Cayman Islands: Cayman Islands Stamp Duty: What It Is And What You Need To Know

The Cayman Islands are widely known for being a tax-neutral jurisdiction. This means that there are no income, inheritance, sales, corporation, capital gains or withholding taxes in Cayman. 

As such, newcomers or first time buyers are often confused by the requirement to pay 'stamp duty' on real estate transactions. We are often met with the question "but I thought there was no property tax in Cayman?"  

What is Stamp Duty and what is it payable on?

Stamp duty is a charge that is levied on a number of specified instruments¹ at a prescribed rate, for the revenue of the Islands². It is usually payable by the transferee (i.e. the purchaser or tenant) and must typically be paid within 45 days of the execution of the relevant documents to that transaction (e.g. the Transfer of Land, Charge documents, or Lease Agreement).

The amount of stamp duty payable may be fixed (fixed duty) or may vary in accordance with the value of the consideration passing under the instrument (ad valorem duty).   

Real estate documents which attract stamp duty include, but are not limited to:

Additionally, subject to certain exceptions,³ ad valorem stamp duty is payable on the following real estate transactions:

1. Conveyances or transfers⁴ of any immovable property (freehold or leasehold):

Ad valorem stamp duty is payable on conveyances of property, Transfers of Land, Sales of Land or on any document ⁵ which has the effect of legally passing the freehold or absolute title in land, property or condominium from one entity to another.

The stamp duty payable on such instruments is assessed by the Valuation and Estates Office and is payable on the consideration (purchase price) or market value ⁶ of the property, whichever is higher.

Generally, stamp duty is payable at a rate of 7.5% on the market value of property, whether undeveloped 'raw' land or developed land with buildings on it. However, concessions or waivers may be available in, inter alia, the following circumstances:

1. First time Caymanian purchasers;
2. Transfers through Natural Love and Affection
3. Pre-construction/ Developments; 
4. Transfers through the death of an owner, or subsequent divestment of estate; 
5. Transfers from a landholding company to a shareholder owning at least 45% of the shares (or vice versa.

2. Leases

Stamp duty is payable on all written documents which convey or transfer a proprietary interest, including a leasehold interest (whether registerable at Lands and Survey or not) of a particular parcel or parcels of land. It is irrelevant whether the document itself is entitled "tenancy", "lease", "agreement" or indeed "licences" or "licences to occupy" if the true nature of the document conveys or transfers a proprietary interest.

The current rates of stamp duty payable on a lease or lease agreement are:

1. For terms less than 1 year: 5% of the total rent payable;
2. For terms lasting 1 year or more, but not exceeding 5 years: 5% of the average annual rent; ⁷
3. For terms exceeding 5 years, but not exceeding 10 years: 10% of the average annual rent; 
4. For terms exceeding 10 years, but not exceeding 30 years: 20% of the average annual rent. 

For terms exceeding 30 years, the duty is the same as on a Transfer of Land based on the full market value of the real estate or interest in it. If the rent in the lease is considered to be less than market value, for the purposes of calculating the stamp duty, the average annual rent will be declared at the market value having regard to any premium charged.

It is worth noting that verbal agreements providing exclusive possession of a property do not attract stamp duty. However, it is often said that verbal contracts are "not worth the paper they are written on" because of the inherent risks associated with a lack of written evidence, particularly where disputes between the landlord and tenant arise

3. Mortgages over immovable property (i.e. real estate)

For a traditional mortgage or charge over a property including debentures, equitable mortgages or legal mortgages, the rate of stamp duty payable is dependent on the amount of money advanced (or sum secured) and the type of mortgage granted as follows:

1. where the sum secured does not exceed CI$300,000, 1% of the money advanced; or 
2. where the sum secured exceeds CI$300,000 (whether initially or after a further advance), 1.5% of the money advanced.

4. Insurance Policies

When purchasing property, most purchasers will attain property insurance, for which the stamp duty payable is 2% of the cost of the new or renewed property insurance premiums.

Additionally, the majority of lending institutions will require assignment of life insurance/assurance equal to or exceeding the value of the amount borrowed. For life insurance policies, the stamp duty payable is:

1. CI$25 for policies not exceeding CI$1,000; or
2. The greater of CI$25 or 0.01% of the amount insured, up to a maximum of CI$200, for policies exceeding CI$1,000. 

5. Other

Subject to limited exceptions, ad valorem share transfer tax is payable on the transfer or issue of equity capital in a land holding corporation at the rate of 7.5% of the proportionate value of the entire land holding. A land holding corporation includes a partnership, foreign corporation, chartered corporation, mutual fund or incorporated company (but not a corporation sole or charitable corporation) holding any legal or beneficial interest (excluding interests created pursuant to bona fide security instruments) in landed property in the Cayman Islands (or interest in another land holding corporation). Landed property includes freehold interests in Cayman Islands real property and any leasehold interest where the original term exceeded 30 years.

Most other instruments and documents are subject to a fixed rate of stamp duty in comparatively nominal amounts. Registrable instruments are also subject to relatively immaterial registration fees.

Subject to limited exceptions, real estate used for paid tourist accommodation attracts tax at 13% of the amount charged to each tourist.

There are no other domestic taxes or municipal rates currently payable on the occupation, acquisition, ownership or disposal of Cayman Islands real property or income deriving therefrom.

Penalties for failing to pay stamp duty?

Importantly, the Schedule to the Stamp Duty Law (2019 Revision) provides for heavy fines and even potential criminal liability for persons found to have failed to pay the relevant stamp duty on an instrument upon which duty is payable.

Footnotes

1 These instruments are specified in the Schedule to the Stamp Duty Law (2019 Revision) (the 'SDL').

2 Importantly, duties chargeable under section 1 of the Stamp Duty Law (2019 Revision) are recoverable as civil debts at the suit of the Commissioner. The Minister of Finance is the Commissioner but has delegated responsibility to Lands and Survey for the Assessment and Collection of Stamp Duty on all documents relating to immovable property.

3 Subject to certain exceptions at the discretion of the Minister of Finance.

4 See the Schedule to the SDL for definition of "conveyance or transfer".

5 This includes any instrument transferring an interest in land, whether prepared pursuant to the Registered Land Law (2018 Revision), Registered Land Rules (2018 Revision) or otherwise.

6 Pursuant to para (3) of the Schedule to the SDL, the market value of any property is the estimated amount for which a property should exchange on the date of valuation between a willing buyer and a willing seller in an arm's-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.

7 Notably, any lease reserving a term of 2 years or more must be in the prescribed form (Lands & Survey Form RL8).

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.