The Cayman Islands Government recently announced that it had concluded negotiations with the United States on a Model 1 intergovernmental agreement with regard to the Foreign Account Tax Compliance Act (FATCA) and a new tax information exchange agreement (TIEA) also with the U.S. The signing of such agreements is scheduled to take place in the near future. This should indicate to the U.S. authorities Cayman’s clear stance on the reason for its financial system and finally dispel the myths that still circulate.
Even though the Cayman Islands appears to have been among the first few offshore jurisdictions when it comes to agreeing to a Model 1 FATCA agreement, I wonder how much credit we shall actually receive for taking such a pro-active stance? As the rollout of global automatic tax information exchange appears inevitable, Cayman has done well to set itself apart and in front of many other financial centres that are still in the negotiations stages.
Creating a fair business environment
I believe that a level playing field must be created that encompasses all financial services jurisdictions, onshore as well as offshore, to ensure that every jurisdiction is treated equally when it comes to the demands of the U.S. and other jurisdictions’ authorities for tax information exchange. This is because the cost of implementing new compliance procedures to deal with these requirements will be felt by every business that falls under FATCA, detrimentally affecting their bottom line in each case.
A level playing field should include the application of similar obligations on the onshore jurisdictions on a federal and state level, including , in the U.S., states such as Delaware, Nevada and Vermont, which between them are understood to domicile over 20 times more companies than Cayman.
The need to join forces
Now is a good time for offshore jurisdictions such as the Cayman Islands to meet with other similar countries such as Bermuda, the Bahamas, the British Virgin Islands and the Channel Islands of Jersey and Guernsey to see how we can pool resources and join forces to become a single voice when it comes to the ongoing demands of the U.S. and other onshore authorities. In this way we would be in a better position to announce clearly our stance on their continued desire to know more. FATCA, as it has been pointed out many times already, is just the tip of the iceberg.
Real estate not a tax issue
So now that the U.S. authorities are in a clearer mind as to how and why we operate here in the Cayman Islands I feel it is a good time to look at the issue from a property perspective. People who invest in Cayman Islands property do not do so to evade paying taxes. Investing in property here is a legitimate way to broaden an individual’s portfolio, a normal and regular event that happens all around the world.
Investing in Cayman property is predominantly an activity undertaken by people who want to have a back-up plan when it comes to their investments, particularly in light of the recent downturn in the global economy and the general shift by many governments of the world to a more socialist outlook, even in the U.S. where taxes are on the increase. People are thereby looking to other means by which to increase their investments from the volatilities of traditional markets.
It should be noted that when individuals come to sell their Cayman Islands properties they are obligated to pay taxes on the repatriation of funds anywhere in the world. To my knowledge, no one in the Cayman Islands is persuading them not to.
The reasons for investing in a Cayman Islands property have been often discussed but I believe they are worth repeating. Investors have the benefit of a safe and stable environment which can be enjoyed by themselves and their families for years to come. In some cases they can also enjoy the benefits of a regular rental income, should they decide to rent their properties. Other benefits also include our naturally beautiful scenery, low crime relative to the investor’s home country, child-friendly environment, first world infrastructure, communications, amenities and direct flights to many major North American cities. In addition, investors also have access to one of the most sophisticated financial services centres in the world right on their doorstep.
Economic expansion moves along, buoying up real estate
The Cayman Islands has been busy expanding and diversifying its economy with the development of a brand new medical tourism facility created by world renowned healthcare pioneer and cardiologist Dr. Devi Shetty.
Cayman’s Health City is a phased project that will eventually see the development of a 2,000 bed hospital complex that will be one of the largest in the western hemisphere. I am delighted to note that the first phase 140-bed tertiary-care hospital which will be a centre-of-excellence in cardiac surgery, cardiology and orthopedics is still on schedule for opening in February 2014.
This is a very exciting project that will benefit a great many in the Cayman Islands, although mainly from the tourism perspective rather than real estate, at least in the initial phases. While initially it is likely that patients will come and go as they recuperate, it is hoped that some may enjoy their stay so much that they will return once in good health to purchase a property here. And in time the surgical staff who will be working at the hospital will hopefully want to put down roots and remain in the islands for a good while, thereby eventually moving into the real estate market.
At the end of the day, it is worth remembering that the Cayman Islands real estate market is a small market and we do not need a huge amount of activity to have a positive effect on the market. Small is most definitely beautiful in our case.