THE OPPORTUNITIES TO INVEST IN CAYMAN - AN OVERVIEW

Much has been written about the Cayman Islands being tax-free and, whilst this is not exactly true, there are definitely benefits to be had for people moving to Cayman in the areas of investments, property and duty free shopping. The reality from an individual’s perspective is that, apart from your payment contributions to compulsory medical insurance and your pension, there will be no deductions from your salary for Cayman income tax and no Cayman taxes on profits and gains from investments. Moreover there are no sales, goods and services taxes or VAT and many luxury goods in Cayman are either virtually or completely duty free. Also if you decide to live out the rest of your days in Cayman, there are no inheritance taxes or death duties payable to the Cayman tax authorities. One potential option for retirees is to supplement a pension with an annuity. (See more information later in this chapter).

 The Cayman government raises the money needed to run and improve the infrastructure of the Islands from customs duties, fees for local work permits and licences, tourist accommodation tax and fees raised from the financial services industry and tourism. Typically import duty is 20% on any item imported into the Cayman Islands, although some goods like vehicles, wines, spirits and some food items are charged at varying rates.

 If new residents import their used household and personal belongings (which they have owned for more than six months) within six months of their arrival, then they will not be charged import duty. After this time normal tariffs will apply. (See the Preparing to Move chapter for more information.)

 In addition, each individual resident has a customs allowance of CI$350 for personal goods each time they enter Cayman.

 Visit www.caymanislandscustoms.com for more information on new resident import allowances, customs allowances and import duties.

Working in Cayman is about the slower pace of life and being able to enjoy the year-long tropical climate, white sand beaches and warm, crystal-clear seas. Some might say that working in Cayman is also particularly rewarding as your earnings and any savings or investments are tax-free so you don’t have to give a large portion to the taxman!

 That said, the cost of importing pretty much everything and the added import duty make the cost of living significantly higher than in many mainland countries, but at least in Cayman you have a choice about how much you spend beyond the basic necessities.

 Often it takes people a while to make the most of tax-free investment opportunities in Cayman. Most people know that there are tax advantages to be had, but are less certain as to how to go about maximising these opportunities and how to get started with the whole process.

 The financial services industry in the Cayman Islands is renowned globally for it expertise in financial services. Naturally, the growing wealth of the population of the Islands has led to an increase in demand for financial services. Many local small Caribbean banks have grown in size and a number of international banks have set up branches in Cayman to share in the Country’s success. This has led to a great choice of banks for people living in Cayman.

 These options are wide ranging with many organisations offering the basic chequing account services, which most people need on a day to day basis, and also deposit accounts and investment services for those who have money to put aside.

 So before you set sail to your island in paradise, you may well wish to consider the following:

1) Seek tax advice in your country of residence. The tax authorities in Canada, the UK and the US treat income differently when you leave home. You should find out if it makes sense to transfer savings and investments to Cayman or just keep them at home. Also you will need to find out how long you need to be a non-resident before you secure your tax-free benefits, if at all. Tax legislation is continually changing so you need to ensure you have the latest information before you make decisions on investing. For example, at the time of going to press, in the UK you have to be a non-resident for one full tax year in order to avoid tax on your income. There are restrictions on the number of days you can then visit the UK. Visit www.hmrc.gov.uk for more information. If you are a US citizen you are liable to be taxed on your worldwide income irrespective of where you physically earn your income though you may be eligible for a tax allowance on the first US$87,600 of earned income. Canadian citizens have to prove that they have severed ties with Canada to avoid paying tax.

2) When you arrive in Cayman one of the first items on the agenda is to open a bank account. This will enable you to get a cheque book, a debit card and to use ATMs. Several banks in Cayman offer online and direct-debit banking services, but, at present, it is limited to only a few service providers. (Note that banks in Cayman are strictly regulated by the Government-run Cayman Islands’ Monetary Authority, but there is no equivalent in Cayman to Federal Deposit Insurance, which means that your deposits are not protected if a bank becomes bankrupt.)

3) The next step is to go beyond the usual retail banking services and to get an investment account. You will then be able to take advantage of some of the other services that banks offer such as getting investment advice, using brokerage services or, for those with greater assets, using discretionary investment management services. Most of the retail banks in Cayman have a full range of financial services and there are an increasing number of financial institutions which specialise in advising individuals who are looking for private banking or wealth management facilities.

4) At the simplest level, if you are looking to earn a little more from your savings you might consider moving funds from your deposit account back home to a Cayman based account which is not taxed at source. At the time of going to press US$ fixed deposits in Cayman are paying between 2.5% and 3.5%, but of course with the current market situation these rates are likely to fluctuate. These rates are based on money market funds with daily liquidity and with no direct link to the stock market. Other fixed term deposits are available and rates will vary depending on the size of the deposit. Interest payments are, of course, paid with no tax deducted. Just to emphasise the benefit of investing tax free; if you invested US$100,000 over seven years at 4.25% you would receive US$133,824 but if there was 30% withholding tax deducted it would only amount to US$122,778. Again, we strongly advise you to be aware of your individual tax situation as it might be that you get no tax benefits at all. You are likely to obtain even better rates by speaking with a broker from one of the banks on the Island.

5) Most banks in Cayman have an investment/brokerage company on the Island that has full access to all the major world markets. In addition they will have mutual funds, both proprietary and third party, that you can take advantage of. It is easy to just put your money in a savings account earning from 1% to 3%, but with a little effort you can learn other ways of making your money work for you.

6) In anticipation of you establishing your bank account or investment account, you will save yourself a significant amount of time if you come prepared. With the current environment of due diligence there are a number of documents required to establish an account in Cayman. The requirements may vary with each institution but generally you will require the following:

a) Your passport. Most banks need to see your original passport, although some banks will allow a notarised copy of the photo page of your passport if you are unable to apply in person.

b) A second picture ID verification duly notarised.

c) Confirmation of your residential address. This could be difficult as you will most likely not know where you will be living and, therefore, this is likely to be waived.

d) A banking reference from an existing bank where you have been a customer for more than three years.

e) A professional reference from an accountant or lawyer who has known you for more than three years. (References should be addressed to the bank with which you will be opening an account and therefore you may want to consider which bank this will be before you arrive in Cayman. Banks and financial institutions in Cayman do not generally take a reference addressed “To whom it may concern”).

7) Think about your future needs. If you plan to return to a country that is not US dollar denominated, consider converting your CI$ or US$ earnings on a regular basis. If you save during your stay but only convert your savings when you return home you may be lucky, but exchange rates may work against you. Converting funds on a regular basis will average out what you receive. Again a broker or financial adviser will be able to assist in this regard.

8) Higher returns are potentially available for people who are prepared to accept a little more risk. We have already mentioned the benefits of a money market account or fixed deposit account, but you might also consider investing in a conservatively managed portfolio where you could be looking at returns of 7.5% per annum. As an example, if you invested US$100,000 over seven years at an average return of 7.5% you could expect to earn US$165,905, which compares favourably to 3% deposit account which would grow to around US$123,000. It is all a question of risk versus reward. For those who are prepared to accept higher risks, double digit returns can be achieved, but of course there is a very real risk that investments will also reduce in value depending on market conditions.

9) When you decide it is time to go home, you don’t necessarily have to liquidate everything and take the money back with you. Again, you will need to be fully aware of your individual tax situation and what you are legally allowed to do. Whilst you are in Cayman, you may want to consider setting up a Cayman company or a trust to own your investments and these could potentially provide tax advantages when you return home. The retail bank you choose will have a trust department that can advise you on what may be best for you. As with your arrival, when you are planning your return home, it is essential to obtain competent tax advice on what to do with your investments, as well as the optimum timing of your return within a tax year.

10) As well as saving in investment products, do not overlook the opportunity to buy property on the Island. If you consider how much rent you will pay over five years, it is likely that your monthly outgoings if you purchase a property will be similar, and of course you also have the potential capital growth on your property during the time of ownership. Even if you leave the Island you may well find you can rent the property and keep the investment for future growth. Cayman banks are eager to grant mortgages to suitably qualified applicants. The section on Finding a Home will give you more information.

So in conclusion, it would be unwise not to take advantage of the investment opportunities that exist in Cayman, but you should strike a healthy balance between saving and enjoyment. There are lots of ways of spending money in this part of the world. It’s fun to go to Disney World in Orlando with the family, or spend the weekend in Miami, Jamaica, Cuba or New York, as these are just a short flight away, and you should do this so that when you leave it is not just money, but also memories, you have saved.

Wealth Management

You may be happy with your investment advisor back home and initially have no plans to use a Cayman based firm but the advantages of having a local office of a global firm, or direct access to a locally based banking group, are compelling. Not only will your investment advice be delivered in your time zone and face to face but also your advisor will be familiar with the sort of investments that can take advantage of your new tax status.

 If you are moving to Cayman and have already created your wealth, then you will find a number of overseas wealth management firms have offices in Cayman. Globally renowned private banks such as Barclays Private Bank, Butterfield Bank, HSBC, RBS Coutts and Scotiabank, or the investment arm of the only bank headquartered in Cayman, Cayman National Securities, offer a sophisticated suite of investment solutions for clients with above average net worth. A good starting point would be to talk to one which will understand the tax and regulatory issues in your home country.

 Brokerage firms here offer a range of client account types and a full suite of products. You will have access to the full spectrum of offshore hedge funds with choices ranging from low volatility funds to those which are aggressive and specialised. You will also find that you have access to a wide range of interest bearing securities, structured notes (including equity link notes) and step up bonds; in addition to full access to the Eurobond market in multiple currencies. There really is an endless array of product options.

 If you are more of a traditionalist then you may prefer to stay with the types of services you are used to back home. Brokers in Cayman can offer traditional, execution only, brokerage style accounts where little or no advice is given. These accounts can be commission or fee-based. Alternatively, there are managed account options where the client can still have significant input or opt for a fully managed discretionary portfolio employing professional money managers. Managed accounts tend to be fee-based and you will find the fee-based accounts to be competitive in their pricing structure.

 There are not a lot of monthly contribution-style accounts because of the lack of deferred tax planning necessary. However, a number of the large retail banks and brokerage firms will structure a traditional brokerage account to receive monthly contributions and to re-invest those contributions into a portfolio of mutual funds and hedge funds.

 If you are in a position to require wealth management solutions, a number of organisations which offer them are listed below.