History

On the dark and moonless night of February 8th 1794, a navigational error resulted in ten British Royal Navy ships being wrecked on the treacherous coral reefs off East End, Grand Cayman. The local people saved everyone aboard the ships, including, so the story goes, a royal prince. When King George heard of this act of gallantry, he is said to have decreed that the people of the Cayman Islands should forever be free from taxes and war conscription. There is no doubt that the Wreck of the Ten Sails took place, but there is no documented evidence of the royal decree.

 The real reason for the Cayman Islands being a tax-free jurisdiction is rather more prosaic. Until the mid 1960s, the population was less than 8,000, and Caymanians made their living from subsistence farming, fishing, turtling and making thatch-rope, while many of the men served as merchant seamen on ocean going ships, usually flying the American or Liberian flag.

 This basically meant that most of the residents in Cayman were living on meagre earnings, there were few companies and capital gains were virtually non-existent, so there was nothing worth taxing. In fact, Cayman's status as an international financial centre derives from the foresight of some early legal practitioners and a receptive government who, in the mid 1960s, together drafted and enacted legislation to take advantage of the absence of any form of direct taxation on individuals and corporations based on income or wealth.

 In the following decades more international banks were attracted to Cayman, together with law and accountancy firms. When the Bahamas became independent from the UK in 1973, a number of expatriate workers from that jurisdiction were attracted to Cayman as a stable place to do business.

 By this time, in 1952 an aircraft runway was constructed and in 1953 Barclays Bank opened a branch on Grand Cayman. It is notable that cooperation between the Government and the private sector has continued to this day. This, combined with a policy of welcoming expatriates with special skills to the Islands and a growing population of well-educated Caymanians, has propelled the Cayman Islands into the forefront of the international financial industry.

 To this day there are no income, inheritance, sales, corporation, capital gains or withholding taxes in the Cayman Islands.

Jurisdiction of Choice

The Cayman Islands is currently the world's fifth largest financial centre. To be successful in this competitive industry requires political and economic stability, tax neutrality, a responsive legal system, a stable banking environment, a sound regulatory regime, absence of exchange controls, and the presence of highly sophisticated service providers. All these factors, as well as Cayman's continued status as an overseas territory of the United Kingdom and its cooperation with the United States and the European Union to prevent tax evasion and money-laundering, provide the necessary level of confidence to ensure a hospitable financial environment. 

 Cayman continues to attract service providers such as lawyers, accountants, and administrators of the highest calibre, which makes the jurisdiction very attractive to foreign investors. The wealth of international expertise available in Cayman is one of the key factors making Cayman a jurisdiction of choice. Clients have access to a wide array of services including banking, trusts, mutual funds, company management, structured finance, vessel and aircraft registration, insurance and stock exchange listings. More details are provided below.

Taxation
It has been suggested, unofficially, that a tax haven is somewhere that has little or no taxation, protects personal financial information through laws blocking the sharing of information and exhibits an obvious lack of transparency. However, there is no global agreement (even the US Treasury refuses to subscribe to any definition) and so it is difficult to suggest that the Cayman Islands are a tax haven based solely on the fact that there is no direct taxation.
    Indeed, Cayman has been diligent in its efforts to be transparent and to sign laws that benefit foreign governments in the sharing of information. In 2000, the Cayman Islands government signed up to the OECD's project to eliminate harmful tax practices and join the Global Forum on Taxation. In 2001, as a demonstration of the OECD commitment, the Cayman Islands signed a tax information exchange agreement with the US which is in force for all civil and criminal matters. A few years later, the Cayman Islands agreed to implement the European Union Savings Directive, automatically reporting individually to each of the 27 EU member states the interest income earned by EU citizens in Cayman Islands bank accounts.
    Since then the Cayman Islands has also signed numerous tax information exchange agreements modeled on the OECD standard for bilateral tax information exchange and continues to actively negotiate additional agreements. Furthermore, the Cayman Islands has pioneered a unilateral mechanism, which provides for precisely the same range of tax information exchange in relation to tax information matters without a bilateral treaty and thereby provides access to a further 12 countries including the United Kingdom, Japan, Ireland, South Africa and Germany, among others.
    Interestingly, after each of these transparency initiatives was signed the transactional flows to the Cayman Islands increased substantially, no doubt because of the institutional business which was attracted to the Cayman Islands.

Banking

Regulated by the Cayman Islands Monetary Authority (CIMA), banking in the Cayman Islands is big business, with 269 banks (June 2009) registered and around one trillion US dollars on deposit and booked through the Cayman Islands. The majority of these banks are branches or subsidiaries of established international financial institutions conducting business in the international markets. More than 80% of this one trillion dollars represents inter-bank bookings between onshore banks and their Cayman Islands branches or subsidiaries. Cayman Islands banks are bound by strict anti-money laundering laws, which together with know-your-customer (KYC) regulations, are recognised as meeting or exceeding those of all major onshore jurisdictions.

 The 269 bank and trust companies licensed in Cayman are split into A and B classes, with the former licence permitting banks to carry out local and international business. There are currently 18 Class A licensed banks in the Cayman Islands, with seven of those carrying out retail services. The other banks hold Class B licences and are mainly restricted to offshore transactions with non-residents.

Investment Funds