The Cayman economy continued to grow in 2016, recording a 3 percent increase in the first half of 2016. It was the highest growth rate since 2007 and exceeded initial forecasts of 2.1 percent for the year.
The first half-year result improved on the 1.3 percent growth for the same period in 2015.
In 2015 gross domestic product grew by 2.8 percent to $2.8 billion bolstered by a drop in gas prices and low unemployment which led to an increase in consumer spending.
While gross domestic product has grown since the 2008 recession, the growth has not kept pace with a population increase of 3.6 percent. As a result, GDP per capita, a measure of economic activity per person, dropped last year by almost half a percent to $48,167.
Unemployment, meanwhile, dropped again in the second quarter of 2016 to a low of 3.9 percent.
Construction, wholesale and retail, and utilities sectors led the expansion during the period.
Stay-over tourist arrivals from Europe and Canada dropped during the first six months of last year, bringing the total number to 210,000, down 1.4 percent from the same period last year. The stay-over losses reversed the gains of 2015, putting the numbers at the same level as 2014.
Consumer prices increase for first time since 2014
The Consumer Price Index, a measure of prices people pay for goods and living expenses in the Cayman Islands, increased overall by half a percent in the third quarter of 2016.
It was the first time the Economics and Statistics Office has reported inflation in the Cayman Islands since the last quarter of 2014.
During the past two years, the falling oil prices led to general decline in consumer prices and masked price increases in other areas.
Last year rents in Cayman and school fees increased, together with the cost of hotels, restaurants and recreational activities.
The ESO report states that the overall rise is “mainly due to the sharp increases of 8.7 percent in the accommodation services price index and 6.3 percent in catering services.”
Compared to the year before, 2016 housing costs increased by half a percent. Rent went up an average of 6.5 percent; home maintenance and repair increased 7.8 percent. Utility prices in September dropped significantly from last year, with water prices dropping about 13 percent and electricity, gas and other fuels down by 18.4 percent. See figure 1
Work permit numbers stabilize at about 24,000
The number of foreign workers on work permits in the Cayman Islands leveled off at the end of 2016, with just less than 24,000 non-Caymanians employed on island as of early December.
The number does not include those who have already received permanent residence or the non-Caymanian spouses of Caymanians.
Overall, the 23,739 permit holders were a slight decline from 24,077 recorded in early July.
According to Immigration Department statistics provided to the Cayman Compass under the Freedom of Information Law each quarter since January 2010, the territory has seen a steady increase in work permits granted in the past six years.
Work permits and government contracts have increased from a low of about 18,500 in fall 2010 to about 20,360 in July 2014. The numbers increased again in January 2015 to 21,400, and then to 22,232 in July 2015.
As of February 2016, there were 23,097 permits and contracts held by non-Caymanians working in the islands, which was eclipsed by July’s figure, stated at 24,077.
The figures show an 18 percent increase in work permits in Cayman since 2014.
Work permit and government contract numbers are still far below the record 26,659 of November 2008.
New EU blacklist targets offshore
The Cayman Islands and other offshore centers could soon find themselves on a new EU list of “non-cooperative jurisdictions” in tax matters.
The European Council of finance ministers published the criteria for including countries in the blacklist in November2016.
The EU will decide whether to blacklist third countries based on three factors: tax transparency, fair taxation and the implementation of anti-Base Erosion and Profit Shifting (BEPS) measures.
The concern that any country without corporate and income taxes would be automatically blacklisted was not confirmed.
However, under what the EU calls fair tax rules, the provisions emphasize that a jurisdiction “should not facilitate offshore structures or arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction.”
How the EU will interpret the rule is not clear, given that most offshore centers facilitate offshore structures or arrangements and are attracting capital flows which do not reflect real economic activity in their jurisdiction.
The EU Code of Conduct Group (Business Taxation) is charged with defining the scope of the fair tax criterion and will “evaluate the absence of a corporate tax system or applying a nominal corporate tax rate equal to zero or almost zero as a possible indicator.”
Cayman does not offer preferential tax measures, another fair tax criterion considered harmful by the EU, as it applies its zero-tax rate uniformly.
Cayman should at the same time have no trouble meeting the tax transparency requirements.
Countries will fulfil the tax transparency criteria if they commit to implement the Organisation for Economic Cooperation and Development’s common reporting standard for the automatic exchange of tax information, and have arrangements in place to exchange information by the end of 2017.
Countries must also be assessed “largely compliant” by the Global Forum, an intergovernmental tax transparency group, in tax matters regarding their systems of exchanging tax information on request through tax information exchange agreements.
Cayman has also committed in principle to a project reforming the application of tax rules in cross-border business to combat the erosion of tax bases and the artificial shifting of profits to low or no-tax jurisdictions.
As a cornerstone of this BEPS action plan, country-by-country reporting requires multinational companies to detail tax and financial information in relation to the global allocation of their income, taxes and other indicators of their economic activity. The aim is to increase transparency on where profits are generated, value is added and risks are taken compared to where a company pays tax.
“Subject to industry consultation, we will be implementing the transparency component of country-by-country reporting,” said Dax Basdeo, chief officer in the Ministry of Finanical Services in December.
The legal platform for its implementation already exists in Cayman through the Multilateral Convention on Mutual Administrative Assistance in Tax Matters.
Cayman government consulted on beneficial ownership platform
Government consulted industry and the public on the implementation of a centralized platform to support the exchange of beneficial ownership information with foreign law enforcement and tax authorities.
Based on an agreement with the U.K. government that was concluded in April 2016, government proposes to establish a platform that centralizes access to information about the true owners of Cayman-registered companies.
The suggested information exchange system requires several amendments to the Cayman Islands Companies Law, the Companies Management Law and the Limited Liability Companies Law.
If approved by the Legislative Assembly, the amended legislation will provide the framework to develop the centralized platform by June 30, 2017.
Minister of Financial Services Wayne Panton said the proposed changes are not an attempt to introduce a public or central register of beneficial ownership information.
“Currently, fewer than a dozen countries around the world have introduced or plan to introduce public registers,” the minister said in December. “Cayman is not one of those countries, and we will not do so until this is the accepted and implemented international standard.
“We do, however, recognize that there has been a strong push globally for greater transparency and information exchange, and that Cayman must act in order to protect our reputation as a leading international financial center.”
Cayman conducted a public consultation on beneficial ownership of registered companies in general in late 2013. It found that the strength of Cayman’s current regime, which collects, maintains and updates beneficial ownership information through licensed and regulated corporate service providers, was an appropriate and preferred system that complies with international standards.
To further enhance the existing system and speed up access to information, the Ministry of Financial Services, together with Cayman Finance, developed the concept of a centralized platform of beneficial ownership information.
In response to data security concerns, the platform ensures that the data remains decentralized.
Under the plans, Cayman service providers continue to be responsible for collecting and maintaining the data but would have to grant access to the information through the new platform.
The information will be accessible by the Department for Tax Cooperation of the Ministry for Financial Services, which collects and exchanges the data with foreign authorities on request within 24 hours.
Financial services fees pay for 40 percent of Cayman’s government
Fees, registrations and licenses charged to the Cayman Islands financial services industry earned about 39 percent of all revenues for central government last year.
According to figures produced in annual financial statements by the Ministry of Financial Services, $102.7 million was earned in regulatory licenses and fees and another $138.2 million was earned in entity registrations (such as company registrations) during the government’s 2014/15 fiscal year, the latest year for which financial statements are available.
In addition, trade and business licenses for financial services companies earned $1.7 million while immigration-related fees charged to financial services companies totaled $13.1 million for the year.
For the year, those taxes and fees accounted for $255.6 million of the $659.6 million the government earned in revenue – not counting the operations of statutory authorities and government companies.
In addition to providing the cash for government operations, the ministry estimated the financial services sector provided about 16 percent of the jobs in the Cayman Islands labor force during 2014. That number includes legal and accounting services within the industry.
“The jobs generated by the industry are relatively high-paying and, in 2014, 71.5 percent of financial services jobs were held by Caymanians,” the ministry’s annual report stated.
According to the government’s latest human resources report, roughly 74 percent of the jobs in the central civil service were held by Caymanians.
In terms of impact on the economy, the annual report estimated some
52 percent of Cayman’s gross domestic product was attributable to the financial services industry and related legal and accounting professions.
“These are measures of direct impact only,” the report stated. “The indirect and induced impacts [purchases of goods, services etc.] account for a further five to 10 percent contribution to gross domestic product.”
This comes in addition to other tourism-related impacts from the financial services sector to the local economy.
A 2009 Oxford Economics study found that more than 31,000 visitors came to Cayman during 2007 as clients, vendors or participants in conferences, staying for a total of 100,000 nights and spending an estimated $20 million.