The Cayman Islands has a population of just over 65,000 people. Although the Cayman Islands is small in size, its reputation as a tax haven has placed it on the global map. So what makes the Cayman Islands an attractive location for offshore banking services?
In this article, we will share what you will need to know about offshore banking in the Cayman Islands:
- Why is the Cayman Islands considered a tax haven?
- Who are some public figures with offshore banking activities in the Cayman Islands?
- What are the benefits of offshore banking in the Cayman Islands?
- Are there any drawbacks to offshore banking in the Cayman Islands?
- What are some offshore banks operating in the Cayman Islands?
- How does one open an offshore bank account in the Cayman Islands? Are there any minimum requirements?
The Cayman Islands – A tax haven?
A tax haven is defined as a foreign territory with minimal tax obligations for foreigners. Foreign income deposited into these offshore bank accounts is subjected to zero or low tax rates. An added feature of a tax haven is also one that is usually committed to high privacy standards for its foreign investors and clients.
The Cayman Islands does not impose corporate taxes or personal income taxes on their residents. Instead, the government receives its revenue through tourist visas, work permits, transaction fees, and tariffs.
Public figures with offshore banking activities in the Cayman Islands
1. Queen Elizabeth II
Entities closely linked to Her Majesty The Queen hold millions of pounds in the Cayman Islands. The Duchy of Lancaster claimed to have funds in offshore bank accounts in the Cayman Islands for investment purposes.
2. Li Ka Shing
3. Ken Dart
Ken Dart, the founder and owner of Dart Enterprises, owns swathes of land in Grand Cayman. As the owner of multiple real estate properties in the Cayman Islands, Dart is one of the biggest investors there.
What are the benefits of offshore banking in the Cayman Islands?
1. Zero corporate taxes
Foreign companies with business activities registered in the Cayman Islands pay zero corporate taxes. This business-friendly tax system entices private firms and individuals to the Cayman Islands.
2. High privacy standards
The government does not require private firms and individuals based in the Cayman Islands to declare the details of their businesses to the government. Tax authorities will not request information on shareholders, meeting minutes, and other sensitive documents.
In 2019, the Cayman Islands passed the Data Protection Law to elevate its privacy standards further and to bring it closer to international requirements.
3. Complies with international standards
The Organisation for Economic Cooperation and Development (OECD) has recognised the commitment of the Cayman Islands to international tax standards. Despite its high privacy standards, the OECD affirms the Cayman Islands’ pledge for freedom of information regarding taxation.
With international approval for how the government handles its financial activities, offshore banks based in the Cayman Islands will probably not be on the wrong end of international condemnation or scrutiny.
4. Politically stable
As a territory of the United Kingdom, the Cayman Islands has a Aa3 credit rating. With a stable local government and sound economic policies to ensure budget surpluses, the Cayman Islands has a robust and trustworthy financial system.
Drawbacks to offshore banking in the Cayman Islands?
1. Signed information exchange agreements with other countries
The Cayman Islands signed on to the US Foreign Account Tax Compliance Act (FATCA). This agreement to exchange information means that the Cayman Islands are obligated to declare the tax information of American citizens to the US federal government.
2. Negative opinions surround offshore banking
Offshore banking does not have a positive reputation. Offshore banking and the Cayman Islands are often associated with money laundering and wealthy individuals and firms seeking to reap the benefits of the system without paying their taxes. This stigmatisation and aversion towards offshore banking still persist today.
Fortunately, the OECD has whitelisted the Cayman Islands for its commitment to transparency. The residents of the Cayman Islands take pride in this recognition and they do not take kindly to the negative connotations associated with the title ‘tax haven’, instead, preferring the term ‘tax neutral.’
Some offshore banks in the Cayman Islands?
1. Cayman National Bank
Cayman National Bank has been offering banking services since 1974. This bank provides corporate and retail banking, fund administration, and investment management services. With a Category A banking license, the Cayman National Bank can handle transactions between residents and non-residents.
2. CIBC Bank and Trust Company (Cayman) Limited
CIBC FirstCaribbean is a subsidiary of CIBC that specialises in hedge funds, trustee, corporate, and fund administration services. Its services can only be accessed in-person. With a Category A banking license, CIBC FirstCaribbean can likewise handle transactions between residents and non-residents.
3. MUFG Alternative Fund Services (Cayman) Limited
MUFG provides banking and trustee services in the Cayman Islands and manages hedge funds, private equity, and real assets. Similarly, MUFG has a Category A banking license that permits it to handle transactions between residents and non-residents.
How does one open an offshore bank account in the Cayman Islands? Are there any minimum requirements?
The following are documents that you will require to set up an offshore bank account in the Cayman Islands:
- Wage slip
- Photo ID
- Financial statements obtained from your bank
- Proof of residence for taxation purposes
- Statement of Intent for how the funds will be used
The process of setting up an offshore bank account in the Cayman Islands is similar to the opening of a local bank account and the information above is required to prevent money laundering. The difference here is that you may select the currency you wish to transact with.
With a strong governance, favourable tax conditions, and reputation for offshore banking, the Cayman Islands may seem like an undisputable choice for the setting up of an offshore bank account.
However, the Cayman Islands may not be the most appropriate or logical option for all businesses and firms. Therefore, it is recommended that businesses engage our team of experienced professionals at Desfran. Led by one of the world’s leading management teams, our experts leverage a wealth of knowledge and experiences to offer practical and sound management advice.
We are aware of the latest developments and trends in the financial markets and are well-equipped to guide you in setting up your offshore company in Panama or elsewhere in the world.
Request for a consultation with Desfran today.