Special Economic Zone Law explained

Read our article in the Cayman Financial Review Magazine, eversion 

After almost a year of discussions and consultations, the Special Economic Zone Law was passed by the Legislative Assembly on 30 September 2011 and published in the Cayman Islands on 21 November 2011, paving the way for what is widely hoped to be the third pillar of the Cayman economy.

The businesses in the Special Economic Zone (SEZ) will be complementary to rather than competing with the other two pillars, financial services and tourism.

Coupled with the boost to the economy, there will be extensive new and enhanced job opportunities for Caymanians and an innovative and consolidated local career development programme for Caymanians providing training in the new types of careers available in the SEZ.

We don’t have to go too far back in the history of the Cayman Islands to note that not that long ago the main industries of today’s economy did not exist.

In the 1960s organised tourism was just in its infancy and there was no financial services industry to speak of with just one international bank based in Cayman before 1963.

The population in the whole of the Cayman Islands was about 8,500 people and even by 1970, only 403 tourists visited the Cayman Islands on holiday that year.

Owing to the vision of some very determined entrepreneurs and individuals from the government, law firms, accounting houses, banks and other business sectors, the Cayman financial services industry has grown exponentially and by 2008, the CIA World Factbook rated Cayman as having the fourteenth highest GDP per capita in the World.

Even though for the last 40 years, the Cayman economy has been able to rely on the terrific financial and tourism growth, the worldwide global recession beginning in late 2007 halted Cayman’s growth as an economy, giving rise to the need to reinvigorate the entrepreneurial spirit shown in the late 60s and early 70s.

The current laws of Cayman have enabled the financial services and tourism sectors to grow and prosper but they have so far not encouraged the widespread movement into Cayman of non- financial services businesses and many of the new-age knowledge-based industries.

The introduction of legislation to allow SEZ’s to be implemented in Cayman could well provide the much needed shot in the arm for Cayman to continue its evolution as a major force in the worldwide economy.

The benefits of SEZ’s can be seen by the successful implementation of such developments in Dubai alone, which over the last ten years has seen thousands of tenants establishing themselves in SEZ’s, creating over 65,000 jobs in the region and generating about 40 per cent of Dubai’s GDP.

What is the Law about?

The purpose of this new legislation is to clarify the methods of establishing, regulating and administering SEZ’s within the Cayman Islands. Many commentators during the consultation process for the Law have questioned how the establishment of an activity within a SEZ will be regulated. The Law clarifies the issue by creating a new authority called the SEZ Authority.

The Law also sets out in detail the process for establishing a SEZ, what is required from the developer of the zone and the requirements for companies to conduct business within a Cayman Islands SEZ. The Law highlights the numerous advantages of companies conducting business within a SEZ and the specific advantages of working within Cayman Enterprise City, the pioneer behind introducing the concept of a SEZ to the Cayman Islands.

The Authority

The composition of the SEZ Authority includes representatives from the Department of Commerce and Investment, Customs, the Immigration Office and the Planning Office with a Department of Government to be designated as the Secretariat, responsible for the day to day administration of the Authority.

The posts for acting for the Authority will last for two years but such a person can be reappointed at the end of the term.

The purpose of the Authority will be, amongst other things, to identify the areas to be designated as SEZ’s, to examine and process applications for the establishment of SEZs, to process applications for trade certificates within those SEZ’s and to provide a streamlined facility for processing of applications through the chief immigration officer for work permits (or “Zone Employment Certificates” as they will be called in these circumstances) for those who will be working within a SEZ.

The Authority will also have the role of ensuring that the conditions of the issued trade certificates and the licences for the developers of SEZ’s are adhered to, equipped with responsive powers to take action where there is non-compliance.

Special Economic Zones

Under the Law, the Governor in Cabinet may designate, at the recommendation of the Authority, any parcel of land or location in Cayman as part of a SEZ. This can be a current building or any part of such a building and does not need to be a newly constructed site, to facilitate the immediate garnering of new businesses into Cayman.

Such an order designating the land as part of a SEZ will also specify the limits and the type of business authorised to be carried on in the SEZ.

The Governor in Cabinet may also order that a person be declared a developer of a SEZ and the order shall specify the name of the zone, the conditions imposed on the developer and other benefits over and above those stated in the Law.

Businesses within a SEZ

In order to carry on SEZ business within a SEZ in Cayman, a company must either be an exempted company or an exempted limited partnership and must hold a valid trade certificate. The process for obtaining a trade certificate is set out in the Law and the regulations.

A trade certificate will be obtained more expeditiously than those licences currently obtained under the Trade and Business Licensing Law, from which legislation businesses operating within a SEZ are exempt.

Anyone who carries on such business but does not have a valid trade certificate is liable to a fine and or imprisonment in much the same way as existing licences for non SEZ businesses in Cayman.

In regards to Cayman Enterprise City, and possibly for later SEZs, on receipt of an application for a trade certificate directed to the Secretariat by Cayman Enterprise City with which applicants must contract for “space” in the zone the Authority may within three working days of receipt of the application ask for more information after which the applicant has 14 days to respond, or such other period as the Authority specifies. The Authority then has seven days to grant or refuse the application giving reasons.

Once a business working within a SEZ has been granted a trade certificate by the Authority and listed on the Register of Companies (if a company) it is known as a “special economic zone enterprise” and shall have as its principal purpose the carrying on of business mainly outside the Cayman Islands.

A special economic zone enterprise shall not trade in the Islands with any person, firm or corporation except for purposes that are ancillary to or in furtherance of its business carried on outside the Islands.

A special economic zone enterprise, however, can effect and conclude contracts in the Islands and exercise all of its powers necessary or expedient for the carrying on of business outside the Islands. Price controls imposed within Cayman will not apply to the sale of any article, good or services sold or supplied by a special economic zone enterprise.

Non-Caymanians may hold up to 100 per cent of the equity in a development company or special economic zone enterprise. Furthermore, a trade certificate cannot be transferred or assigned but in relation to Cayman Enterprise City, as the only special economic zone on the immediate horizon, and will be granted for the period of which the special economic zone enterprise has contracted with the developer.

The advantages for a special economic zone enterprise in Cayman include exemption from the Trade and Business Licensing Law, the Local Companies (Control) Law, the Electronic Transactions Law and the Land Acquisition Law.

There is also an exemption from liability to pay any direct or indirect taxes, import or other duties or fees including those associated with registration, filing, employment, immigration, work permits and income and gains that are or may be levied by the government until 2061.

Cayman Enterprise City

Cayman Enterprise City will comprise six business parks, intended to stimulate the Cayman economy by encouraging knowledge based businesses to have a physical presence in the Cayman Islands:

  1. Cayman Media Park – designed to attract media-related businesses (including film, music, broadcasting and new media) to operate globally out of Cayman;
  2. Cayman Internet & Technology Park – for global IT and software businesses to create the largest Information and Communications Technology cluster in the region;
  3. Cayman Commodities & Derivatives Park – to create the first dedicated commodities and derivatives centre in the Americas’ time zone;
  4. Cayman Biotechnology Park – for major pharmaceutical businesses;
  5. Cayman Outsource Park – to facilitate the production and manufacturing for SEZ-based businesses of products in other jurisdictions; and
  6. Cayman International Academic Park – designed to create the world’s only Technology Special Economic Zone dedicated to higher education.

Cayman Enterprise City is endeavouring to broaden both the business base in the Cayman Islands and the skill-sets of young Caymanians leaving school.

A Cayman Enterprise City Career Development Bureau (CCDB) will be created to award scholarships to Caymanians seeking higher education and establish higher education programmes designed to provide Caymanians with the requisite skills and expertise to secure employment within the SEZ.

As part of the effort by Cayman Enterprise City to promote the Caymanian workforce, the CCDB will set up a database comprising all businesses working within the SEZ and work closely with these businesses to monitor and address the businesses’ needs for Caymanian workers.

In the coming years there are likely to be exciting developments in the job market for Caymanians and a new impetus for attracting new business to Cayman.

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