CAYMAN ISLANDS : DIRECT CORPORATE TAXATION

In the Cayman Islands there are no taxes other than import duties (at varying rates) and stamp duty at rates up to 7.5% on transfers of real estate. There is a 1% stamp duty payable on mortgages of less than CI$300,000, and 1.5% on mortgages of CI$300,000 or higher; however issues of securities, mutual fund shares or units are normally exempt from stamp duty. See Types of Company for details of annual fees payable by companies, and Offshore Legal and Tax Regimes for details of fees payable by various types of financial institution and in respect of listing on the Cayman Islands Stock Exchange.

During 2003 the Cayman government battled to avoid inclusion in the scope of the EU's Savings Tax Directive, but in the end was forced to give in by the UK Treasury, and applied the information exchange model under the Directive from 1st July, 2005. This means that information about interest on savings paid to citizens of European member states is being forwarded to the tax authorities of the member state in question.

The Cayman Islands authorities have put a brave face on this development, which they tried hard to avoid.

The Cayman Island’s then Financial Secretary Mr George McCarthy said: "International business is attracted to the Cayman Islands because of the critical mass of experienced professional advisers, our robust and effective regulatory system, innovative products and services and an approach to tax which is business-friendly. We have signed and implemented commitments on tax transparency. We have consistently asked for fairness - a level playing field and equitable treatment. It is not a case of us asking to be let into your ports 'for a bit of financial raiding', but of the Cayman Islands correcting decades of negative spin by competing onshore financial centres."

In return for Cayman's acceptance of the Directive, the UK agreed to pursue discussions on a Double Tax Avoidance Treaty.

A new double taxation arrangement facilitating tax information exchange that meets OECD standards, was signed on June 15, 2009, by Stephen Timms, then Financial Secretary to the UK Treasury, and W McKeeva Bush, Leader of Government Business in the Cayman Islands.

Cayman Islands’ Financial Secretary, Kenneth Jefferson on October 2, 2009, tabled an austerity budget designed to tackle the significant challenges the jurisdiction is facing as a result of the financial crisis, which left the government little choice but to increase a multitude of taxes and fees. These included, among others, annual company and general registry fees, mutual fund licence fees, banking and trust licence fees, insurance licence fees, securities and investment business fees.

The revenue measures were designed to raise an additional KYD94.9m in revenues in 2009/10 and KYD126.4m when they are in effect for a full 12-month period.

In March 2010, the Cayman Islands government welcomed the general thrust of the conclusions of the Miller Report, particularly its main recommendation that the introduction of direct taxation in the jurisdiction should be avoided.

The Miller Commission was created by the Cayman government in 2009 in response to the UK government's concerns that the global economic and financial crisis has damaged the territory's long-term economic and fiscal health, given its reliance on the international financial services industry. In a statement, Cayman Premier, McKeeva Bush, said that the proposals have been broadly accepted as the way forward for the islands, and will be instrumental in drafting final proposals.

Commenting on the content of the Miller report, Bush noted:

“On the first recommendation, that there should be no introduction of direct taxation in the Cayman Islands, it would be no surprise for you to hear that we agree with this general conclusion and believe that ideally new revenue measures will need to be kept at a minimum for the short- to medium-term. However, we are committed to examining ways to broadening the revenue base and we have given that commitment to the UK. We received no indications during the meetings that the FCO (UK Foreign and Commonwealth Office) will be pushing for direct taxes, although this is something that they would like for us to continue to consider in our efforts to broaden the revenue base.”