While the Cayman Islands are primarily known for their beautiful white-sand beaches and turquoise blue waters of the Caribbean Sea, these islands are also known for their favourable tax environment. But are the Cayman Islands truly tax-free? The short answer is yes. Cayman offers a welcoming approach to taxes that’s accessible to foreign citizens from across the globe in more ways than just business.
Cayman’s Attractive Tax Structure
The Cayman Islands’ tax-neutral status offers residents of Cayman freedom from all direct taxes, providing great incentives not only in business but for personal financial reasons. The Cayman Islands has zero income, capital gains, property, payroll, or withholding tax. The Cayman government collects income through other means, for example, fees on stay-over and cruise ship tourism, work permits, import duties, and financial transactions. Remaining truly tax-free in all these aspects makes Cayman a truly desirable destination to relocate your company – not only for corporate reasons but also for attracting top talent to grow your business operations.
How Cayman Stands Against Other Tax-Neutral Nations
Cayman isn’t the only location with a tax-neutral approach to attract foreign business, but its policies could not be more different
Bahamas Tax-neutrality vs. Cayman
The Bahamas are a popular tax haven among US and EU residents and is considered tax-neutral. There is no tax liability for offshore companies or offshore individual bank account holders on income earned outside of the jurisdiction (revenue generated locally in the Bahamas is still subject to tax). There are also no taxes on personal income, gifts, inheritance, or capital gains. However, unlike Cayman, you’re still subject to property taxes, import duties, stamp taxes, licence fees, and value-added tax.
Bermuda is considered by some to be tax favourable because it does not impose an income tax. However, it does have a payroll tax, which is determined based on the size of an employer’s annual payroll and the income of individual employees. Very simply, the more money earned, the higher percentage of tax that needs to be paid (between 2% and 9% in 2021), which can be quite a burden on growing start-ups. Bermuda also requires every self-employed individual or employer to register to the Office of the Tax Commissioner at least a week before the first tax year of your business ends or face criminal charges. However, like Cayman, Bermuda has no capital gains tax, interest, dividends, investment income, or rental income tax. Foreign gains and losses or principal residence gains and losses are not taxed in Bermuda nor are non-resident trusts.
Barbados vs. Cayman Taxation
Barbados is not technically tax-neutral as it charges income and corporate tax but is still considered to be favourable because of its low tax rates. Plus, there is no import duty on necessary business equipment or machinery, no capital gains taxes or withholding taxes. Barbados also has double taxation treaties with Canada, the US, and some other countries to prevent non-residents from being taxed in their home nation as well as in Barbados.
Panama vs. Cayman Tax-Neutrality
Panama is known to be favourable tax-free jurisdiction as offshore companies and their owners are not subject to local taxes, income taxes, or corporate taxes (but local taxes apply on revenue generated by local businesses). However, Panama has very strict banking secrecy laws, no tax treaties with other countries, nor does it have exchange control laws which means there is little to no requirement on money transfer reporting or shareholder reporting. As a result, Panama has received a negative reputation in the past for illegal activity, most notably with the release of the 2016 Panama Papers highlighting fraud, tax evasion, and money laundering.
While not in the Caribbean, Singapore offers another attractive tax structure, especially for companies wanting to expand in the Asian market. It’s not a pure tax-neutrality, but it does have low taxes and other incentives. Taxpayers pay a progressive tax on personal income but there is no capital gains tax. Corporate income tax is a flat 17%, but this can be lowered by certain incentive schemes designed for foreign business and investment.
Many tax-neutral countries have their own approach to taxation, but ultimately, Cayman is one of the best choices if you’re looking for an attractive tax structure, stable political climate, modern banking infrastructure, and transparency. It’s this combination of a favourable tax-free environment along with well-regulated and trusted transparency that entice so many businesses to Cayman’s shores.
To learn more about moving your business to the Cayman Islands, get in touch with CEC today and we can talk you through your options for setting up a special economic zone business.