the CSX."

With effect from 4 March 2004, the UK's Board of the Inland Revenue designated the Cayman Islands Stock Exchange as a ‘recognised stock exchange’ under section 841 of ICTA. As a result, interest paid on securities listed on the Cayman Islands Stock Exchange can now be paid without deduction of UK tax. Similarly, securities listed on the CSX are now regarded as 'qualifying investments', allowing them to be held directly in Personal Equity Plans (PEPs) and Individual Savings Accounts (ISAs).

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Cayman Islands Entry and Residence

Citizens of the US, Canada and of Britain and its dependent territories do not require visas to enter Cayman; passport or birth certificate plus photo ID is sufficient, along with a return or ongoing travel ticket. Other nationals require a passport plus ticket. Visitors may remain for up to six months.

In January 2007, amendments revising the Cayman Islands Immigration Law (2006 Revision) came into force. The Law contains a number of changes to the Immigration Law, 2003, including work-permit term limits, permanent residency, a new category of 'key employees' and the ability of the Chief Immigration Officer to grant Caymanian Status to certain categories of applicants. The new law sought to clarify the work permit rules after years of frequent change to the rules, resulting in confusion for employers and backlogs in the processing of work permit applications.

Foreigners without Caymanian status seeking employment must apply for a work permit from the Immigration Department. Not all applications are successful. Work permits are generally valid for up to three years, or for up to five years in the case of domestics, teachers, doctors and ministers of religion. Five-year permits can also be granted to holders of certain positions that have been approved under a 'business staffing plan,' which the board now requires from firms employing 15 or more foreigners. Seven years is the maximum length of time a work permit holder can work continuously in the Cayman Islands, although, in certain in exemptional circumstances, a worker may be designated as an 'exempted employee' in a business staffing plan. Caymanian status is granted on a quota basis to citizens from the UK and British Dependent Territories, and certain other countries including the US, Eire, Australia and New Zealand.

The one-month temporary and six-month, short-term, work permits have been abolished. Instead, a temporary work permit may now be issued for a period not exceeding six months. All such applications will be made to, and decided by, the Chief Immigration Officer or his designate.

Since such grants are not extendable or renewable it will be important for applicants to state clearly the length of time that the temporary work permit will be required. In deciding whether an application should be granted or refused, the same criteria will be used as for the grant of a full work permit, except that employers will not be required to advertise or to demonstrate that they operate a training programme. Employers should also note that a temporary work permit cannot be converted into a one-year permit. The one-year permit must be submitted and granted prior to the expiry of the temporary permit if the employee wishes to continue to work.

Following hurricane Ivan, in October 2004 the Cayman government relaxed rules governing work permits to allow non-Caymanians between employment to remain in the country under the terms of the Emergency Powers Act. The Immigration (Amendment Bill) 2005 further loosened work permit rules for those already employed on the islands, but tightened up on the application process for other types of immigrant.

The Cayman Islands Work Permit Board said it would be adhering strictly to the law on term limits for work permit holders, and the Board Chairman David Ritch expressed concern about issues such as insufficient documentation and the geographic balance of the work force.

In November, 2005, the Chairman of the Cayman Work Permit Board, David Ritch, said that there were large backlogs in the immigration permit system. According to Mr Ritch, there were some 9,000 applications pending with the Immigration Office, despite the fact that 600-700 applications were being processed every week. He noted that the Office's efforts to clear this backlog were frustrated by dual applications for temporary and one-year work permit from the same individuals and he estimated that it would take up to a year to bring the situation under control.

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Cayman Islands Business Environment

In terms of business and communications infrastructure, the Cayman Islands offer the highest international standards. The business environment is particularly well-attuned to the finance sector as a result of Cayman's long-term policy of promoting itself as an international finance centre, accompanied by a well-developed regulatory structure: Cayman complies with all the requirements of the G-7 Financial Action Task Force. There is a good professional infrastructure, but it is not cheap.

Licensing of international 'offshore' business is dealt with under Offshore Legal and Tax Regimes and Offshore Business Sectors. Trade and Business Licences are administered through the Trade and Business Licensing Board of the Immigration Department as specified under the Trade and Business Licensing Law (2003 Revision), which requires that persons (individuals or companies) engaged in local business must have licenses. These licenses are issued only to individuals with Caymanian status or to companies beneficially owned or controlled by them. Foreign-owned or controlled companies doing business in the Cayman Islands must obtain a licence under the Local Companies (Control) Law (1999 Revision). A company is considered foreign owned if less than 60% of the equity is owned by Caymanians or if less than 60% of the board of directors is Caymanian.

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Cayman Islands Import of Foreign Capital

There are no capital or exchange controls in Cayman. Offshore banking transactions are relatively free from control, subject to precautions against money-laundering. Cayman applies the principles of the Basle Committee on Banking Supervision and complies with the requirements of the G-7 Financial Action Task Force. Large, undocumented cash transactions will be queried. However, confidentiality standards are tight; see Offshore Business Sectors Banking.

Capital, interest and profits may be repatriated at will; there are no withholding taxes in Cayman.

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Cayman Islands Investment by Foreigners

Offshore activities are encouraged by the Cayman Government; however there are no incentives directed towards foreign investment on the islands themselves, other than exemption from import duty for building materials intended for the construction of new hotels. As regards investment, Caymanians and foreigners are treated equally; there are in any case no taxes impinging on the investment process.

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