The Cayman Islands is a British Overseas Territory of the United Kingdom and the legal system of the Cayman Islands has consequently been strongly influenced by English law.

Sources of Law

The Cayman Islands uses a combined common law (case law established through judicial decisions) and statute-based legal system. The main sources of law are:

• primary legislation (Acts and amending Acts enacted by the Cayman Islands’ Parliament);
• binding decisions of the Cayman Islands courts;
• certain historic English and Jamaican laws and statutes to the extent not repealed by subsequent enactments; and
• Acts of the UK Parliament (or Imperial Acts) and Orders in Council expressed to apply or extend to the Cayman Islands.

Human Rights are protected under Cayman Islands’ law by the Bill of Rights, introduced in 2012, which largely mirrors the rights contained in the European Convention on Human Rights.

Court System

The principal courts are the Grand Court of the Cayman Islands and the Cayman Islands Court of Appeal. The Grand Court is a permanent superior court of record for both civil and criminal cases. Appeals from the Grand Court are heard by the Court of Appeal. Final appeal for cases from the Cayman Islands lies to the Judicial Committee of the Privy Council, which sits in London, England.

The doctrine of judicial precedent applies to the Cayman Islands courts. Therefore, the decisions of the Privy Council in appeals from the Cayman Islands courts are binding on the Cayman Islands’ courts in subsequent cases; Court of Appeal decisions are binding on the Grand Court; and Grand Court decisions are normally followed by itself and the Summary Court. In the absence of specific decisions of these courts, relevant decisions of the superior courts of record of England and Wales and of countries of the Commonwealth and decisions of the Privy Council on appeals from other countries, whilst not strictly binding, are highly persuasive.

Regulatory Framework

The Cayman Islands Monetary Authority (CIMA) is the primary regulator responsible for the regulation and supervision of the financial services sector in the Cayman Islands.

The Cayman Islands does not have a general foreign direct investment regime and there are no restrictions on foreign ownership of land or real estate in the Islands. However, a distinction is made in the applicable laws and regulations between those businesses that carry on business locally within the Islands (which we refer to as “local businesses”) and those businesses that carry on business outside the Islands (which we refer to as “offshore entities”). The vast majority of Cayman-domiciled entities encountered in cross-border transactions are offshore entities (exempted companies, LLCs, exempted limited partnerships (ELPs) and trusts).

Specific rules apply to foreign ownership and control of local businesses. The Local Companies (Control) Act (as revised) ordinarily requires that 60% of the ownership interests in the local business be held by Caymanians and that there be Caymanian control of such local businesses. Otherwise, unless one of the limited exemptions applies, a foreign investor looking to own or control a local business will require the grant of a local companies control licence by the Department of Commerce & Investment (DCI). These Caymanian ownership and local licensing rules do not apply to offshore entities.

Additionally, investments into locally licensed and regulated businesses such as banks, insurance/reinsurance companies and trust companies are subject to a “fit and proper” person assessment by CIMA under the applicable regulatory laws. The assessment of fitness and propriety varies depending on the type of licensee and position that person will hold within the licensee. Also relevant is the jurisdiction of the applicant (with greater scrutiny to be expected for an applicant resident in a jurisdiction considered by CIMA to be a “high-risk” jurisdiction).

As one of the leading offshore financial centres, with a sophisticated and well-developed court system, a history of stable government, no direct taxation on companies or individuals, and no restrictions on foreign ownership of real estate, the Cayman Islands continues to be a domicile of choice for establishing offshore structures and, increasingly since the COVID-19 pandemic, a place where international businesses are choosing to locate their operations and put “boots on the ground” and HNWI are choosing to call home.

Regulatory Framework for FDI

Given the nature of offshore business, the Cayman Islands does not currently have a specific FDI screening regime and none is planned. The types of national security and job-relocation concerns stemming from foreign inflows that drive FDI regimes of other countries are generally not applicable. As discussed in 10. Employment and Labour, the majority of Cayman Islands entities encountered in international transactions will not have employees in the Cayman Islands and will not be conducting business locally within the Islands.

Market Outlook

Looking at the broader economic outlook, the Cayman Islands’ financial sector is closely tied to the US, European and Asian economies. In 2023, deal flow has been impacted by the higher interest rate environment and recession uncertainty in these regions. However, with central banks slowing or pausing their rate rises and a growing belief in a “soft landing” in the US, the second half of 2023 saw an uptick in lending and M&A activity, creating momentum for 2024.

Turning to the local market, the Cayman Islands insurance and reinsurance sectors are attracting increased attention and capital inflows from foreign investors, corporates and investment firms. The past couple of years have seen the Cayman Islands’ reinsurance sector mature and the jurisdiction command its place as one of the preferred locations for establishing new reinsurers, building on the Cayman Islands’ long history as a leading domicile for captive insurance companies. The Cayman Islands remains the number one domicile worldwide for healthcare captive insurance companies.

In recent years, the Cayman Islands, along with other leading offshore financial centres, has faced pressure from a number of intergovernmental groups to enact new rules and legislation aimed at tackling perceived base erosion and profit shifting (BEPS) and establishing beneficial ownership registers. In keeping with the Cayman Islands’ long history of working closely and co-operatively with key intergovernmental organisations, the legislature reacted by introducing a raft of new legislation and guidance, including economic substance rules, a beneficial ownership registration regime, new regulations for private funds and enhancements to its AML/CFT regimes. The Cayman Islands continues to monitor the progression of the global anti-base erosion model rules (Pillar 2: Global Minimum Taxation). Please see 9. Tax for further reading on this topic.

Government

The last general election took place in April 2021, resulting in a change of government to a coalition of independent MPs known as “PACT”. In November 2023, the Hon. Juliana O’Connor-Connolly replaced the Hon. Wayne Panton as Premier and Minister for Finance. Throughout these adjustments, the Minister responsible for international business, being the Hon. Andre Ebanks, Minister of Financial Services and Commerce, maintained his role with the full confidence of the government benches. The next general election is scheduled to take place in 2025.

Transactions may be structured as a share purchase or an asset purchase. In a share purchase the buyer acquires the equity of the target company from current shareholders. Through the share purchase the buyer will acquire the target company with all its assets and liabilities. In contrast, an asset purchase allows the buyer to acquire specific contracts, property and physical plant from the target company. Share deals are generally preferred for larger transactions to avoid parties having to go through the often administratively burdensome process of transferring ownership of each asset to the buyer separately. Other common drivers of deal structuring are tax considerations (Cayman Islands’ tax is discussed in 9.1 Taxation of Business), the shareholder base of the target company, and any shareholder or third-party consent requirements. Shareholder and/or third-party consents under contracts or the target company’s constitutional documents may be required in either case, whether the transaction is structured as a share purchase or asset purchase.

Public Companies

Due to the wide shareholder base of any public company, acquisitions of listed Cayman Islands companies are typically implemented through one of the following means:

• a statutory merger or consolidation;
• a tender offer accompanied by a squeeze-out; or
• a scheme of arrangement.

The statutory merger is generally the preferred mechanism used to acquire a publicly listed Cayman Islands company. The Companies Act (as revised) provides a statutory regime for the merger or consolidation of two or more Cayman companies as well as the merger or consolidation of one or more Cayman companies with one or more overseas companies where the surviving or consolidated company can be either a Cayman Islands company or an overseas company. The result of the merger is that all of the undertaking, property and liabilities of the merging companies is vested in one of the existing companies, called the “surviving company”. The “non-surviving” or “terminating” company ceases to exist. A consolidation entails a similar process except the constituent companies combine their undertaking, property and liabilities into a new “consolidated” company and both previous companies fall away. The popularity of the statutory merger/consolidation for takeover transactions is principally due to the following factors:

• A merger/consolidation typically requires a lower shareholder approval threshold when compared with other takeover options. Subject to any additional requirements in the merging companies’ constitutional documents, the shareholder approval threshold is a special resolution passed in accordance with the company’s constitutional documents (typically a 2/3 majority of those shareholders attending and voting at the shareholder meeting).
• Court approval is not required for a merger/consolidation (unlike for a scheme of arrangement).
• Once the relevant approvals have been obtained, the merger or consolidation is binding on all of the target company’s shareholders. Shareholders who object to the merger have rights of dissent and appraisal and are entitled to be paid the fair value of their shares upon dissenting to the merger or consolidation, but, importantly, objecting minority shareholders are unable to block the merger or consolidation from completing.

A tender offer is a contractual offer made to the current shareholders of the target company inviting them to sell (tender) their shares in the target company to the bidder. Provided the conditions set out in the Companies Act are satisfied (namely, that the offer has been accepted by not less than 90% in value of the shares subject to the offer within four months of the offer being made), the bidder will be able to “squeeze out” the remaining non-tendering shareholders, thus enabling the bidder to acquire 100% of the target company’s shares. It should be noted that there is a legislative consultation underway to remove the four-month timing requirement for squeeze-outs.

A scheme of arrangement is a court-approved compromise or arrangement that can be used to effect a takeover. A shareholder scheme must be approved by 75% in nominal value of the shareholders, or class of shareholders, present and voting either in person or by proxy at the shareholders’ meeting and then sanctioned by the court. Similar to a statutory merger/consolidation, a scheme, once sanctioned, is binding on all shareholders (or relevant class of shareholders, as applicable) and the target.

It is important to note that both a statutory merger and a scheme will require the co-operation of the target company’s board of directors. Therefore, in the case of a truly hostile takeover, the only practical option available to an intending purchaser will be a tender offer followed (where the requirements under the Companies Act are met) by a minority squeeze-out.

The rules of the relevant stock exchange will also need to be considered. Please see 3.2 Regulation of Domestic M&A Transaction for a discussion of the takeover code that applies where the target company is listed on the Cayman Islands Stock Exchange (CSX).

Private Companies

Acquisitions of private companies are typically implemented by a statutory merger/consolidation or an asset acquisition, although tender offers and schemes of arrangement remain available.

Minority Investments

Minority investments are generally made directly into the investee company either through subscribing for newly issued shares of the investee company or acquiring shares from current shareholders. There are no statutory pre-emption rights under Cayman Islands law, although such rights and restrictions on further share issuances or transfers may be included in a Cayman Islands company’s constitutional documents.

Aside from the local ownership rules for investments into local businesses and the “fitness and proprietary” assessment for investments in licensed businesses discussed in 1.2 Regulatory Framework for FDI, other considerations for a foreign investor considering FDI in the Cayman Islands include:

• The requirements under the CSX Code on Takeovers and Mergers and Rules Governing Substantial Acquisitions of Shares apply where the target company is listed on the CSX. These requirements operate principally to ensure fair and equal treatment of shareholders in relation to takeovers. At the time of writing, only three companies have their equity listed on the CSX.
• There are change of control rules applicable to entities regulated by CIMA under the Banks and Trust Companies Act (as revised), the Insurance Act, 2010 and the Mutual Funds Act (as revised). Generally, CIMA’s prior approval must be obtained for acquisitions of new or existing equity in such regulated entities. However, a licensee whose shares (or whose parent’s shares) are listed on a qualifying stock exchange may apply to CIMA for an exemption from the requirement to obtain CIMA’s prior approval for such share dealings.
• Sector-specific regulatory approvals, including under the Utility Regulation and Competition Act (as revised), are also relevant (see 6.1 Applicable Regulator and Process Overview).
• Every Cayman Islands company must maintain a registered office in the Cayman Islands where certain statutory registers and records must be kept. In the case of offshore entities, the registered office must be maintained by a licensed corporate services provider (CSP). The CSP is required to collect, verify and record “know your client” (KYC) and beneficial ownership information. An investor will need to provide their completed KYC and beneficial ownership information in order for the CSP to enter the investor as the new holder of shares in the company’s register of members (shareholders).
• Title to shares in a Cayman Islands company is transferred and recorded in the company’s register of members.

The Cayman Islands corporate governance regime has several principal sources and varies according to the legal entity type. The most common forms of entity used when doing business locally in the Cayman Islands are:

• an ordinary resident company; or
• a foreign company having registered as a “foreign company” with the Registrar of Companies in accordance with the Companies Act.

The main types of Cayman Islands entities used for conducting international business outside of the Islands (ie, offshore business) are:

• exempted companies (including segregated portfolio companies);
• limited liability companies (LLCs);
• exempted limited partnerships (ELPs); and
• trusts.

Key considerations when choosing a legal entity form will include:

• the respective onshore tax treatment;
• need for separate legal personality;
• limitations on liability;
• management structure; and
• business purpose.

The most common legal entity form used for Cayman Islands publicly traded companies and holding companies is the exempted company. Cayman Islands investment funds are frequently structured as exempted limited partnerships, although there is also now increasing use of segregated portfolio companies (SPCs). Exempted companies and LLCs are popular vehicles for private companies, but may also be used for investment funds. LLCs became available in the Cayman Islands in 2016 and are a hybrid form of business entity with characteristics of both a limited partnership and a company. Their flexibility has proved popular with investors.

Statute

The Companies Act is the principal legislation governing Cayman Islands companies (including ordinary resident companies, exempted companies, segregated portfolio companies and registered foreign companies). The Companies Act only contains limited provisions on corporate governance with such matters primarily left to be governed by the company’s articles of association. The Limited Liability Companies Act (as revised) is the principal legislation governing Cayman Islands LLCs and the Exempted Limited Partnership Act (as revised) is the principal legislation governing Cayman Islands exempted limited partnerships, with both Acts largely deferring to the LLC agreement and partnership agreement, respectively, for governance matters in the first instance.

The Mutual Funds Act and the Private Funds Act are also applicable to investment funds. Other important corporate governance provisions are set out in Cayman Islands regulatory laws and related CIMA rules and guidance, which apply to regulated and licensed businesses operating in the Cayman Islands.

Constitutional Documents

A company’s articles of association typically contain detailed provisions on the extent of directors’ powers in respect of the company, requirements for convening and holding board and shareholder meetings, and the rights of shareholders, including shareholder voting and information rights. The articles of association will commonly provide for a one-tier board of directors vested with day-to-day management of the company.

Certain significant decisions are reserved to shareholders by the Companies Act (such as the approval of mergers and changes to the company’s memorandum and articles), while additional shareholder-reserved matters (such as material disposals and borrowings) may be specifically negotiated into the articles by investors. A shareholders’ agreement and/or investors’ rights agreement may also be entered into to further regulate the company’s governance and affairs. Similarly, the operating agreement of an LLC and the partnership agreement of an ELP will typically contain detailed management and operation provisions.

Directors Duties

The duties and liabilities of directors of a Cayman Islands company are governed by a mix of the Companies Act, the common law (insofar as it has not been amended by or incorporated into statute) and the company’s articles of association. At common law, a director owes two types of duty to the company:

• a duty to attend to the requirements of his or her offices with care, diligence and skill; and
• fiduciary duties, including the duty to act in good faith in the best interests of the company, the duty to act for proper purposes, and to avoid conflicts of interest.

All shareholders, including minority shareholders, of the same class of shares must be treated equally by the company. Otherwise, minority shareholders are generally bound by decisions made by the majority shareholders and enjoy only limited statutory protections under Cayman Islands law:

• On the application of the holders of not less than one-fifth of a company’s shares, the Cayman Islands court may appoint inspectors to examine the company’s affairs and prepare a report thereon to the court.
• As noted in 3.1 Transaction Structures, minority shareholders who object to a statutory merger or consolidation have rights of dissent and appraisal and are entitled to be paid the fair value of their shares upon dissenting to the merger or consolidation. However, objecting minority shareholders are unable to block the merger or consolidation from completing.
• As a last resort, a shareholder who has been unfairly treated can petition the court to wind up the company on grounds that it is “just and equitable” to do so. If the court is of the view that it is just and equitable that the company be wound up, the court also has jurisdiction to make the following orders as an alternative to the winding up:
1. an order regulating the conduct of the company’s affairs in the future;
2. an order requiring the company to refrain from doing or continuing an act complained of by the petitioner or to do an act which the petitioner has complained it has omitted to do;
3. an order authorising civil proceedings to be brought in the name and on behalf of the company by the petitioner on such terms as the court may direct; or
4. an order providing for the purchase of the shares of any members of the company by other members or by the company itself and, in the case of a purchase by the company itself, a reduction of the company’s capital accordingly.

It is possible in certain circumstances for minority shareholders to enforce a right belonging to the company by bringing an action in the company’s name against another person, such as the company’s directors or controlling shareholders (a derivative claim). In order to bring a derivative claim, minority shareholders will need to bring themselves within one of the exceptions to the rule in the English law case of Foss v Harbottle.

Minority shareholders may bring a personal action against the company if they can show that a duty owed to them personally (rather than to the company) has been breached (for example, if a shareholder is prevented from exercising a right conferred on them by the company’s articles of association).

Given the limited protections available under statute, minority shareholder rights must generally be negotiated into the company’s articles and/or into a separate shareholders’ agreement with the company and its controlling shareholders. In particular, without an express shareholder agreement, minority shareholders in Cayman Islands companies will find it difficult to obtain access to information. Shareholders of a Cayman Islands company have no general right by virtue of their position as shareholders to be provided with information regarding the company (such as copies of the company’s accounts), and only limited corporate information about the company is publicly available.

As mentioned in 1.2 Regulatory Framework for FDI, the Cayman Islands does not currently have a general foreign direct investment regime.

Alongside traditional bank lending, the debt and equity capital markets are major sources of funding for Cayman Islands entities. Cayman Islands entities are well known to the international capital markets due to their popularity as investment fund vehicles, group holding companies, treasury vehicles within large corporate groups, and as issuer vehicles on structured financings.

The CSX is a popular listing venue for debt and specialist debt securities.

Securitisations

The Cayman Islands is a favoured domicile for establishing issuers in securitisations, CLOs and other asset-backed securities transactions. The Cayman Islands remains the dominant issuer jurisdiction for US CLO issuances.

Private Credit

Consistent with trends witnessed in other financial centres, private credit (where a non-bank lender provides debt financing to companies) is a growing source of debt financing for Cayman Islands entities, offering an alternative to private equity and the equity capital markets.

SPACs

The Cayman Islands has grown to be the leading offshore jurisdiction for the formation of special purpose acquisition company (SPAC) issuers. A SPAC (also known as a “blank check company”) is a company that is formed to raise capital through an IPO to fund a strategic acquisition down the road, typically within 18 to 24 months. Despite a marked slowdown in new SPAC IPOs in 2023 and regulatory and economic headwinds, SPACs continue to provide an attractive opportunity for private companies to raise capital and go public, and de-SPAC M&A activity is expected to remain busy throughout 2024.

Funds

Bank financing through subscription finance lines (capital call facilities) and NAV loans are a popular source of funding used by Cayman Islands-domiciled funds to finance investments and return capital to their investors. More recently, there has been an increase in hybrid facilities combining both capital call and NAV loans as fund borrowers seek to borrow larger amounts.

Digital Assets

In recent years, the Cayman Islands capital markets have witnessed the introduction of digital assets as an alternative to traditional debt and equity financing. Tokenised funds (where the investor’s interest is represented by a cryptographic token instead of shares or other interests) have proved increasingly popular. The trend of tokenising assets and investments is expected to grow in the years ahead.

Securities Investment Business

The primary legislation regulating securities and investment business in the Cayman Islands is the Securities Investment Business Act (as revised) (SIB Act), which is supervised by CIMA. The SIB Act should be thought of as consumer protection legislation designed to protect the investing public and will therefore be construed broadly. The SIB Act provides for the licensing and control of persons engaged in “securities investment business” in or from the Cayman Islands.

Securities investment business includes, amongst other activities:

• dealing in securities (eg, buying, selling, subscribing for or underwriting securities as agent or principal);
• arranging deals in securities (eg, arranging a deal for investment in securities);
• managing securities (eg, discretionary portfolio management);
• advising on securities (eg, advising an investor on potential securities investments;
• managing or marketing an EU Connected Fund; and
• acting as a depositary for an EU Connected Fund.

The SIB Act sets out a comprehensive list of financial instruments that constitute “securities”, which includes shares, certain partnership interests, debt instruments, derivative contracts and, following a recent amendment, virtual assets.

Selling Restrictions

Section 175 of the Companies Act prohibits a Cayman Islands exempted company that is not listed on the CSX from making any invitation to the public in the Islands to subscribe for any of its securities. Similar worded selling restrictions are contained in Section 67 of the LLC Act.

A foreign investor structured as an investment fund would not be subject to any additional regulatory review, unless, as part of the investment, interests in the relevant fund are offered to members of the public in the Cayman Islands (in which case marketing restrictions would apply and a determination would have to be made on the facts as to whether or not the activity constitutes carrying on business in the Cayman Islands, in which case registration, licensing and permissions will need to be sought).

The Cayman Islands does not have a specific merger control or antitrust regime.

For the sake of completeness, foreign investors considering investing in local businesses trading within the Cayman Islands should note:

• The Utility Regulation and Competition Act (as revised) regulates competition between local utility services providers in the information, communications, technology, energy, fuel and water sectors. The approval of the Utility Regulation and Competition Office (OfReg) must be obtained before closing on transactions involving such entities.
• The Trade and Business Licensing Board will have regard to the potential impact on existing Caymanian-owned businesses when it considers whether to permit a foreign-controlled company to trade within the Islands.

This is not applicable in the Cayman Islands.

This is not applicable in the Cayman Islands.

This is not applicable in the Cayman Islands.

The Cayman Islands does not have a foreign investment/national security review regime.

This is not applicable in the Cayman Islands.

This is not applicable in the Cayman Islands.

This is not applicable in the Cayman Islands.

Exchange Controls

There are no exchange controls in the Cayman Islands, which allows free transfer of funds in and out of the Islands, in any currency, with equal freedom to open and maintain accounts in any currency.

Due Diligence

As discussed in 3.2 Regulation of Domestic M&A Transactions, foreign investors will need to comply with the Cayman Islands’ robust AML/CFT legislation, including providing detailed KYC for any person who is to be a director of the company or who owns or proposes owning, directly or indirectly, 10% or greater of the company’s share capital. Heightened due diligence requirements apply for persons who are a national of or resident in a jurisdiction considered to be a “high risk” jurisdiction. Clearing applicable KYC requirements will be a prerequisite before the Cayman company’s CSP will enter the investor as the new holder of shares in the company’s register of members. Completing required KYC will also be a prerequisite for engaging conveyancers to act on real estate investments in the Islands.

Sanctions

As a British Overseas Territory, Orders in Council passed by the UK extend UN and UK sanctions to the Cayman Islands. The Cayman Islands also has the power to impose its own domestic sanctions in certain circumstances under the Cayman Islands Terrorism Act (as revised) and the Proliferation Financing (Prohibition) Act (as revised). Note that the United States Treasury’s Office of Foreign Assets Control (OFAC) sanctions are not directly applicable in the Cayman Islands, but in practical terms they have extra-territorial reach and professional service providers will consider OFAC sanctions as part of their business intake process.

Register of Beneficial Owners

The Cayman Islands has enacted a beneficial ownership regime and established a secure, centralised platform for storing the beneficial ownership information of in-scope entities. The platform is not publicly available and can only be accessed by the Competent Authority or at the request of certain bodies, such as CIMA, the Tax Information Authority and the Anti-Corruption Commission. Certain types of Cayman Islands entities fall outside the regime, including publicly listed companies, entities regulated by CIMA and funds that have a manager or administrator who is regulated in the Cayman Islands or an approved jurisdiction. In-scope entities are required to file a UBO register or a “nil return” (if there are no UBOs). In summary, a beneficial owner is any person who:

• holds, directly or indirectly, 25% or more of the shares or LLC interests in the company;
• holds, directly or indirectly, 25% or more of the voting rights of the company; or
• holds the right, directly or indirectly, to appoint or remove a majority of the board of directors or managers (as the case may be).

If no beneficial owner is found among the first three categories, the beneficial owner is the person who has the absolute and unconditional right to exercise, or actually exercises, significant influence or control over:

• the company (other than solely in the capacity of a director or manager (as the case may be), professional adviser or professional manager); or
• the activities of a trust or trustee firm (other than solely in the capacity of a director or manager (as the case may be), professional adviser or professional manager), and the trustees of the trust or members of the trustee firm (that is not a legal person) meet any of the above conditions or would do so if they were individual.

The beneficial ownership regime is being overhauled by the Beneficial Ownership Transparency Bill, 2023 (which has been passed but is not yet in force). The amended legislation does not introduce a public register of beneficial ownership.

The Cayman Islands is a tax-neutral jurisdiction. There is no corporate tax, taxation on profits, income, capital gains or dividends, or withholding tax, estate duties, property tax or inheritance tax under Cayman Islands law.

Ad valorem stamp duty, generally at a rate of 7.5% (depending on location and whether or not the purchaser is a Caymanian first-time buyer), is paid on transfers of Cayman Islands real estate, and share transfer tax generally equal to the applicable stamp duty applies to transfers of equity in land holding companies. Security instruments also attract stamp duty. Additionally, stamp duty (in most cases in a nominal sum) will be payable on any documents that are executed in, or after execution brought to, the Cayman Islands, or produced before a Cayman Islands court.

Import duty is paid on the importation of most goods into the Cayman Islands. The duty rate generally ranges between 22% to 27%.

Cayman Islands exempted companies, LLCs and ELPs may apply to the Financial Secretary at the Ministry of Finance and Economic Development for a written undertaking that, should taxes ever be introduced in the Cayman Islands, the entity will remain tax-free for a prescribed period. These undertakings are often granted for up to 20 years, in the first instance.

Whilst not a tax charge, businesses are required to pay annual registration fees to the Cayman Islands government in January of each year. These annual registration fees vary depending on the entity type and, in the case of companies, registered share capital amount. Additionally, local businesses will need to pay an annual trade and business licence fee, and annual licence fees are payable by licensed and regulated entities (such as banks, insurance companies, private funds, mutual funds and their administrators).

As noted in 9.1 Taxation of Business Activities, there is no corporate tax, taxation on profits, income, capital gains or dividends, or withholding tax under Cayman Islands law. Profits may be accumulated and it is not obligatory that a company make distributions or pay dividends.

Given the Cayman Islands’ tax neutrality, any liability for tax and related tax planning and mitigation strategies will be driven by the tax laws of other jurisdictions.

As noted in 9.1 Taxation of Business Activities, there is no corporate tax or taxation on profits, income or capital gains under Cayman Islands law.

Tax transparency reporting measures have been applied in the Cayman Islands since 2014 with the Foreign Account Tax Compliance Act (FATCA), and since 2016 with the Common Reporting Standard (CRS). FATCA is the biggest US regulatory initiative to combat international tax evasion, giving US regulators (including the Internal Revenue Services) extraterritorial oversight over foreign financial institutions by imposing mandatory reporting of accounts held by US persons in overseas jurisdictions, including in the Cayman Islands.

In the future, we expect a wider range of information sharing between the Cayman Islands tax authority and overseas tax authorities. In May 2023, the Ministry of Financial Services and Commerce published a second-round consultation on the “Introduction of Mandatory Disclosure Rules for CRS Avoidance Arrangements and Opaque Offshore Structures” which is now closed for comment, with mandatory disclosure regulations expected to follow.

Additionally, it has been publicly confirmed that the Cayman Islands intends to endorse the global anti-base erosion model rules (Pillar 2: Global Minimum Taxation) from a tax transparency perspective. This means that the Cayman Islands intends to impose an additional tax reporting obligation on multinational groups operating in the Cayman Islands with global revenues exceeding a EUR750 million threshold and share that data with overseas tax authorities implementing a Pillar 2 tax in their home jurisdiction.

The majority of Cayman Islands entities encountered in international transactions will not have employees in the Cayman Islands and will not be conducting business locally within the Islands. Consequently, Cayman Islands employment and labour law matters are not often encountered by foreign investors.

The Labour Act (as revised) is the primary legislation governing the terms and conditions of employment and labour matters in the Cayman Islands. The Labour Act applies to both Caymanians and foreign employees working in the private sector in the Cayman Islands (it does not apply to the public service, charitable organisations or churches). Among other matters, the Labour Act sets out requirements for employment contracts, severance pay and provides a remedy for unfair dismissal.

Other key legislation applicable to employment and labour matters in the Cayman Islands include:

• the National Pensions Act (as revised);
• the Health Insurance Act (as revised);
• the Immigration Act (as revised);
• the Gender Equality Act, 2011; and
• the Workmen’s Compensation Act (as revised).

Non-Caymanians employed in the private sector in the Cayman Islands must have a work permit. The annual work permit fee payable varies depending on the sector, skill level and seniority of the employee. Work permits are renewable for a maximum of nine years, at which time the employee is required to apply for permanent residency (with eligibility based on a points-based system) or must leave the Cayman Islands for at least one year. Businesses set up in the Special Economic Zone are able to benefit from a more streamlined and expeditious work permit process.

Trade unions and works councils are rarely encountered in the Cayman Islands.

As noted in 10.1 Employment and Labour Framework, given the nature of offshore business, the majority of Cayman Islands entities encountered in international transactions will not have employees in the Cayman Islands. However, with Cayman Islands offshore entities frequently used as holding vehicles within corporate groups, it is not uncommon for Cayman Islands entities to operate a group’s stock option plan or other employee incentive scheme. The terms of such incentive arrangements will be governed principally by the scheme documents and the company’s constitutional documents.

For local businesses, compensation for full-time employees typically consists of a cash salary, participation in a pension plan and health insurance, which is often partially subsidised by the employer. Employees may also receive annual cash-based incentive compensation. Senior management-level employees may receive equity-based incentive compensation. In accordance with the Pensions Act, almost every employee between the ages of 18 and normal retirement age is required to be a member of a pension plan. Employers are required to contribute not less than 5% of the employee’s earnings up to a statutory maximum. The employee must contribute the difference between what the employer pays and 10%.

The impact of corporate transactions, such as mergers, acquisitions and change of control events, on employee compensation will generally be a matter of contract. Accordingly, the terms of any contracts of employment for Cayman Islands employees and employee incentive schemes should be reviewed as part of a bidder or investor’s legal due diligence.

As noted in 10.1 Employment and Labour Framework, given the nature of offshore business, the majority of Cayman Islands entities encountered on international transactions will not have employees in the Cayman Islands.

Where the Cayman Islands entity does have employees, the implications of any corporate transactions, such as mergers, acquisitions and change of control events, will primarily be a matter of contract. Accordingly, the terms of any contracts of employment for Cayman Islands employees and employee incentive schemes should be reviewed as part of a bidder or investor’s legal due diligence.

Where a transaction is implemented by a statutory merger or consolidation pursuant to the Companies Act (see 3.1 Transaction Structures), subject to any specific arrangements entered into by the parties, the Companies Act provides that the surviving or consolidated company will be liable for and subject to all contracts, obligations, claims, debts, and liabilities of each of the constituent companies. In the absence of a specific agreement providing otherwise, the assumed contracts and liabilities would include any employment contracts and employee-related claims and obligations.

Cayman Islands Intellectual Property (IP) legislation does not include restrictive provisions regarding foreign investment or ownership of IP in the Cayman Islands. Since the introduction of economic substance legislation in 2018, the Cayman Islands has become a less attractive domicile to those businesses holding and generating revenues from IP.

The Cayman Islands is a common law jurisdiction that has a robust intellectual property protection regime.

Copyright

In 2017, the Cayman Islands updated its copyright laws to bring them in line with the most recent developments under the UK Copyright, Designs and Patents Act, which expressly includes computer programs and databases within the definition of “literary works” and therefore protects them as such for a duration of 50 years.

Trade Marks

The main IP rights available to protect branding are registered and unregistered trade and service marks. Technology companies will generally own a combination of an established brand or trade name — and this can include logos or icons — protected as registered or unregistered trade marks.

Trade mark rights give registered owners the right to prevent others using identical or confusingly similar marks to their registered mark. Brand owners can also rely on unregistered trade mark rights through the law of passing off. This allows the owner to prevent others from damaging their goodwill with customers by using branding or get-up that is identical or confusingly similar to its own.

Patents

Patents and industrial designs registered in the UK or at the European level can also be protected in the Cayman Islands by extension with the Cayman Islands Register of Patents and Trademarks. In addition, the patent regime has been amended to provide innovators with additional protections against abusive challenges to their rights by entities that obtain patents for the sole purpose of taking legal action against those who innovate and develop new products. The Cayman Islands patent laws have been amended to prohibit bad faith infringement claims by so-called patent trolls.

Trade Secrets

Trade secrets are protected in the Cayman Islands through a combination of common law and rules of equity. A range of remedies is available where trade secrets have been improperly acquired, disclosed or used.

Confidential information is protected through a contractual agreement to keep certain information confidential or through the common law obligation to keep information confidential, because of the nature of the relationship between the discloser and disclosee, the nature of the communication or the nature of the information itself.

The Cayman Islands’ Data Protection Act (as revised) (DPA) came into full force in 2019. Drafted around a set of EU-style data protection principles to which data controllers must adhere, personal data must be collected in a fair and transparent manner and only be used and disclosed for purposes properly understood and agreed to by data subjects. Any personal data collected must be adequate, kept up-to-date and should not be retained for longer than is necessary to fulfil the collection purpose.

The DPA introduces globally recognised principles on the use of personal data to the Cayman Islands. The DPA aligns the Cayman Islands with other major jurisdictions around the world, notably the EU, and thereby facilitates the free flow of data – a prerequisite for the Cayman Islands being an equal and competitive participant in today’s globalised economy.

The Office of the Ombudsman is the Cayman Islands’ supervisory authority for data protection. The Ombudsman has the power to impose fines on data controllers for serious contraventions of the DPA where the contravention was likely to cause substantial damage or distress to the individual. The maximum fine is KYD250,000 (approximately USD300,000). 

The DPA applies to a data controller if it is:

• established in the Cayman Islands, and the personal data is processed in the context of that establishment; or
• not established in the Cayman Islands but the personal data is being processed in the Cayman Islands (otherwise than for transit purposes).

Importantly, the DPA provides a standard framework for both public and private entities in the management of the personal data they use. Internationally active organisations will find many similarities between the data protection law of the Cayman Islands and those of other jurisdictions where they are active.