Changes to Cayman Islands Business Landscape – What’s in it for us?

Desfran - Changes to Cayman Island Business Landscape

Lying on the geographic Western Caribbean Zone, and located south of Cuba and northwest of Jamaica, the Cayman Islands is a well-known tax haven for business activities. With a population of less than 50,000 people, the island has one of the largest GDP per capita, ranking 14th  worldwide. The island is famous for its ease of processing for offshore incorporation because of the privacy and tax-free benefits.

The jurisdiction does not impose any tax burden on income, capital, sales or capital gains. Additionally, the island has attracted plenty of highly-qualified lawyers,  tax consultants, and agencies from all over the world to work there and offer different related services. Now there are more than 100,000 companies registered in the Cayman Islands, and most of them are offshore exempt companies which do business outside the jurisdiction. Cayman Islands corporations operate under the Companies Law originally published in 1961. 

Changes to Cayman Islands Companies Law 

The Cayman Islands Government has recently passed a number of amendment laws to strengthen Cayman’s anti-money laundering and counter-financing of terrorism regime. The amended laws are intended to help address certain recommended actions in Cayman’s legislative framework identified by the Caribbean Financial Action Task Force (CFATF) in its evaluation report published in early 2019.

These 2019 Amendments introduce changes to the filing, maintenance and availability of information relating to Cayman Islands registered Companies. There are similar amendments for Limited Liability Partnerships (LLPs) and Limited Liability Companies (LLCs). Some important amendments of the companies law are highlighted as follows:

  • Commencing November 7, 2019 (for companies incorporated after August 8, 2019) and February 7, 2020 (for companies incorporated on or prior to August 8,  2019), voting rights in respect of each shareholder must be recorded in the register of members of the company.
  • The Cayman Islands Registrar of Companies (Registrar) shall be obliged to provide information to other regulatory bodies such as the Anti-Corruption Commission, Cayman Islands Monetary Authority, Financial Crimes Unit of the Royal Cayman Islands Police Service, Financial Reporting Authority, Tax Information Authority and any other competent authority (Regulatory Authorities) upon request from such regulatory body.
  • The period for filing changes to the register of directors of the company with the Registrar has been reduced from 60 days to 30 days. The penalties for a breach of this obligation remain unchanged and, accordingly, are generally capped at CI$500/US$610 in the absence of a knowing and willful breach.
  • The penalties for failure to establish or maintain a beneficial ownership register have been increased to CI$25,000/US$31,000 for a first offence, CI$100,000/US$122,000 for a second offence and ability for strike off by direction of the court for a third offence. Failure to comply with any notice or to provide information under the beneficial ownership legislation will, on conviction, incur a fine of CI$25,000/US$31,000 for a first offence and CIS$50,000/US$61,000 (or two years’ imprisonment) for a second or subsequent offence.
  • The Registrar is required to make available the names of the directors and alternate directors of a Cayman company on payment of a fee of CI$50/US$61. Any inspection must be at the location of the Registrar and will be subject to such conditions as the Registrar may impose with each request needing to be done in person under the oversight of the Registrar. The amendment came into force on October 1, 2019.

Other Regulatory Changes

Along with the above updates to the Companies Law, there are other legislative and regulatory amendments made to increase compliance with global financial law standards.

Anti-Money Laundering and Terrorism Financing Laws

Some of the changes under the Anti-Money Laundering and Terrorism Financing Laws are as follows:

  • Including unregulated investment entities and special purpose vehicles within the revisions by redefining them as a “relevant financial business”.
  • Designating compliance roles within every financial entity and informing the Cayman Islands Monetary Authority of these persons.
  • Introducing a more comprehensive risk-based approach to assessing the suitability of anti-money laundering, terrorist and proliferation financing processes within funds and other relevant financial businesses.

New Data Protection Law  

At the end of September 2019, the Cayman Islands Data Protection Law (DPL) came into force. The DPL broadly reflects the substantive elements of the EU General Data Protection Regulation (GDPR). Under the new legislation, any commercial or finance entity registered within the Cayman Islands that handles an individual’s personal information must meet key security obligations. This includes appraising how and who accesses individuals’ data, why this information is required, and the ways in which individuals and entities intend to share information securely. This obligation extends to data processed by third parties or service providers.

Economic Substance Law

On December 27, 2018, the Cayman Islands published The International Tax Co-operation (Economic Substance) Law, 2018. The law mandates reporting requirements on “relevant financial activities” to the Cayman Islands Tax Information Authority. Relevant entities must make an annual report as to whether or not they are carrying on one or more of a defined list of relevant activities. If they are, they must satisfy an economic substance test in Cayman in respect of such activities. Cayman’s Tax Information Authority is responsible for determining if a relevant entity satisfies the economic substance test.

It is worth mentioning that the introduction of this law is potentially game changing for the international business community. The Law requires corporates and other investors to:

  • Review their organisational structures;
  • Consider the level of substance and whether substance needs to be created specifically for the company or whether the substance can be outsourced; and
  • Consider the tax implications of migrating the residence of a Cayman Islands company to another jurisdiction and reporting the company in that jurisdiction.

The Impact from the Changes to Companies Law 

The changes to the Companies Law expect Cayman companies to take measures accordingly. The impact can be generalised into following aspects.

Register of members

Companies should conduct an analysis of each existing class of shares to determine how such class should be categorised and to ensure its register of members reflects such categorisation.

Updates to list of directors and officers and managers

Companies should ensure that any changes in directors, officers or managers including a change of the name of such directors, officers or managers is promptly notified to their registered office provider, so that the Registrar can be notified within the required timeframe.

Beneficial ownership regimes

Companies should continue to ensure, on an ongoing basis, that any relevant changes in respect of registrable persons are entered in the company’s beneficial ownership register and that action is taken in relation to any changes to circumstances requiring a company, limited liability company or limited liability partnership to maintain a beneficial ownership register.

Inspection of list of names

This is an obligation of the Registrar. Companies may wish to review their current directors or current managers in connection with the new inspection provisions.

Registrar to provide information

This is an obligation of the Registrar. No steps need be taken by companies.

What’s in it for Businesses?

With the new Data Protection Law, changes to the Cayman Islands Companies Law and Economic Substance Law, companies need to regularly examine their business structures and provide timely updates on the changes in management apart from keeping a close contact with the Cayman Islands Registrar of Companies to ensure any related change is monitored and registered.

Besides, in accordance with the latest changes to Anti-Money Laundering and Terrorism Financing laws, a Cayman company is responsible for strictly regulating relevant business activities and setting up a more comprehensive framework of assessment to guarantee the integrity of its business. To comply with the new Data Protection Law, companies must access and appraise the information of individuals and entities legally and appropriately. Under the updated Economic Substance Law, entities have to make an annual report on activities they carry on to the tax authority, and satisfy an economic substance test in respect of such activities. This law requires companies to review their organisational structures.

Consult Desfran for Professional Advice

Amid the complexities of the changes in Cayman Islands’ business landscape, Desfran is here to help. Desfran’s global team of dedicated consultants with years of experience is happy to advise on the regulatory landscape in the Cayman Islands.

Contact Desfran today.

Reference

Cayman Islands Monetary Authority, Cima.ky

Important Updates to Cayman Islands Companies Law, Tridenttrust.com

New Cayman Islands Substance Law, Home.kpmg.

Recent Legislative Changes, Amsfinancial,com.

About the Author

Jessie Kang is Strategic Communications and Research Intern at DesFran. Jessie has been in the field of research for almost 10 years, and will be completing her PhD studies in Nanyang Technological University soon. With keen interest in cultural studies, Jessie conducts research in narrative studies and postmodernist fictions as part of her academic work. The internship at DesFran allows Jessie to apply her research experience and skills in the commercial setting while learning more about the finance industry.

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