The Simplicity of the Cayman Islands Exempted Company

The Simplicity of the Cayman Islands Exempted Company

The rules that govern company formation in the Cayman Islands are particularly smooth and simple to navigate.

Despite their somewhat dubious reputation among the general public,” offshore” companies serve a valuable purpose in global trade and finance, with an emphasis on ease of conducting business rather than evading taxes, hiding assets from law enforcement, money laundering, or other illegal activities.

Offshore financial centres (OFCs) differ widely in their services and incentives. Some, like Hong Kong, Singapore, or Luxembourg, are “onshore” locations. Still, a substantial part of their client base is non-resident, meeting the generally accepted criteria described by the International Monetary Fund as “jurisdictions that oversee a disproportionate level of financial activity by non-residents.”

Of the Top 10 OFCs compiled by government and non-government sources internationally in the last decade, six are former or current British colonial possessions, with three in the Caribbean — Bermuda, the British Virgin Islands, and the Cayman Islands. All three have benefitted from political stability, the English common law system, and a strong historical connection to the City of London’s enormous financial influence.

These Caribbean jurisdictions are popular with overseas investors, with the rules that govern company formation in the Cayman Islands, in particular being smooth and simple to navigate and usually completed in a few days with minimal paperwork. Reporting requirements are also minimal as the territory has never levied income tax, capital gains tax, or wealth tax.

Despite this, the Cayman Islands hardly deserves the “tax haven” label commonly used in the media. No place is entirely tax-free, and all companies in the territory are subject to stamp duties and often hefty taxes on imported goods. Most government income comes through this kind of indirect taxation and taxes on tourist accommodation, licensing fees, and departure taxes.

There are three common types of registered companies in the Cayman Islands: the Ordinary Resident Company, Ordinary Non-Resident Company, and the Exempted Company.

An Ordinary Resident Company would be set up to conduct local business in the Cayman Islands. The same rules cover an Ordinary Non-Resident Company as a resident company, but it cannot conduct any business within the Cayman Islands. This, or a Cayman Islands Exempted Company, is the most common choice for offshore operations.

A Cayman Islands Exempted Company comes with many advantages for offshore investors looking to open a company that is 100% foreign-owned and with no exposure to tax liabilities in the territory. This type of company setup allows international investors to easily trade across international borders while at the same time benefitting from minimal exposure to taxes and/or duties.

An Exempted Company provides its shareholders and office-holders with a large degree of anonymity. The names of its shareholders do not have to be filed with the Registrar of Companies. The company must have a minimum of one director and one shareholder that can be the same person, be a corporate body, and be of any nationality.

The Cayman Islands government provides a 20-year guarantee (in the form of a Tax Exemption Certificate) that ensures an Exempted Company will not be subject to taxation for 20 years from the formation. It provides a very high level of confidence, even though there are no taxes in the Cayman Islands and no plans to introduce them.

While the names of directors and officers are required to be submitted to the Registrar of Companies, Cayman Islands company incorporation documents do not reveal the Exempted Company shareholder’s name or identity (s), and they are not available to the public.

Annual reporting is a simple matter of confirming that its operations have been carried out mainly outside of the Cayman Islands. Annual financial statements and accounts are not required for inspection by the government, and shareholder and directors meetings can be held at any time and convenient location and can even be held remotely.

A Cayman Islands Exempted Company can be run from anywhere in the world.

Shares are issued with or without par value, with a minimum of just US$1. Most Exempted companies are formed with a US$50,000 share capital divided into 50,000 common voting shares of US$1 each — the maximum number of shares with the minimum capital duty payable to the Cayman government.

Offshore company registration in the Cayman Islands can be completed quickly if the paperwork and due diligence are in order. Cayman Islands law requires an agency that provides company formation services to conduct due diligence to “know the client” and know the proposed activities of any exempted company it sets up on behalf of a client.

It usually takes no more than a week for the Registrar of Companies to process and return the completed paperwork. There is also an express service where documents can be processed faster (even the same day) at an additional cost.

While there are many Cayman Islands banks and an abundance of Cayman Islands offshore financial services consultancies, caution is always the watchword, and solid research is essential. Prospective offshore investors should do their homework, consult with reputable professional services in both the country of residence and the Cayman Islands, and take independent advice before committing to any offshore business.

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