Fun Facts about Offshore Tax

If you have made it this far (i.e. beyond the title), thank you for persevering and being optimistic enough and/or loving me enough to read a page about tax laws. I had originally intended to post this last weekend but after the debacle that was Brexit I figured the world needed a week off. I promise that in return for your faith in me, I will make this offshore tax snapshot informative and witty and if you make it all the way to the end of the page, there'll be a picture of a cute teacup pig doing ballet as a reward.

I thought I would write this page as "what's the tax situation over there?" was one of the most common questions people asked me when I said I was moving to the Cayman Islands, after "so you're going to help rich people hide their money from the government, hey?" (As an aside - no I don't - I more often help track it down and return it to investors, so I'm really the Robin Hood / Sherlock Holmes / Wonder Woman of the offshore financial market - you're welcome, world).

There is some disagreement among historians about how the Cayman Islands came to be a tax neutral jurisdiction. Some say that it is because 10 British ships were shipwrecked on the island in 1794 and as a thank you to the Caymanian people for saving those aboard, who included a Prince, King George III decreed that the people of the Cayman Islands would forever be free from tax and conscription. Others say it is because before the airport was built in 1952, there were so few companies and incomes were so insignificant that it was not worth imposing any form of direct taxation.

I prefer the first story obviously but I suspect it was more likely the latter. Either way, I'm keeping an eye out for shipwrecked princes in case there are grateful decrees to be bequeathed from the motherland (perhaps along the lines of....thou shalt have no further HECS debt).

As a result, there is currently no income, inheritance, sales, corporation, capital gains or property taxes in the Cayman Islands.

Tax Haven v Tax Neutral Jurisdiction

Much like "Donald Trump" and "vehicular manslaughter", the term "tax haven" has some justifiable negative connotations. You hear "tax haven" and you think of a low visibility jurisdiction, with minimal financial disclosure obligations and an uncooperative approach to global tax obligations.

However, contrary to popular assumptions, the Cayman Islands are actually one of the more transparent nations in the world when it comes to financial information sharing (please note how protective I have become of my new home a mere 5 weeks in). Since 2000, the Cayman Islands have been a member of the Global Forum on Taxation (now, that sounds like a thrilling annual conference!) and signed up to the OECD's project to eliminate harmful tax practices. Cayman has had a tax information exchange agreement in place with the USA since 2001, has also long been reporting interest income earned by EU citizens in Cayman Islands bank accounts to the 28 EU states who are members of the European Union Savings Directive and has tax information exchange agreements in place with some 35 countries.

In contrast, one of the biggest tax havens in the world is actually the USA (gasp!). While the US imposes disclosure obligations on everyone else, it hasn't signed up for any of the international reporting standards and its own reporting legislation - FATCA - which requires countries to report to the IRS accounts owned by American citizens, is unsurprisingly unilateral. States like Nevada, Delaware and South Dakota enable you to set up a shell corporation with the flick of a pen and the US as a whole has the laxest regulations for setting up shell companies of anywhere other than Kenya (who admittedly, probably have priorities more urgent than stringent financial management and reporting). Meanwhile here in Cayman, the financial regulations, anti-money laundering legislation and various other regulations made opening a bank account here the hardest thing I've ever had to accomplish in my life so far.

All this is basically a long-winded way of saying - lay off, guys - unlike shady Delaware**, our banking and tax practices are as transparent as the crystal clear Caribbean water we get to swim in each day!

Duty

While there is no direct taxation in the Cayman Islands, one particular inconvenience given our proximity to the USA (the missed online shopping possibilities!) is the import duty. It can be a killer.

Import duty of 10 to 25% can be imposed on goods imported into the country. Most mail order items are hit with a 22% duty, including gifts from family and friends! I have a horrible suspicion that this means my birthday next year is going to be very expensive for me. Clothing and electronics also have a 22% duty and cars are between 29.5% and 42% depending on the model and value. Devastatingly, there is also a CI$3.60 duty charge for every bottle of wine brought into the country. The one saving grace is that books are exempt! Amazon, here I come.

The short point is, my online shopping dreams (and yours, if you were hoping to use me as a PO Box for US online shopping) are dead. To the many of you who have numerous gifts to send me, don't bother, because I'll have to pay the duty at this end. From stories I've heard, customs often has difficulty calculating 22% of the value of goods and in those circumstances, picks a number based on the "vibe" of the package, which may well exceed the value of the goods themselves!

And that, dear friends, is my pithy summary of Cayman Islands tax issues. Probably wildly incorrect, offensive to Americans and the most boring tropical island blog post you've ever read, so here is your promised teacup pig. You're welcome.

** The writer has never actually been to Delaware and is sure it's a delightful, if slightly lacking in stringent financial regulation, place to live, work and visit.