We have highlighted below ten of the key reasons owners, financiers and operators regard the Cayman Islands as the jurisdiction of choice for aircraft registrations.
1. The Cayman Islands – Political Stability
The Cayman Islands provides a safe, stable and 'friendly flag' jurisdiction for registration of aircraft and boasts a highly developed legal system and a respected system for perfecting security over aircraft.
As an overseas territory of the United Kingdom, the Cayman Islands benefits from a high level of political, social, economic and judicial stability, while at the same time exercising a high degree of autonomy, having been a stable parliamentary democracy since 1831.
The Cayman Islands enjoys a stable system of government, consisting of a 19 member Legislative Assembly elected by the people every four years which enables the Cayman Islands largely to self-govern on local affairs, and a Governor who is the formal representative of the UK government. The Governor has power over certain domestic issues (for example, controlling Cayman Islands internal security matters, dissolving the legislature, assenting to laws and acting as a liaison between the Cayman Islands and the British government).
The Cayman Islands' main industries are financial services and tourism. The government's primary source of income is indirect taxation, such as import duty on certain goods and fees obtained from the operation, licensing and regulation of various entities in the Cayman Islands. The absence of any form of direct taxation (save for import duties) in the Cayman Islands (such as income, sales or capital gains tax) fosters a favourable tax neutral regime which has made the Cayman Islands an attractive jurisdiction to conduct cross-border global business.
Internationally, the Cayman Islands is ranked within the top 20 financial centres in the world. It boasts a GDP of US$74,761 per capita1 and rated Aa3 by Moody's2 .
The Cayman Islands is widely recognised as one of the leading jurisdictions for compliance with, and cooperation on matters of, anti-money laundering, tax information and financial regulation. It was one of the first jurisdictions to partner with the US and sign up to a Model 1 intergovernmental agreement with respect to FATCA, and was one of the early adopters of the OECD's Common Reporting Standard for the automatic sharing of tax information3. Since then, the Cayman Islands has introduced the International Tax Co-operation (Economic Substance) Law, non-public beneficial ownership registers and Country by Country Reporting. In addition, it is a signatory to 36 bilateral agreements and arrangements on the exchange of tax information.
In addition, it has entered into various treaties and implemented legislation to meet with internationally accepted anti-money laundering and due diligence standards. These advances have been balanced against preserving the privacy of clients wherever possible, and it should be noted that confidentiality of client information is protected under applicable common law and local statutes.
The political stability, highly developed legal system and infrastructure and its position as an international financial centre make the Cayman Islands the jurisdiction of choice for registration of aircraft.
2. The Legal System
The Cayman Islands is renowned as a leading international financial centre. This status has been achieved in part through its tax neutral environment within which a highly developed legal system based on English common law flourishes, with the Privy Council in England being the jurisdiction's final court of appeal, thus affording certainty and confidence to both owners and financiers of aircraft. A professional infrastructure complements the legal system, servicing and supporting a wide range of sophisticated transactions which attracts many of the world's leading financial institutions to use its corporate structures to undertake international financing transactions, among other features.
The Cayman Islands has thus become a preferred jurisdiction for the incorporation of special purpose vehicles to own aircraft, and Cayman Islands special purpose vehicles are often used as owning entities on international asset financing transactions.
The laws of the Cayman Islands are derived from three sources: (i) statutes approved by the elected Legislative Assembly and assented to by the Governor; (ii) statutory instruments passed by the UK Parliament and extended by Order in Council to the Cayman Islands; and (iii) English common law (which is of persuasive authority).
The Air Navigation (Overseas Territories) Order 2013 (as amended) (the "AN(OT)O") is the primary legislation applicable to aviation in the Cayman Islands. The AN(OT)O is a UK statutory instrument which has been extended to all British Overseas Territories (including the Cayman Islands). It contains regulations relating to operational and airworthiness requirements for locally registered aircraft.
The Overseas Territories Aviation Requirements ("OTARs") supplement the provisions of the AN(OT)O. The OTARs are not themselves law, although some of the requirements contained in the OTARs specifically include provisions of the AN(OT)O. Thus, failure to comply with the OTARs may result in adverse consequences such as a breach of the AN(OT)O. A number of local statutes (many of which mirror the applicable legislation in the UK) have also been enacted, among other matters, to regulate aircraft registrations, air safety and mortgage registrations in the Cayman Islands.
Although legal proceedings in the Cayman Islands relating to locally registered aircraft and aircraft mortgages are not common, it bears noting that the Cayman Islands courts are able to deal competently with claims which may arise, such as the enforcement of aircraft mortgages, the detention of a mortgaged aircraft or the detention of other property of a mortgagor situated within the Cayman Islands (in lieu of the detention of an aircraft).
The British-based system of registration for both aircraft and aircraft mortgages within a stable legal system based on English common law is another compelling reason to choose to register an aircraft and any associated aircraft mortgage in the Cayman Islands. This system of registration thus appeals to aircraft owners and financiers alike.
The Civil Aviation Authority of the Cayman Islands ("CAACI") is the regulatory authority which is mandated by law to, inter alia, ensure that civil aviation in the Cayman Islands conforms to the standards and recommended practices of the International Civil Aviation Organization (ICAO) established by the Convention on International Civil Aviation, signed in Chicago on 7 December 1944.
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Footnotes
1. Cayman Economy at a Glance 2021 https://www.eso.ky/caymaneconomyataglance.html
3. http://tia.gov.ky/pdf/International_Exchange_of_Information_Instruments.pdf
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.
