Corporate Taxation Overview
The Cayman Islands operates under a tax regime that does not impose direct taxes such as corporate income tax, capital gains tax, or withholding taxes on businesses or individuals. Instead, the government generates revenue through indirect taxes, including duties, licensing fees, and consumption-based taxes. With no tax on net or gross income, the Cayman Islands offers an attractive environment for business operations, especially for international companies and investors looking to minimize their tax burdens.

Key Taxation Elements
While there are no direct taxes, certain indirect taxes apply, including a share transfer tax on land holding companies and stamp duties on legal transactions. Businesses operating in the Cayman Islands must register for annual trade or business licenses, with fees varying depending on the scale and nature of the business. Furthermore, businesses engaging in activities such as real estate or tourism may be subject to specific duties and fees, fostering a dynamic and diverse economic environment.

1. Introduction

The Cayman Islands follows a system of indirect taxation, meaning the government does not impose direct taxes on the income or gains of individuals or companies. This includes no taxes on net or gross income, capital gains, or withholding taxes, and there are no estate duties, inheritance, or gift taxes. Instead, the Cayman Islands government collects revenue primarily through indirect taxes. These include duties (taxes on goods and services), user and licensing fees, and other consumption-based taxes. The local currency is the Cayman Islands Dollar (KYD), which is pegged to the US Dollar at a fixed exchange rate of 1 USD = 0.82 KYD.

2. Corporate Income Tax

The Cayman Islands does not impose any direct taxes on companies. There is no corporate income tax, so businesses operating in or from the Cayman Islands are not required to pay income taxes on their earnings.

2.1 Type of Tax System

The Cayman Islands operates a tax system where no direct tax is charged on companies. This means businesses are not taxed on their income or profits.

2.2 Taxable Persons

Since there is no corporate income tax, the concept of taxable persons (entities that would need to pay tax) is not applicable.

2.3 Taxable Income

Because the Cayman Islands does not charge corporate income tax, there is no requirement to define or calculate taxable income for companies.

2.3.1 General

Since income is not taxed, companies do not need to determine taxable income.

2.3.2 Exempt Income

No income exemptions are required because no income tax is imposed.

2.3.3 Deductions

There are no tax deductions available for companies, as corporate income tax is not levied.

2.3.4 Depreciation and Amortization

There are no tax rules for depreciation or amortization because there is no income tax to account for.

2.3.5 Reserves and Provisions

There are no requirements for setting up reserves or provisions for tax purposes, as no income tax exists.

2.4 Capital Gains

There is no capital gains tax in the Cayman Islands, so businesses do not need to pay tax on the sale of assets or investments.

2.5 Losses

Since there is no income tax, companies do not need to account for losses in their financial reporting for tax purposes.

2.5.1 Ordinary Losses

Ordinary losses are not applicable, as no income tax is charged.

2.5.2 Capital Losses

Capital losses are not relevant since there is no capital gains tax in the Cayman Islands.

2.6 Rates

There are no tax rates to consider for corporate income or capital gains because no such taxes are imposed.

2.6.1 Income and Capital Gains

There are no tax rates for income or capital gains in the Cayman Islands.

2.6.2 Withholding Taxes on Domestic Payments

Withholding taxes are not applied to payments between companies, as there are no withholding taxes in the Cayman Islands.

2.7 Incentives

Since there is no income tax, there are no special tax incentives or credits available for companies.

2.8 Administration

There are no administrative requirements for tax returns or payments, as no direct taxes are imposed on companies.

2.8.1 Taxable Period

There is no taxable period for corporate income tax, as no such tax is levied.

2.8.2 Tax Returns and Assessment

Companies do not need to file tax returns for income tax purposes since no income tax is imposed.

2.8.3 Payment of Tax

There is no need to pay corporate income tax in the Cayman Islands.

2.8.4 Rulings

As there is no corporate income tax, there are no rulings related to such taxes.

3. Transactions Between Resident Companies

The Cayman Islands does not have specific tax rules for transactions between resident companies, as there is no corporate income tax or tax on business transactions.

3.1 Group Treatment

Since there is no corporate income tax, the concept of group treatment for taxation does not apply.

3.2 Intercompany Dividends

There is no tax on intercompany dividends in the Cayman Islands because no income tax is levied.

4. Other Taxes on Income

The only other tax related to income in the Cayman Islands is the tourist accommodation tax.

4.1 Tourist Accommodation Tax

A 13% tourist accommodation tax is applied to all visitors, except those staying in timeshares. This is outlined in Section 3 of the Tourist Accommodation (Taxation) Law (2013 Revision).

5. Taxes on Payroll

The Cayman Islands does not have payroll taxes or a social security system. However, employers are required to make contributions to a health insurance plan for their employees and their unemployed spouses.

5.1 Payroll Tax

There are no payroll taxes in the Cayman Islands.

5.2 Social Security Contributions

While there is no social security system, employers must contribute to a health insurance plan on behalf of their employees and unemployed spouses. The employer may recover up to 50% of the contribution paid for the employee and 100% of the contribution paid for the unemployed spouse from the employee’s salary.

Employers are also required to provide a pension plan for their employees, which may be a company-specific plan or a multi-employer plan. Both employers and employees contribute 5% of the employee’s pensionable earnings, with a maximum annual pensionable income of KYD 87,000.

6. Taxes on Capital

There are no taxes on capital in the Cayman Islands, including no net worth tax or real estate tax.

6.1 Net Worth Tax

There is no tax on net worth in the Cayman Islands.

6.2 Real Estate Tax

The Cayman Islands does not impose a real estate tax.

7. International Aspects

7.1 Resident Companies

Resident companies in the Cayman Islands are not subject to income or capital gains tax, making these aspects not applicable.

7.1.1 Foreign Income and Capital Gains

Since no income or capital gains tax is imposed in the Cayman Islands, foreign income and capital gains are not taxed.

7.1.2 Foreign Losses

Foreign losses are not relevant because the Cayman Islands does not impose taxes on income.

7.1.3 Foreign Capital

Foreign capital is not taxed in the Cayman Islands.

7.1.4 Double Taxation Relief

There is no need for double taxation relief since the Cayman Islands does not impose taxes on income or capital gains.

7.2 Non-Resident Companies

Non-resident companies (those that do not conduct business in the Cayman Islands) are not subject to corporate taxes. The Cayman Islands defines a non-resident company under the Local Companies (Control) Law as one that does not engage in business activities within the Islands.

Non-resident companies can apply for non-resident status by submitting a request to the Minister of Finance through the Registrar of Companies. This application must state that the company does not intend to conduct business in the Cayman Islands, as outlined in Section 2 of the Local Companies (Control) Act (2019 Revision).

In January 2019, the Cayman Islands introduced the Economic Substance Law, which requires companies conducting certain activities to have substantial operations in the territory. These “relevant activities” include business areas such as fund management, banking, insurance, financing, leasing, distribution services, headquarters, intellectual property, shipping, and holding company businesses. However, companies engaged in activities such as investment funds or those tax-resident in another jurisdiction are excluded.

7.2.1 Taxes on Income and Capital Gains

As there are no corporate taxes in the Cayman Islands, non-resident companies are not taxed on income or capital gains.

7.2.2 Taxes on Capital

Non-resident companies are not taxed on capital in the Cayman Islands.

7.2.3 Administration

There are no tax administration requirements for non-resident companies in the Cayman Islands, as no corporate income tax is imposed.

7.3 Withholding Taxes on Payments to Non-Resident Companies

The Cayman Islands does not impose withholding taxes on payments made to non-resident companies. This includes payments for:

7.3.1 Dividends

There are no withholding taxes on dividends paid to non-resident companies.

7.3.2 Interest

There are no withholding taxes on interest paid to non-resident companies.

7.3.3 Royalties

There are no withholding taxes on royalties paid to non-resident companies.

7.3.4 Other

There are no withholding taxes on other types of payments to non-resident companies.

7.3.5 Withholding Tax Rates Chart

Since the Cayman Islands does not levy withholding taxes, a withholding tax rates chart is not applicable.

For information on the exchange of tax information, including Tax Information Exchange Agreements (TIEAs), see Section 7.5.1.

8. Anti-Avoidance

8.1. General Overview

The Cayman Islands is dedicated to upholding global transparency standards in the financial services sector. To ensure compliance with international norms, the country has established regulations that mandate the automatic reporting of financial information under the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS). These regulations include strict anti-avoidance provisions to prevent tax evasion and other illegal financial practices. As part of these efforts, the Cayman Islands adheres to the principles outlined in the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters (MAC) (as amended by the 2010 Protocol), ensuring global cooperation on tax transparency. The Cayman Islands also follows the OECD’s guidelines on Base Erosion and Profit Shifting (BEPS), committing to its four minimum standards, particularly Action 5 on harmful tax practices and Action 13 on Country-by-Country (CbC) reporting.

8.2. Transfer Pricing

Currently, the Cayman Islands does not have specific laws regarding transfer pricing. Therefore, companies operating within the jurisdiction are not required to comply with transfer pricing rules, which typically govern transactions between related entities to ensure that profits are taxed in the correct jurisdiction.

8.3. Thin Capitalization

There are no thin capitalization rules in the Cayman Islands. Thin capitalization refers to situations where a company is financed through a high level of debt rather than equity, which could result in tax avoidance by shifting profits to jurisdictions with lower tax rates. The absence of thin capitalization rules means companies are not subject to restrictions on the amount of debt they can use to finance their operations in the Cayman Islands.

8.4. Controlled Foreign Company (CFC) Rules

The Cayman Islands does not impose Controlled Foreign Company (CFC) rules. CFC rules typically target companies that are controlled by a parent company in a higher-tax jurisdiction, requiring the parent company to pay taxes on the income of its foreign subsidiaries. Since the Cayman Islands does not levy corporate taxes, CFC rules are not applicable.

8.5. Other Anti-Avoidance Measures

8.5.1. Exchange of Information for Tax Purposes (Upon Request)

The Cayman Islands is a signatory to the OECD/Council of Europe Convention on Mutual Administrative Assistance in Tax Matters. This allows for the exchange of tax information with other countries upon request. Additionally, the Cayman Islands has bilateral Tax Information Exchange Agreements (TIEAs) in force with several countries, including Argentina, Australia, Canada, China, France, Germany, the United States, and the United Kingdom, among others. These agreements facilitate the exchange of tax information to combat tax evasion and ensure compliance with international tax standards.

8.5.2. Automatic Exchange of Information for Tax Purposes

The Cayman Islands is committed to the automatic exchange of financial account information under the OECD’s Common Reporting Standard (CRS). The jurisdiction became an early adopter of the CRS in 2017, joining over 50 countries in exchanging financial information to combat tax evasion. The Cayman Islands also participates in the OECD’s Base Erosion and Profit Shifting (BEPS) initiative, which aims to prevent tax avoidance through strategies that shift profits to low or no-tax jurisdictions. The Cayman Islands has implemented Country-by-Country (CbC) reporting as part of its BEPS compliance. CbC reporting requires multinational companies to disclose their financial information on a country-by-country basis, allowing tax authorities to assess whether profits are being taxed appropriately.

8.5.3. United States (FATCA)

The Cayman Islands has an agreement with the United States under the Foreign Account Tax Compliance Act (FATCA). This agreement, known as Model 1B, allows the U.S. government to obtain information about U.S. account holders in the Cayman Islands. The Department for International Tax Cooperation (DITC) handles the filing of FATCA and CRS reports through its online portal, ensuring that the Cayman Islands complies with U.S. and international tax reporting requirements.

8.5.4. Country-by-Country Reporting

In 2017, the Cayman Islands introduced Country-by-Country (CbC) reporting for multinational enterprises (MNEs) with annual consolidated revenue of at least USD 850 million. This reporting requirement mandates MNEs to provide a breakdown of their income, profits, taxes, and economic activities in each country where they operate. The Cayman Islands transmits this data to relevant tax authorities under its agreements with other jurisdictions, ensuring that multinational companies are taxed fairly and in accordance with local laws.

8.5.5. Economic Substance

The Cayman Islands introduced the Economic Substance Law (ES Law) in 2020 to meet international standards set by the OECD/G20’s BEPS Action 5. The law requires entities engaged in certain “relevant activities” to maintain a sufficient level of economic substance in the jurisdiction. These activities include banking, insurance, fund management, headquarters businesses, and intellectual property businesses, among others. Companies engaged in these activities must demonstrate that they have real operations, management, and staff in the Cayman Islands, and meet the required level of operating expenditure.

Entities that fail to meet the Economic Substance Test (ES Test) may face penalties, and the Tax Information Authority is empowered to exchange information about non-compliant entities with foreign tax authorities under certain conditions. Additionally, the Cayman Islands has committed to the OECD’s Crypto-Asset Regulatory Framework (CARF), which will enhance the jurisdiction’s ability to track virtual asset activities. The government is working on introducing public beneficial ownership registers to further increase transparency and prevent money laundering.

9. Value Added Tax (VAT)

9.1. General Overview

The Cayman Islands does not impose a Value Added Tax (VAT) on goods and services. This means that businesses in the Cayman Islands are not required to collect VAT from customers or remit it to the government. As a result, VAT-related compliance requirements do not apply to businesses operating within the jurisdiction.

9.2. Taxable Persons

Since there is no VAT in the Cayman Islands, the concept of taxable persons, or entities required to register and account for VAT, does not apply.

9.3. Taxable Events

In the absence of VAT, there are no taxable events related to VAT, such as the sale or supply of goods and services, that businesses need to report or comply with.

9.4. Taxable Amount

Without VAT, there is no taxable amount to be determined for the purposes of VAT compliance. Therefore, businesses in the Cayman Islands do not need to calculate the VAT base or apply VAT rates to their transactions.

9.5. VAT Rates

As there is no VAT system in place, there are no applicable VAT rates for goods or services in the Cayman Islands.

9.6. Exemptions

No VAT exemptions apply because VAT itself is not imposed in the Cayman Islands.

9.7. Non-residents

The VAT rules for non-residents do not apply, as the Cayman Islands does not have a VAT system in place. Therefore, non-resident businesses or individuals are not subject to VAT registration or VAT-related reporting requirements.

10. Miscellaneous Taxes

The Cayman Islands primarily generates government revenue through various indirect taxes, including fees for company and partnership registrations, trade and business licences, stamp duties, and customs duties on imports. These taxes are applied to businesses and individuals operating within the jurisdiction.

10.1. Capital Duty

There is no capital duty in the Cayman Islands. Capital duty is a tax levied on the issuance of shares or the increase in a company’s share capital, but such a tax does not exist in the Cayman Islands.

10.2. Transfer Tax

The Cayman Islands imposes a share transfer tax on the transfer of equity capital in land-holding corporations. This tax is generally levied at a rate of 7.5% on the taxable value of the transfer. The taxable value is determined by the proportion of the share’s nominal value relative to the total nominal value of the company’s equity capital. If 50% or more of the market value of the landholding corporation’s properties is located in specified areas of West Bay to George Town, the 7.5% tax rate applies. This is governed by the Land Holding Companies Share Transfer Tax Act (2022 Revision).

10.2.1. Immovable Property

There is no transfer tax applicable specifically to immovable property in the Cayman Islands.

10.2.2. Shares, Bonds, and Other Securities

The Cayman Islands does not impose a transfer tax on shares, bonds, or other securities, except as described in the share transfer tax provisions for land-holding corporations.

10.3. Stamp Duty

Stamp duty is applied to various legal transactions in the Cayman Islands, including:

The conveyance (transfer) or sale of immovable property.

Leases of immovable property.

Mortgages, partnership deeds, and agreements.

Bills of exchange. This duty is calculated based on the nature and value of the transaction.

10.4. Customs Duty

Customs duty is imposed on all goods imported into the Cayman Islands, with few exceptions. The duty is based on the cost, insurance, and freight (CIF) value of the imported goods. The rates vary depending on the type of item being imported. For certain investment projects, such as the construction of commercial properties or tourism-related ventures, the Ministry of Finance & Economic Development may offer import duty concessions. These concessions are granted to support long-term economic development and benefit the people of the Cayman Islands.

10.5. Excise Duty

The Cayman Islands does not impose an excise duty. Excise duties are typically levied on specific goods, such as alcohol, tobacco, and fuel, but these do not apply in the jurisdiction.

10.6. Other Taxes

10.6.1. Trade or Business Licence Fees

Any individual or company, whether Caymanian or foreign-owned, must apply for an annual trade or business licence to operate in the Cayman Islands, unless specifically exempted under another law. Licence fees vary based on the type of business, ranging from KYD 150 for small tradesmen to KYD 125,000 for bulk fuel installations. For businesses located in Cayman Brac or Little Cayman, the fee is reduced by 50% compared to the rate in Grand Cayman, as per the Trade and Business Licensing Act (2021 Revision).

10.6.2. Developments

The Cayman Islands is considering introducing a dynamic tax regime aimed at reducing the cost of interregional travel in the Caribbean, particularly during the off-peak seasons. This proposal includes the adoption of a seasonal approach to airline taxation, with a two- or three-tiered system, to help lower costs and encourage regional tourism. This idea was discussed during a private/public partnership panel at the Caribbean Travel Forum, which was part of the Caribbean Hotel & Tourism Association’s annual Travel Marketplace event in Puerto Rico. The Minister of Tourism emphasized that this initiative could potentially be expanded across the entire Caribbean region.