Led by construction, real estate and financial services, Cayman’s economy grew 2.4 percent in the first quarter of this year, according to a report by the government Economics and Statistics Office.
“The domestic economy continued to strengthen as GDP growth accelerated from the 1.4 percent recorded in the first quarter of 2015,” said Finance Minister Marco Archer. “Overall, the recent performance means that we are on track in achieving the 2.1 percent forecast GDP growth for the year.”
Air arrivals in the first quarter fell by 2.5 percent, compared to the first quarter of 2015, as arrivals from the United States rose by half a percent, but arrivals from other markets, including Europe and Canada, dropped. Visitors from the U.S. accounted for almost 80 percent of air arrivals.
However, referring to the new Kimpton Seafire resort on Seven Mile Beach, the ESO report anticipates that the added rooms for high-end stay-over tourists will help boost tourism numbers.
“As supported by the first quarter economic performance, the macroeconomic outlook for the calendar year 2016 remains upbeat with further upward growth potential if a new hotel project currently in progress will increase stay-over tourists during the last quarter of 2016,” the report noted.
Meanwhile, cruise arrivals continued to increase, up 12.5 percent in the first quarter compared to the same period in 2015. During the first quarter of this year, 224 cruise ships arrived in Cayman, up from 209 for the same period last year.
The construction industry grew by 6.3 percent in the first quarter of the year.
The ESO’s quarterly report states, “Demand for construction services is expected to be sustained by on-going projects such as the expansion of the Esterley Tibbetts Highway and the Owen Roberts International Airport and the completion of private sector development projects.”
The value of property transfers increased significantly in the first quarter compared to Q1 2015, to more than $305 million from less than $150 million as a result of sales and lease extensions of several multimillion-dollar properties along Seven Mile Beach.
Government expects surplus in 18-month budget
Members of the Legislative Assembly in June approved an 18-month $862.4 million budget for government. Core government expects to bring in more than $908 million and have a $46 million surplus.
The budget, which went into effect July 1, did not include any new taxes or fees.
The Legislative Assembly this year decided to change its fiscal year to match the calendar year, and the new budget will reset the schedule and carry government through the end of 2017.
Statutory authorities and government companies are budgeted to get more than $150 million during the 18-month period. The Health Services Authority has almost $45 million in the budget, primarily for indigent care and for people without suitable insurance.
Government also set aside almost $43 million for health insurance for civil service retirees, seamen and veterans. Cayman Airways will receive more than $24 million in subsidies, covering the national airline’s budget shortfall.
The budget includes more than $103 million in investments in capital projects without new borrowing. The projects include almost $8 million for the development of the new John Gray High School, almost $7 million for George Town revitalization and $6 million from the Environmental Protection Fund to buy land for environmental conservation.
Government also plans to spend more than $2.5 million on a new long-term residential mental health facility, $6.5 million for a new solid waste facility, $1.5 million for a household recycling center, and more than $3 million on road upgrades.
Bills update intellectual property rights
With an updated law governing copyright that came into force earlier this year, government approved a suite of new laws and amendments to update trademark, design rights and patent rules.
The Trade Marks Bill creates a new trademark registry in Cayman that would replace the current system, which requires trademarks to be registered in the United Kingdom and then extended to the Cayman Islands.
The Design Rights Bill would create new protections for designs and allow designs registered in the U.K. or the EU to be extended to Cayman.
Under new trademark rules, local companies would no longer have to go through the U.K. to register, and international companies would be more comfortable with the protection of their trademarks in the Cayman Islands.
Amendments to Cayman’s patent rules, published with the other new bills that were approved by lawmakers in the Legislative Assembly in early October, aim to stop frivolous patent lawsuits, a phenomenon known as “patent trolling.”
The amendments specifically outlaw making claims for “patent infringement in bad faith.” The amended law further states that Cayman’s courts will not recognize court rulings on patents in other jurisdictions that were made in bad faith.
Italy adds Cayman to tax ‘whitelist’
Italy has included the Cayman Islands on the list of jurisdictions it deems cooperative in tax matters.
The amended list reflects numerous bilateral and multilateral agreements signed by Italy during the past several years and includes 51 additional countries, among them offshore centers such as Bermuda, the Cayman Islands, Hong Kong, Liechtenstein and Switzerland.
The Cayman Islands signed a tax information exchange agreement with Italy in December 2012, which came into force in August 2015. But the Italian government amended the tax cooperation whitelist by ministerial decree and published the list in the Official Gazette in August of this year.
Taxpayers resident in the whitelist countries who invest in the Italian market have access to a range of tax benefits, and some benefits are afforded to Italian taxpayers dealing with whitelisted countries.
For instance, the inclusion will allow Cayman Islands funds to invest in Italian securities such as bonds and securitization instruments and receive interest payments gross of withholding tax.
According to the decree, the Italian Ministry of Finance will be able to remove jurisdictions from the list that do not comply with their reporting obligations. The list is updated every six months.
Cayman Finance CEO Jude Scott welcomed Italy’s decision to include the Cayman Islands on its whitelist.
“This inward investment from Cayman will ultimately help stimulate economic activity, create much needed jobs and generate taxable revenue in Italy,” Mr. Scott said.
ESMA delays passporting decision
The European Securities and Markets Authority deferred its recommendation on whether the Cayman Islands should be granted a third-country passport under the Alternative Investment Fund Managers Directive.
Passporting would allow fund managers in Cayman to do business throughout the European Union. In order to be granted a passport for alternative investment funds, a country has to have suitable protection for investors and enforcement measures in place that comply with EU rules. Without a passport, fund managers have to apply to each EU country to do business there.
For Cayman and Bermuda, the regulator said in a statement, “ESMA cannot give definitive advice with respect to the criteria on investor protection and effectiveness of enforcement since both countries are in the process of implementing new regulatory regimes and the assessment will need to take into account the final rules in place.”
Jude Scott of Cayman Finance said, “Given the large number of alternative investment funds domiciled in Cayman, we play a critical role in the success of the global economy. Cayman has also been recognized for decades as a strong partner of EU members and other states in combating corruption, money-laundering and tax evasion because we meet or exceed all globally accepted standards for transparency and cross-border cooperation and regulation.”
He added, “We had hoped that this exceptional record should have been sufficiently good grounds to enable Cayman to be favorably reviewed by ESMA at this point in time.”
In the authority’s decision to defer a passport for Cayman, the regulator notes that it is awaiting two changes from the Cayman Islands Monetary Authority. First is a legislative amendment to give CIMA the power to impose administrative fines for regulatory breaches without having to bring the matter to court. The second change noted by the EU regulator is that CIMA is currently working on a better system for risk monitoring.
Once the pending legislation to make Cayman compliant with the EU funds regime is in place in late 2016 or early 2017, Mr. Scott said, there should be no further impediments to Cayman’s AIFMD passport application.
The authority advised the European Commission to grant passports to Canada, Guernsey, Japan, Jersey and Switzerland. It deferred decisions on the Cayman Islands, Bermuda, United States, Hong Kong, Australia, Singapore and the Isle of Man.
Cayman Islands-registered firms top 100,000 mark for first time
The number of active companies on the Cayman Islands company register has exceeded 100,000 for the first time in its history. See figure 1
At the end of the second quarter, 101,430 companies were listed as active, 3 percent more than a year earlier and 2.6 percent more than at the end of 2015.
Cayman-registered companies were poised to break the 100,000 mark for the past two years. In 2014, the number of registered companies fell just short at 99,459. Last year, this figure declined slightly despite a 7.8 percent increase in new registrations, as company terminations were 64 percent higher in 2015 than in the previous year.
The rise in terminations was mainly due to 1,359 local companies being struck off the register in 2015, compared to the usual 100 to 200 per year, in the wake of a new company licensing regime.
New company registrations reached a high of 14,240 in 2007 but dropped during the financial crisis to 7,863 in 2009. Since then, new company registrations have recovered steadily to 11,864 in 2015.
In the first seven months of this year, new registrations were 12.3 percent below the levels seen at the end of July last year, but terminations have also declined significantly. By July 6,555 new companies were registered, compared to 7,475 in 2015 and 6,453 in 2014. The newly introduced limited liability company form attracted 21 registrations in the first month.
The growth in the second quarter indicates that the impact of the Panama Papers revelation on the demand for offshore financial services has been benign.
New partnerships registered in Cayman increased by 1 percent in the 12 months ending in June compared to the same period last year. A total of 3,334 new partnerships were incorporated in Cayman during the past year, continuing the trend of uninterrupted annual growth since 2009/2010.
As of July, 1,923 new partnership registrations significantly exceeded 588 partnership terminations and resulted in more than 19,000 active partnerships registered in Cayman.
However, the number of trusts on the register dropped by 1 percent to 1,784 in the first two quarters of this year, continuing a trend of small declines since 2014. As of July, 68 trust terminations outweighed 56 new trust registrations, General Registry statistics show.