Having recently completed the listing on Nasdaq of BLOOMZ, the Cayman Islands incorporated holding company of a Japanese audio production company, and being currently engaged to act on a number of IPOs of Cayman Islands incorporated holding companies of Japanese operating companies, we thought it would be helpful to summarise the benefits of adopting such a structure when listing in either Hong Kong or on NYSE/Nasdaq.
Benefits of Incorporating in the Cayman Islands
There are a number of benefits associated with being a Cayman Islands company, including political and economic stability, an effective judicial system (with the final right of appeal to the Privy Council in England), a favorable tax system, the absence of foreign exchange control or currency restrictions and the availability of professional and support services.
Cayman Islands companies are popular vehicles for listing in on exchanges across the world – for example, of the over 2,500 companies listed in Hong Kong, 1,770 are incorporated in the Cayman Islands, whilst there are over 450 Cayman Islands companies listed on NYSE/Nasdaq. Investors, underwriters, regulators, analysts and service providers are all very familiar with Cayman Islands companies.
Home Country Practice
For companies considering listing on NYSE/Nasdaq, being a non-U.S. company with foreign private issuer status means the listed company should be exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies and, as a company incorporated in the Cayman Islands, is permitted to adopt certain home country practices in relation to corporate governance matters, which can help facilitate the operation of the company post listing. These "home country practices" generally mean less requirement for shareholder involvement in certain corporate governance matters, allowing for the business and operations of the Company to largely be managed by the directors (other than significant matters such as a change of name, winding up or change of articles which as a matter of the Companies Act in Cayman require shareholder approval).
Taxation
Cayman Islands companies are tax neutral vehicles – the Cayman Islands currently levies no taxes on corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to a Cayman Islands company levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within, the jurisdiction of the Cayman Islands.
As such, (i) there are no Cayman Islands taxes or stamp duties payable in respect of any share swap required to be undertaken prior to the IPO for the Cayman Islands company to acquire the shares of the Japanese incorporated operating company and (ii) payments of dividends and capital in respect of a Cayman Islands company's shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of its shares, nor will gains derived from the disposal of shares be subject to Cayman Islands income or corporation tax.
Most Cayman Islands companies receive an undertaking from the Governor in Cabinet of the Cayman Islands to the effect that, for a period of 20 years from the date of the undertaking, no law that is enacted in the Cayman Islands imposing any tax or duty to be levied on profits, income or on gains or appreciation shall apply to such company or its operations; and that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable (a) on or in respect of the shares, debentures or other obligations of such company; or (b) by way of the withholding in whole or in part of any relevant payment as defined in the Tax Concessions Act of the Cayman Islands.
Finally, listing the shares of the Cayman Islands company directly saves the cost and complexity of establishing a depositary receipt (ADR) program.
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.