Company formation in the Cayman islands

The Cayman Islands are a famous offshore center that attracts many businessmen.

Their stable political environment and reliable legal system make them a safe and secure platform for setting up and running a business.

Against a background of high levels of privacy and data protection, the Cayman Islands attract businessmen seeking to ensure the anonymity of their financial transactions. The rich financial infrastructure and experienced professionals make these islands an ideal choice for setting up and managing offshore companies.

ADVANTAGES OF COMPANY FORMATION IN THE CAYMAN ISLANDS

The main advantages of setting up a company in the Cayman Islands:

  1. there is a favorable and reliable regulatory regime;
  2. zero-tax jurisdiction – no corporation tax, property tax, capital gains tax, payroll tax, withholding tax, income tax;
  3. one person can serve as a director and/or shareholder and have any nationality, also no residency in the Cayman Islands is required;
  4. there is no minimum capital requirement;
  5. no annual audit is required for an offshore company in the Cayman Islands;
  6. confidentiality – there are well-established mechanisms for cooperation with law enforcement agencies, both local and foreign, to ensure the highest standards of integrity throughout the financial industry in the Cayman Islands.

TYPES OF COMPANIES IN THE CAYMAN ISLANDS

According to the Cayman Islands General Registry (“CIGR”), the following legal forms exist in the Cayman Islands:

  1. Associations Not for Profit;
  2. Exempt Company;
  3. Foundation Company;
  4. Limited Liability Company;
  5. Non-Resident Company;
  6. Overseas Company;
  7. Resident Company;
  8. Special Economic Zone Company;
  9. Unlimited Company.

The most widespread organizational and legal forms are:

  1. Exempt Company – if the proposed activities of the company will be conducted mainly outside the Cayman Islands – offshore areas – registrants can apply for registration as an Exempt Company. It is created under Part 7 of the Companies Act (2023 Revision) (“CA”).

The requirements for the Exempt Company are outlined in Table 1 below:

Table 2. Requirements for the Exempt Company

RequirementsAvailability
Nameit is not required to include the word “Limited” or the abbreviation “Ltd.” at the end of the name
Registered Officeregistered office in the Cayman Islands
Minimum number of shareholders1 shareholder (individual/legal entity) who can be a resident of any country
Minimum number of directors1 director (individual/legal entity), who can be a resident of any country
Company Secretaryyes (individual/legal entity)
Public register of membersthere is no obligation to keep a register of members open for public viewing
Annual meetings there is no obligation to spend in the Cayman Islands
Authorized capitalthere is no minimum authorized capital requirement, but it is recommended that it should not exceed 50 000 USD
Founding documentsMemorandum of AssociationArticles of Association
Types of sharesshares with or without par value
Confidential Informationthe company is not required to maintain a register of members, which will be open for public viewing
Reportingthere is no requirement to file the results of the audit, you only need to keep records of your financial activities (ledgers)
Economic presencerequired for certain types of business (for example, banking, insurance, finance and leasing, intellectual property business, etc.)
  1. Limited Liability Company or LLC – If the proposed business of the company will be conducted primarily outside the Cayman Islands – offshore areas – registrants may apply to register as an LLC under the Limited Liability Companies Act (2021 Revision) (“LLCA”).

The LLC requirements are outlined in Table 2 below:

Table 2. Requirements for the Limited Liability Company

RequirementsAvailability
Namecan, but is not required to, include as a suffix the words “Limited Liability Company” or the abbreviation “L.L.C.” or “LLC”;in the case of an LLC operating in a special economic zone, include the words “Special Economic Zone” or the letters “SEZ”; may be accompanied by the double foreign name
Formthe LLC is a hybrid between a partnership and a company: like companies limited by shares, it has legal personality, so company members cannot be held personally liable for the company’s debts or obligations; while like partnerships, LLCs are governed by a agreement between the participants (the LLC Agreement)
Officeregistered office in the Cayman Islands; the LLC may also, in accordance with the terms of the LLC Agreement, change its registered office address to another address in the Islands and, within thirty days of such change, file (in original, copy or by authorized electronic means) with the Registrar an amendment to the registration statement setting forth the new registered office address and the prescribed fee
Minimum number of shareholders1 shareholder
Minimum number of directors1 director
Secretaryyes
Management of Businesscarried out either by the members acting by majority vote (or singly, as provided in the LLC Agreement) or by a manager or board of governors elected by the members of the LLC
Share capitaldoes not have charter capital, but the participants acquire a share of LLC

PROCEDURES FOR REGISTERING COMPANIES IN THE CAYMAN ISLANDS

There are two registration procedures:

  1. Standard Procedure – it may take 1 week to process the company registration and issue the Certificate of Incorporation.
  2. Express procedure – the company registration will be processed in 1 day, after payment of an additional “express” fee of 500 USD (government fee).

TAXES IN THE CAYMAN ISLANDS

One of the main advantages of an offshore company in the Cayman Islands is the complete absence of taxation – no income tax, capital gains tax, estate, inheritance or gift tax. There is also no value added tax in the Cayman Islands, as well as personal income tax.

There are no exchange controls in the Cayman Islands.

For the Exempt Company, it is possible to obtain a tax exemption certificate for a period of up to 20 years.

WHY THE CAYMAN ISLANDS ARE THE BEST CHOICE FOR SETTING UP A COMPANY?

The Cayman Islands are seen as an attractive choice for company formation for a number of reasons, including:

  1. Tax environment: one of the key pluses is zero taxation. This makes the Cayman Islands an attractive destination for businesses looking to minimize tax liabilities.
  2. Friendly business environment: the jurisdiction is renowned for its business-oriented and welcoming atmosphere. The government authorities and regulators are generally supportive of business and provide simplified procedures for company registration and management.
  3. Stability and reliability: The Cayman Islands are politically stable and have a well-developed legal system based on British law. 
  4. Privacy: The Cayman Islands provides a high level of privacy for business transactions. Business owners can remain anonymous, which can be important for those seeking to protect their financial data.
  5. International prestige and credibility: The Cayman Islands is a well-known offshore center for many companies from around the world. 
  6. Diverse company structures: The Cayman Islands offers a variety of corporate structures, including Exempt Companies, LLCs and other forms of organizations. This allows you to find the best fit for your specific business goals.
  7. Geographic location: the Cayman Islands’ convenient geographic location in the Caribbean provides easy access to customers and markets in North and South America, Europe.

The Manimama team is ready to help you open a company in the Cayman Islands.

We also provide services to help companies obtain a VASP license and assist in opening bank accounts.

FAQ

What is the main advantage of creating an offshore company in the Cayman Islands?
The Cayman Islands is a zero-tax jurisdiction with no corporate tax, property tax, capital gains tax, payroll tax, value added tax, withholding tax, or income tax.
Is it necessary to have a registered office in the Cayman Islands for an Exempt Company or a LLC?
Yes, having a registered office in the Cayman Islands is a mandatory requirement for these types of companies.
What is the minimum number of directors required for an Exempt Company or a LLC?
Under the current laws (CA and LLCA) you need to have at least one director.
For which activities must the Exempt Company adhere to the requirement to have an economic presence in the Cayman Islands?
An Exempt Company needs to adhere to this requirement to carry out activities such as, for example, banking, insurance, finance and leasing, intellectual property business, etc.

ABOUT US

Manimama is a law firm that always creates and provides its clients with original and quality solutions with long-term planning, risk control and minimum legal surprises. 

For the successful realization of your requests, we form professional focus groups based on your business and its characteristics. 

Our services and presentation are highly regarded as they meet the needs and expectations of our clients. We understand the desires of successful people and help in their quick realization.

We are not ordinary lawyers, we are lawyers from business and for business. Our strongest areas are fintech and blockchain. We work so you can focus on your main tasks – moving only forward and continuous growth. If you can do something good, you can set your sights on great and remarkable things with us.

We don’t have any former clients. All of them, without exception, continue to interact with us to this day. Because we know exactly how to do the right thing and not to make mistakes.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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Cayman Islands: virtual assets regulatory overview

Stable political and tax neutral system, judicial and legislative ties to the UK, a balanced regulatory regime that embarks on the financial services industry make Cayman islands an attractive destination for incorporating companies.

This jurisdiction has long remained as a major domicile for investment funds, financial institutions and especially virtual asset service providers (hereinafter:- “VASP”) and decentralized financing projects.

Current policies

The following list of laws form a general regulatory framework for virtual assets sector within the Cayman Islands:

As of 2020, the government introduced a novel regulatory framework for businesses in the virtual assets industry, called the Virtual Assets (Service Providers) Act (hereinafter:- “VASPA”). The act implements Financial Action Task Force (FATF) recommendations on universal standards of countering against money laundering and terrorist financing and profileration on VASPs (viz., issuers, trading platforms, dealers). Moreover VASPA broadly defines virtual assets:

‘A digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes but does not include a digital representation of fiat currencies’.

Moreover, in accordance with VASPA, Virtual asset services are defined as the issuance of virtual assets or the business of providing one or more of the following services or operations for or on behalf of a physical or legal entity:

  • exchange between virtual assets and fiat currencies;
  • exchange between one or more other forms of convertible virtual assets;
  • transfer of virtual assets;
  • virtual asset custody service;
  • participation in, and provision of, financial services related to a virtual asset issuance or the sale of a virtual asset.

The VASPA stipulated registration requirements, which must be complied by all digital assets service providers by applying for a registration with the Cayman Islands Monetary Authority (CIMA) before commencing their operations. If a Cayman incorporated entity issues or trades virtual assets that are deemed to be securities, then it must be registered or licensed under the VASPA.

VASPA also introduced a regulatory sandbox license, which can be applied to promotion of innovative technologies which can be tested before universally applied across the country. The sandbox is mainly targeted to be used by fintech companies and VASPs and has an initial fixed term license valid for up to a year, which might be reviewed by CIMA if necessary. License holders must adhere to honesty, integrity, fair treatment and customer protection principles. However, at the time of writing, there has not been any official announcement with regards to the specifications of the sandbox license, such as eligibility, official fees and conditions.

Categories of tokens

CIMA has not yet determined the legal status of the cryptocurrency and the order of its circulation, as well as specific status of the DeFi segment. Despite the lack of a clear position on regulation, tokens issued in the Cayman Islands can be divided into three categories: payment, security and utility tokens.

Payment tokens can be used to pay for goods and services and are usually issued on their own company`s blockchain. Most of these tokens are used by companies engaged in the provision of monetary services. In this case, the issuing companies must adhere to the provisions of Money Services Act and Electronic Transactions Law.

The Securities Investment Business Act (hereinafter:- “SIBA”) defines which virtual assets constitute securities. Hereby, tokens are recognized as securities tokens if they fall under the definition of “securities” set forth in the SIBA, accordingly, securities are assets, rights or interests in the form of:

  • shares and instruments that create or confirm debt obligations (bonds);
  • futures;
  • options;
  • instruments granting rights to securities;
  • certificates for certain securities;
  • contracts for differences (CFD).

Utility tokens, in turn, include tokens that do not fall under the definition of securities, thus, the utility tokens are not considered as payment instruments or securities by CIMA and companies issuing utility tokens are not subjected to licensing, thus such entities can just incorporate their company as an exempted company. In case the status of issued utility tokens changes or CIMA considers the use of tokens as means of payment, (payment or securities tokens) this may be regulated by the Monetary Services Act (MSA). The provisions of this legislative act stipulate that in order to carry out financial transactions, legal entities must obtain a license from CIMA. The procedure requires the following info to be submitted for Securities Licensing (license application form).

Within the meaning of this act, securities investment business refers to dealing in securities, security deals arrangements, securities management and advising on securities. Correspondingly, digital assets which can be traded, sold or exchanged at any time that represent or can be converted into any of the instruments listed in the SIBA or represent a derivative of any such instruments are themselves securities. If an entity based in Caymans is assumed to be issuers of securities, it might get exemption from any form of licensing under the SIBA if the character of the security was an equity interest, debt interest, or a warrant or similar for equity or debt interests.

Advantages of doing business in Caymans

  • Taxes

Companies incorporated in the jurisdiction are exempt from paying taxes and can apply for renewable “Tax Exemption Undertaking” to maintain their tax-free status for up to 20 years, with a possibility of extension to 30 years.

Moreover, Cayman Islands is a party to the Convention on Mutual Administrative Assistance in Tax Matters (1988) as amended by the 2010 Protocol and CRS Multilateral Agreement on the Automatic Exchange of Financial Account Information (MCAA). Besides, Cayman Islands has signed 27 active bilateral tax information exchange agreements (TIEAs,) including US, and EU countries. The Caymans has a double tax agreement with the UK and an agreement with the United States to implement the FATCA (Foreign Account Tax Compliance Act) which came into force as of June 1, 2014. Since February 2018, Cayman’s automatic exchange commitments have been activated with 57 countries, including Russia.

  • Currency control

Due to absence of currency control in Cayman islands, storage there is a simplified transfer of money into any convertible currency and free movement of funds.

  • Company incorporation

There is a possibility of accelerating the company registration procedure within 24 hours filing the documents for an express fee of KYD 400 (EUR 431). Companies are entitled to carry out any business activity not expressly prohibited by legislation.

  • Corporate requirements

Annual reporting requirements have been set to a minimum, and companies are not obliged to submit accounts with the registrar, and there is no local residency requirement for directors and shareholders, and the register of shareholders does not have to be kept at the registered office and is not open to public inspection. The companies are not subject to hold yearly meetings with shareholders and there is no there is no minimum or maximum share capital requirement. Nevertheless, the size of the authorized share capital determines the initial registration and annual government fee. Fees range from KYD 300 (EUR 323) (for an ordinary company with authorized capital of KYD 42,000 (EUR 45,256) or less), to KYD 2,568 (EUR 2,767), for an exempted company with capital of more than USD 2 million (EUR 1,794,060).

  • Exempt companies

There is a possibility to incorporate an exempted company within the jurisdiction, but formed to do business outside the Islands. These types of companies are (with limited exceptions) not subject to statutory or regulatory constraints on investment policies and strategies or other commercial matters. Exempted companies must file the following corporate data (including any changes) with the Registrar: the memorandum and articles of association, details of the authorized share capital, the location of the registered office, details of directors and officers. Details of the shareholders of exempted companies do not need to be filed with the Registrar.

While, an exempted company must file an annual return stating that:

  • the company has conducted most of its operations outside the Cayman Islands and has complied with the Companies Act (2020 Revision);
  • all bearer shares (if any) are maintained by an authorized custodian.

Potential risks and opportunities

Being a tax haven for offshore companies, there is still uncertainty as to how the government of Cayman islands will change course of regulation concerning cryptocurrencies. There might be compliance risks, as virtual assets business is not deemed to be financial business, in case of potential regulatory updates, ICOs and VASPs might be obliged to implement certain AML procedures. The registration aspects of the VASPA is not clear yet at the time of writing, as well as policy guidance is expected from CIMA as to licensing process, fees and requirements for VASPs. Whereas Cayman Islands is still endeavoring to diversify the financial services industry and recognize the growing interest in decentralized financial technologies. Hence the progressive regulatory approach is still expected from the government to pave the way in the sector of DeFi and virtual assets to preserve the status of competitive business jurisdiction.

The content of this article is intended to provide a general guide to the subject matter, not to be considered as a legal consultation.


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