This country-specific Q&A provides an overview to tax laws and regulations that may occur in the Cayman Islands.
This Q&A is part of the global guide to Private Client. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/practice-areas/private-client-2nd-edition/
Which factors bring an individual within the scope of tax on income and capital gains?
The Cayman Islands is a tax neutral jurisdiction. As such, there is no income tax or capital gains tax in the Cayman Islands.
What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?
Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
There are no income or withholding taxes imposed on individuals in the Cayman Islands.
Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?
There is no wealth tax in the Cayman Islands.
Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
There is no inheritance tax, gift tax or estate tax in the Cayman Islands.
Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (e.g. business or agricultural assets), and how do any such reliefs apply?
Stamp duty is payable on the transfer of Cayman Islands real estate. The stamp duty rate across the three islands which make up the Cayman Islands is 7.5% of the higher of the purchase price or market value of the property. Stamp duty is calculated in Cayman Islands dollars.
Pursuant to the Stamp Duty Law (2013 Revision) for gifts of real estate stamp duty will be CI$50 when the transfer is stated to be for the "natural love and affection" between parent and child, husband and wife, brothers and sisters, grandparents and grandchildren. In all other cases, the full rates of duty will apply. There is also a CI$100 stamp duty on purchase agreements.
Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?
How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
N/A. There is no property tax in the Cayman Islands.
Are taxes other than those described above imposed on individuals and, if so, how do they apply?
There is an import tax in the Cayman Islands. Import duty is generally at a rate of 22% to 27% on the importation of most goods.
Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?
What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
The individual should consider the impact of their liability to taxation regimes of other jurisdictions. For example, an American citizen may still be liable to pay taxes to the United States by virtue of their citizenship.
What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?
The succession to movable Cayman Islands property or chattels will be determined by the laws of the jurisdiction in which the deceased domiciled.
The succession rules of the Cayman Islands dictate that in relation to immovable property, such as land, succession will be determined by Cayman Islands domestic law irrespective of where its owner was domiciled upon their death.
There are no forced heirship rules in the Cayman Islands. There exists in the Cayman Islands full freedom of testamentary disposition.
A Cayman Islands grant of representation is required to be granted by the Cayman Court of the Cayman Islands before any Cayman Islands property is dealt with following the death of a person. If the deceased dies with a will, they have died testate and a grant of probate will be required from the Cayman Court. If the deceased dies with no will, they will have died intestate and a grant of letters of administration will be required from the Cayman Court.
Finally, where a grant of probate or letters of administration has already been obtained from a foreign court in respect of the deceased's estate, it may be possible for this foreign grant to be resealed by the Cayman Court. However, such grants must be in a similar form to those issued by the Cayman Court.
Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?
There is no special regime for matrimonial property in the Cayman Islands. Currently, the Cayman Islands do not recognise civil partnerships.
What factors cause the succession law of the jurisdiction to apply on the death of an individual?
Please see the answer to question 12 above.
Shares in the Cayman Islands are considered immovable property by the Succession Law (2006 Revision). Personal chattels or immovable property do not include "…any chattels used at the death of the intestate for business purposes, nor money nor securities for money" (Section 2 of the Succession Law). Subject to that, the extent of which property will be regarded as "movable" or "immovable" will be determined by applying principles similar to those which apply by virtue of English common law.
A person's domicile as a matter of Cayman Islands law will be determined according to the relevant principles of English common law.
If an issue of succession is referred to the laws of another jurisdiction the doctrine of renvoi would be applicable to the same extent to which it would were the referral to be one made by English law.
How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?
Please see the answers to questions 12 and 14 above.
In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?
An individual would create a will in the Cayman Islands for many of the same reasons as an individual in the United Kingdom. Wills governed by Cayman Islands law are frequently made by those whose only connection with the Cayman Islands is the owning property in our jurisdiction. These Wills will tend to be confined in their scope to Cayman Islands property.
With respect to the issues summarised in the answer to question 12 above, individuals who own movable property situated in the Cayman Islands should ensure that any Will executed is compatible with the laws of the jurisdiction in which that person is domiciled. A testator should thus always keep their domicile in mind in case his or her domicile changes after making the Will. In addition, individuals domiciled in jurisdictions that contain forced heirship provisions should note that it may be the case where certain individuals may be entitled to inherit property despite the testator not wanting such individuals to benefit.
The current rules of intestacy in relation to the Cayman Islands are contained in the Succession Law (2006 Revision). Specifically, section 29 of that law concerns which of a deceased’s family members will be entitled to the deceased's real and personal estate under that statute’s terms. It will depend on whether the deceased left a surviving spouse, issue or any grandparents or their descendants. If the person leaves no surviving spouse or issue, nor any of those more distant relatives, the entire estate will pass to the Crown bona vacantia.
Validity of a Will under the laws of the Cayman Islands must comply with the requirements of section 6 of the Wills Law (2004 Revision). The Will must be in writing and must be signed at the foot or end by the testator (or by some other person in the testator’s presence and at his or her direction). The testator’s signature must also be made or acknowledged by the testator in the presence of at least two witnesses who must be present at the same time and such witnesses must also attest and subscribe the Will in the presence of the testator. The witnesses must not be beneficiaries under the Will.
The testator must have testamentary capacity, which means the testator has attained the age of majority and understands the nature of making the testamentary disposition. He/She must know and approve of the will’s contents, and not be subject to duress, undue influence or coercion.
The Cayman Islands currently has no equivalent to the English Wills Act 1963. The formal validity of Wills disposing of movable Cayman Islands property will be determined (in accordance with historic English common law principles) by the laws of the jurisdiction in which the person dies domiciled. Currently, the Formal Validity of Wills (Persons Dying Abroad) Bill, 2018 is being discussed by the Legislative Assembly of the Cayman Islands but is not yet in force.
How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?
The estate will be administered by the deceased’s personal representatives who will be responsible for collecting in assets, paying debts and distributing property to that person’s heirs.
The personal representatives will be the person’s executors if he or she has left a Will containing a valid appointment of executors who are willing and able to apply for grant of probate or, if not, his or her administrators (whose identity will be determined by the law).
The personal representatives will be appointed under by a grant of probate, a grant of letters of administration or by the resealing of a foreign grant.
The procedures for applying for a grant of probate, grant of letters of administration or resealing a foreign grant are set out in the Probate and Administration Rules (2008 Revision).
Do the laws of your jurisdiction allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
The laws of the Cayman Islands provide for the creation and the administration of trusts, and the Cayman Islands a leading jurisdiction for the establishment of trusts for ultra-high net worth individuals and families. Cayman Islands trusts are established in many different forms, including discretionary trusts, fixed interest trusts, life interest trusts, charitable trusts, STAR trusts (i.e. purpose trusts) and reserved power trusts.
While most Cayman Islands law trusts will have a licensed Cayman Islands trust company serving as trustee, it is also possible in certain circumstance to form a private trust company or restricted licence trust company in the Cayman Islands to serve as trustee. This can allow a settlor and/or family members to have an additional level of involvement in trustee decisions.
The laws of the Cayman Islands also now provide for the formation of foundation companies following the enactment of the Foundation Companies Law, 2017. This new, flexible regime allows a company to operate in a manner that is in part similar to a common law trust and in part similar to a civil law foundation. Unlike a trust, a foundation company has separate legal personality.
How is any such structure constituted, what are the main rules that govern it, and what requirements are there for registration with or disclosure to any authority or regulator?
The principal trusts legislation in the Cayman Islands is the Trusts Law (2018 Revision). A trust is typically established by a declaration of trust or a deed of settlement, similar to the establishment of trusts in the United Kingdom. Stamp duty payable on settlements or declarations of trust is $40 KYD pursuant to the Stamp Duty Law.
Information and documents in relation to Cayman Islands law trusts is publically available. It is possible (but not a requirement) to register certain types of trusts in the Cayman Islands as exempted trusts. Exempted must pay a registration fee and annual fees to the Registrar of Trusts, and certain documents relating to an exempted trust must be filed with the Registrar of Trusts. However, most Cayman Islands law trusts used in private client structures are not registered.
Cayman Islands companies may be subject to the beneficial ownership regime of the Cayman Islands depending on the particular structure. If a company is in scope with this regime, such company is required to provide the details its beneficial owners, which would be accessible by a Cayman Islands competent authority principally on proper and lawful request made by relevant law enforcement agencies. This register is not available to the public.
What information is required to be made available to the public regarding such structures and the ultimate beneficial ownership or control of such structures or of private assets generally?
How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
As stated above, there is no inheritance, capital gains, estate tax or income tax in the Cayman Islands. This applies to the above structures and their settlors, founders, trustees, directors and beneficiaries.
Are foreign trusts, private foundations etc recognised?
The Cayman Islands is not a party to the Hague Trusts Convention. However, despite this, the courts of the Cayman Islands recognise most trusts established under foreign law. We are aware of no decided case dealing with the recognition of foreign foundations but they feature in many Cayman structures and it is generally considered that these would normally be recognised.
How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
As noted above, there is no inheritance, capital gains, estate tax or income tax in the Cayman Islands.
To what extent can trusts, private foundations etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?
The Fraudulent Dispositions Law (1996 Revision) provides that every disposition made at an undervalue with the intention to defraud a creditor can be rendered voidable at the request of a creditor prejudiced by that disposition. However, even if it can be shown that a disposition made at an undervalue (such as a disposition to a trust) was made with an intent to wilfully defraud creditors, the disposition is only set aside to the extent necessary to satisfy the creditors prejudiced by the disposition. The statute specifically provides that the burden of proof of the transferor's intent to defraud is placed squarely on the creditor seeking to set aside the disposition.
What provision can be made to hold and manage assets for minor children and grandchildren?
Such provision is usually made by the establishment of a Cayman Islands trust which includes appropriately drafted terms.
Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?
Although individuals may exercise their legal powers in whatever way they would like, proof of testamentary capacity will need to be established whenever there are questions in relation to certain individuals executing documents. This involves proof of the capacity to understand certain important matters relating to the instrument in question such as its nature and effect, the property being disposed of, and the claims which may arise as a result. Also required is actual knowledge and approval of the contents of the instrument.
The Mental Health Law, 2013 gives the Cayman Islands Grand Court (the Grand Court) the power "to do or secure the doing of all such things as appear desirable for the maintenance or benefit of“ a mental health patient, his family and those for whom he might be expected to provide. In exercising such powers, the Grand Court may, on behalf of the patient, arrange for another person to deal with relevant property, enter into any settlement, manage a business, dissolve a partnership, complete a contract, conduct legal proceedings and act as trustee.
Further, the Grand Court Law (2015 Revision) states: "The Court shall have the power to appoint guardians of the persons and estates of persons of unsound mind or suffering from mental illness and for that purpose to enquire into, hear and determine by inspection of the person the subject of such enquiry, or to examine on oath or otherwise the party in whose custody or charge such person may be, or any other person or persons, or use such other ways and means by the truth may be discovered".
What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
Charitable trusts, STAR trusts and foundation companies are typically used for benefiting charities or charitable purposes.
The Cayman Islands have enacted the Non-Profit Organisation Law, 2017 which requires certain charities operating in the Cayman Islands and raising funds from the public (whether from within the Cayman Islands or overseas) to register on the Non-Profit Organisations Register. The law gives the public access to certain information in relation to registered charities.
What important legislative changes do you anticipate so far as they affect your advice to private clients?
The Trusts Law (2018 Revision) was the most notable recent development in respect of trusts in the Cayman Islands. At this time, we are not aware of any important legislative changes which will affect our advice to private clients.