The pressure from onshore tax countries on offshore jurisdictions seems to continue unabated, despite the robust regulatory framework within which we operate in the Cayman Islands.
Anti-corruption law strengthens country
Back in 2010 the Cayman Islands enacted its Anti-Corruption Law, a piece of legislation which was welcomed by the local community and from the investment community broader afield, as the country had installed a new legislative regime designed to address any corruption among our public sector. Since then, we have seen a certain number of government officials, both low and high profile individuals, who have been investigated under this new law.
From our perspective in the real estate industry, the legislation was a good thing, heightening the level of transparency within which we operate and bringing down the notion that the islands operated under the direction of some kind of ‘old boys club’, i.e. it’s not what you know, it’s who you know.
The enactment of the legislation has meant that foreign nationals coming to live and do business in the Cayman Islands can do so safe in the knowledge that they will be treated the same as everyone else who lives here. This has been extremely beneficial for the country, in my view, and the real estate industry in particular, encouraging investors to buy property within a clear and open environment.
Resilience equals growth
Cayman’s real estate industry has grown in leaps and bounds over the decades, primarily because of the success of our financial services industry, which has attracted high numbers of expatriates to come and live and work in this beautiful location.
Cayman’s financial services industry has always been exceptionally resilient in nature. The very fact that the best and brightest brains from the world are attracted to working within the industry reflects the fact that we are extremely adept and nimble at seeking new lines of business to keep up our high standard of living. As a result, our real estate industry has flourished.
In this way I believe that Cayman will remain strong and vibrant, despite the noise in certain quarters that the financial services industry is about to shrink due to global pressures. An example of this resilience has been the industry’s ability to bounce back from the loss of private client business in recent years, and still remain innovative and growing.
The industry has always found ways to adapt, but it needs the constant support of government in this regard. For example, government should seek to keep immigration costs down to ensure that the industry manages to keep a viable pricing for its services. Keeping Cayman’s primary industry on track means real estate can continue its upward trajectory.
With regard to the ongoing pressures from rich tax countries on offshore jurisdictions such as the Cayman Islands, my view is that people who turn to Cayman as a place in which to invest in property do so not necessarily because they don’t want to pay the taxes in their country of origin; it appears to me that they disagree with the way that their tax dollars are being spent in their own countries.
From my personal experience dealing with clients looking to invest in Cayman Islands property, they do so because they are becoming increasingly concerned that their governments seek to do what they can to keep themselves in power and care less about the interests of the public at large. Investors coming here seek to ensure they don’t have their eggs all in one basket while at the same time enjoying a wonderful holiday home that they and their family can enjoy for years to come.
And if the rich tax countries believe that we are not taxed in the Cayman Islands, they are sorely misguided. We may not pay income, capital gains, inheritance or property taxes, but we are still taxed none-the-less, by way of import duties on consumables, immigration fees on work permits and stamp duty on property ownership.
And unlike onshore residents, we have no way to right off expenses against our tax bill.
When we, whether as a corporate citizen or as an individual, contribute to charity, as many of us do here, all the money we give is out of our pockets, there are no tax credits or government incentives and the only form of credit we might receive being possibly by way of a little exposure as to being a good citizen within the community.
As far as the real estate industry goes, stamp duty payments due to government upon completion of a purchase are large financial outlays for any individual. Rather ironically, it makes sense financially to hold on to your property for a number of years. If you only hold on to your property for five years you will end up in essence paying 1.5 per cent annually, which is somewhat higher than property taxes overseas.
The issue with onshore’s global reach
Pressures from onshore to attempt to create some kind of worldwide supervision for the banking industry seem doomed to failure, from my perspective. I’m just a layman when it comes to the financial services industry, but it seems to me that curtailing financial opportunities between countries is a disaster waiting to happen, because the free flow of markets would be hampered and this is not a good thing for any country. It seems to me that worldwide supervision of banks is more about control than anything else.
Cayman’s own banking industry has been in the news of late, with the necessity of Caledonian to file for bankruptcy following the SEC freeze on its U.S. assets. Whether Caledonian has acted rightly or wrongly, the fact that a U.S. court froze its U.S. assets has obviously had a huge impact on the bank. It is one thing if the bank acted incorrectly, but it’s quite another for the SEC to destroy an institution if it’s found the bank acted properly.
It’s concerning that the SEC can have such a reach in this respect.