Why Cayman Islands Tax Haven

A tax haven is a place where tax laws are very soft or non-existent. There are many tax havens around the world, including Switzerland, the British Virgin Islands, Bermuda and Dominica. Specific tax laws vary from place to place. While some simply tax income at lower rates, sometimes as low as 2%, others have virtually no taxes. The British Virgin Islands, for example, has no corporate income tax, estate tax, inheritance tax, gift tax or sales tax, and it has an effective income tax rate of zero. Health care, another important issue for retirees, is also readily available in the islands` four hospitals and a number of clinics. All residents must take out a private insurance policy (there are several providers on the islands). In addition, the Cayman Islands are attractive as a place to live because of the quality of life. Not only are the islands beautiful and temperate year-round, but with two international airports, travel to and from the Cayman Islands is convenient, and they have excellent local services, excellent transportation and communication facilities on the islands, world-class shops and restaurants, world-class private hospitals, and excellent schools and educational opportunities for families.

Plus, their banking and financial services industries and the infrastructure built around them are as good as anywhere else in the world. The “bad” thing about registering a company in the Cayman Islands tax haven is the additional economic substance regulations that apply to companies registered in the Cayman Islands. In 2018, the Cayman Islands government passed the International Tax Cooperation (Economic Substance) Act to align with the Organisation for Economic Co-operation and Development (OECD) Forum on Harmful Tax Practices. Essentially, the economic substance requires companies covered by the Act to prove that their basic income activity takes place in the Cayman Islands itself and to assess their legitimacy to operate and register a business in the country. The objective of the Economic Substances Regulation is to mitigate harmful tax practices or profit shifting, as companies now have to prove a number of activities related to their business activities. Some of the tests include demonstrating a reasonable level of operating expenses incurred on the islands, maintaining a reasonable number of employees on the islands, an appropriate number of meetings at the council level, and recording all minutes of meetings to be kept on the islands. As in all tax havens, data protection laws are of paramount importance. Caymans make it easy for individuals and business owners to protect their assets and identities from prying eyes. The Cayman Islands consist of 3 main islands which form their entirety and are under the sovereignty of the United Kingdom. The islands are popular tourist destinations, which naturally leads the tourism sector to become one of the most important economic factors in the country. However, being a popular tourist destination is not enough to define the Cayman Islands.

The country has successfully developed a mature financial services sector and, alongside its ideal environment for tax neutrality, has attracted many foreign investors to register companies in the Cayman Islands. In 2019, 88.8% of the Cayman Islands` GDP output came from the goods and services industry, with financial services contributing 30.4%. The islands also have the best quality of life and GDP output among their Caribbean neighbors, recording an estimated GDP output of $5.3 billion in 2021. Before you decide to register a company in the Cayman Islands, follow Tetra Consultants to find out more about the Cayman Islands tax haven and whether they have the right reasons for you to register your business. Why do companies register in the Cayman Islands? One of the main reasons attributed to it is the environment of fiscal neutrality offered by the Cayman Islands, forcing many to associate the Cayman Islands with a tax haven. For companies wishing to register their business in the jurisdiction, they benefit significantly from the Cayman Islands tax haven. The benefits of the Cayman Islands tax haven apply to most companies, whether locally owned or 100% foreign-owned. Cayman Islands companies are not subject to corporate income tax, capital gains tax, income tax, property tax or withholding taxes on their activities in that jurisdiction. Instead, the government expands its budget and national reserves mainly by focusing on tariffs as well as various royalties.

With these considerations in mind, many foreign companies or investors choose to locate in the Cayman Islands because they may earn higher returns and income due to low tax requirements. Nevertheless, if a multinational pact fails its objectives, and it probably will, tax havens like the Caymans will remain intact. This means that the race to the bottom in global withdrawals will continue. Fortunately, the Cayman residency program is designed for Americans. It allows you to qualify for the foreign earned income exclusion by using the residency test instead of the physical presence test. Resideing in Cayman means you can spend 4 months or more in the United States each year. Without residing in the Caymans, you are only allowed to be in the states under physical presence testing 35 days a year. Residency will greatly facilitate eligibility and use of the IEEF. Without direct taxes, the islands are a thriving offshore financial center.

More than 99,000 active companies were registered in the Cayman Islands in 2016, including nearly 300 banks, 750 insurers and 10,500 mutual funds. A scholarship was opened in 1997. The tourism and financial services industries generate a significant share of gross domestic product (GDP).