It’s a well known fact that the Cayman Islands is indeed considered a tax haven. However, there is a lot more to the story than just picking up and moving to Grand Cayman or another one of the Cayman Islands, so today we’ll set the record straight on just how the Cayman Islands tax law works so you can decide for yourself if the Cayman Islands tax haven idea is something you want to execute.
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Cayman Islands Tax Law Explained
The main way the Cayman Islands tax law differs from tax law in other jurisdictions is that the country does not have a corporate tax. This makes it a wonderful landing spot to global corporations to house their subsidiary entities to shield income from taxation.
Additionally, the Cayman Islands don’t tax residents. As a tax neutral country, they don’t tax property, income, capital gains, or anything! We at Cayman Financial Review are on board with that policy!
What is the Cayman Islands Corporate Tax Rate?
The corporate tax rate in the Cayman Islands is zero. It doesn’t have a corporate tax rate.
How Does the Cayman Islands Make Money if there are No Taxes?
Similar to the no income state tax state of Florida, the Cayman Islands make money primarily on tourism. They also earn revenue from work permits, banking, and duties on importing goods. The duties on goods that are brought to the Caymans range from a whopping 22 to 27%, according to Investopedia. There are exemptions, such as items like baby formula, however a lot like Latin American countries, when you import an automobile you’ll see a lot higher taxes on those items. Expensive cars can have rates as high as 42%.
What Is a Tax Haven?
A tax haven is an jurisdiction that has non existent or conveniently lenient tax laws. There are many other tax havens, which we’ll cover in another post. The laws in each tax haven can vary greatly, and are subject to change.
How Do Tax Havens Work?
Offshore banking has been a hot topic for many years, with many Americans moving abroad and banking in another jurisdiction to escape taxation. However, according to the IRS tax code, this isn’t legal. Americans must pay taxes on global income by law. Tax havens offer offshore banking for foreigners that enable them to escape paying taxes back in their home country. Many examples of this are out there, with large corporations using an offshore subsidiary in another jurisdiction to house a portion of revenues rather than using the company based in the USA.
With a base in say, the Cayman Islands, the Cayman tax laws would come into effect rather than that of the home country. Imagine using this if you are in the top tax bracket in your country – the savings can be massive.
Tax Laws in the Caymans
As we mentioned earlier, there is no doubt the Cayman Islands have been a nesting place for cash of people from all over due to the tax laws. Many hedge fund managers reside in the Cayman Islands to take advantage of the zero income tax on things like dividends.
With the Cayman Islands tax haven plan, you will be responsible for paying a fee to the government in the form of licensing. This is a fee that isn’t fixed, as it’s based on each companies authorized share capital.
Privacy laws are of large importance in the Cayman Islands. You can easily hide your assets and personal wealth here because of privacy laws.