Cayman Islands: CEC And Economic Substance Legislation

Last Updated: 28 May 2019
Article by Charlie Kirkconnell

As advancements in technology continue to enhance business' ability to operate from almost anywhere in the world, the need grows for legislators to modernise tax laws, increase regulations, and seek new ways to deal with the profit shifting associated with the exploitation of intangible assets. The taxation of "intangibles" (including intellectual property rights as marks, patents and copyrights) is a significant topic of global discussion, particularly for businesses who conduct work through low-tax or tax neutral jurisdictions such as the Cayman Islands.

In an effort to curtail profit shifting and improve the integrity of global tax systems, the 2012 G20 Los Cabos summit tasked the Organisation for Economic Cooperation and Development (OECD) to develop a Base Erosion and Profit Shifting (BEPS) action plan. The BEPS framework, which was adopted November 2016, refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Over 125 countries and jurisdictions are collaborating to implement measures which tackle base erosion and profit shifting.

The Cayman Islands Amongst 1st to Implement Economic Substance Legislation

The Cayman Islands has adopted, and has been amongst the first to adopt, the Common Reporting Standard (CRS), the Foreign Account Tax Compliance Act (FATCA), and has put into practice Anti-Money Laundering Regulations (AML), the Countering the Financing of Terrorism Law (CFT), and most recently the International Tax Co-operation (Economic Substance) Law. A British Overseas Territory, the Cayman Islands is recognised globally as a jurisdiction committed to tax transparency where anti-money laundering and anti-terrorist financing legislative regimes meet and, in many cases, exceed international standards.

To comply with Cayman's 2017 commitment and in a move to adopt new global standards, the Cayman Islands Government recently passed three laws to strengthen the Island's compliance with international benchmarks: The Companies (Amendment) (No. 2) Law, 2018; The Local Companies (Control) (Amendment) Law, 2019; and The International Tax Co-Operation (Economic Substance) Law, 2019. These laws have been passed in consultation with the bodies that required changes, including the OECD's Forum on Harmful Tax Practices (FHTP), which falls under the OECD's BEPS Inclusive Framework. Cayman's new regime strives to nullify structures which facilitate offshore profitmaking with little or no economic substance within its tax neutral environment.

Companies registered in the Cayman Islands that have little or no genuine economic substance in Cayman and that fall within specified categories of business activity, must now adapt or face penalties. As such, intellectual property businesses, commercial maritime sector businesses and commodities and derivatives fund managers registered in the Cayman Islands will have to look carefully at the new rules, and the majority will be required to add local substance.

A Solution for Offshore Commodities and/or Derivatives Fund Managers, Intellectual Property Businesses, and the Maritime Sector

With growing international pressures and a changing offshore landscape, offshore businesses that have only nominal economic substance or registrations in offshore jurisdictions have a decision to make.

Will they relocate offshore business activity onshore? Will they seek to outsource core income generating activity to third party service providers within an offshore jurisdiction? Or will they establish a genuine physical presence of their own within their offshore jurisdiction of choice to conduct core income generating activity locally?

Unique to the Caribbean, the Cayman Enterprise City (CEC) special economic zones project offers a built for purpose solution for global intellectual property businesses, commercial shipping businesses, and commodities and/or derivatives fund managers (as well as businesses in aviation, media, marketing, and technology). Through CEC, businesses are able to cost-effectively and time-efficiently establish a physical presence that leverages Cayman's tax neutral platform while also meeting globally recognised economic substance requirements.

In 2011 Cayman's Special Economic Zones Law was passed and the following year CEC's award-winning development project was launched. CEC is specifically designed to attract knowledge-based and specialised-services businesses to set up a genuine physical presence in the Cayman Islands and is now home to a vibrant community of over 250 global businesses. Within five years, we conservatively estimate that there will be over 500 businesses operating from CEC's special economic zones, with roughly 60% of those operating from within the Cayman Tech City special economic zone and 20% from within the Cayman Commodities & Derivatives special economic zone. Moreover, the CEC project is diversifying the Cayman Islands' economy, supporting a flourishing digital economy, and providing new career opportunities for the next generation.

By setting up a physical presence with CEC, global companies will not only be compliant with global standards but will also positively impact Cayman's sustainable future and growing knowledge-based economy.

Setting up a Physical Presence in the Cayman Islands

With accelerated offshore set-up and personalised services and support, CEC can have special economic zone (SEZ) companies fully established within four to six weeks, including with renewable five-year work/residency visas for any required expatriate staff. Once a company is established within a CEC special economic zone, work visas can be processed in as little as five working days.

While businesses established within the CEC special economic zones are still required to comply with the substantive requirements of the laws governing company set-up and operation within the Cayman Islands (including those related to AML and CFT), the SEZ Law and certain amendments to the Companies Law and the Immigration Law ensure a fast-tracked business set-up process and reduced Customs, business licensing, and work visa fees. The Special Economic Zone Authority (SEZA) regulates all SEZ businesses in the Cayman Islands, oversees all licensing, compliance and enforcement activities, and maintains statistical data. The administrative functions of SEZA are handled by the SEZ Secretariat, which falls under the Cayman Islands Department of Commerce and Investment (DCI).

Unlike other island nations such as the Bahamas or Bermuda, a minimum capital investment is not required, so businesses can develop at their own pace, and there are no closed or restricted job categories. Permits, visas, trade certificates, and turn-key office solutions, are conveniently bundled into affordable serviced office packages, which are delivered by CEC's Client Experience team through a tried-and-tested, streamlined process. CEC supports innovative entrepreneurs and start-ups who are seeking to develop intellectual property, grow commercial shipping businesses and manage commodities and/or derivatives focused funds in the Cayman Islands, as well as established businesses who are looking to protect and further develop intangible assets.

A comprehensive support programme helps businesses connect with leading service providers, community networks, and a range of local contacts – from doctors to educators, so businesses and their staff can focus on growth without having to go through the administrative set-up and relocation process alone. Even after the application process is done and dusted, our team is in constant contact and remains in a supportive role to help knowledge-based and technology-focused businesses thrive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions