A double tax treaty is a bilateral agreement between two parties for the abolition of double taxation on active and passive income. As the Cayman Islands impose no income tax, it has not entered into many double tax agreements and, in fact, some of these have been signed in recent years.
The Islands have entered into limited tax agreements with the United Kingdom and New Zealand and into a more comprehensive agreement with Japan. While the double tax agreements are not numerous, the Cayman Islands have entered into a number of tax information exchange agreements with various countries.
Our Cayman Islands incorporation specialists briefly state the provisions of the UK-Cayman Islands treaty in this article, as a model for the manner in which this type of agreement influences the taxation of legal entities and individuals who derive income from both sources.
Investors who wish to know more about the Cayman Islands business regime, as well as the tax information exchange treaties, can reach out to our agents.
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Cayman Islands/UK double tax treaty
The Cayman Islands/UK double taxation arrangement (DTA) was signed in June 2009 and it entered into force in December 2010. It started to be effective in the Cayman Islands starting with April 2011 for the corporation tax and for the income and capital gains tax and from December 2010 for other taxes.
Our team of Cayman Islands incorporation agents presents some of the main issues included in the treaty:
- Covered persons: the DTA applies to individuals, natural or legal who are residents of one or both jurisdictions.
- Covered taxes: for the UK, the covered taxes are the income and the corporation tax, the capital gains tax, inheritance tax and value-added tax.
- Resident: for the purpose of the treaty, a resident in the Cayman Islands is any person who is considered a resident by means of domicile, residence, place or incorporation or management.
- The taxation of business profits: are to be taxed only in the territory in which the one liable to tax resides, unless be undertakes business in the other jurisdiction.
The elimination of double taxation takes place in the following manner: when a resident of one of the signatory states derives profits or income from that state that may be taxed in the other state, the first state will grant an allowance as a credit against the tax payable in the other state. This will be used as a deduction from the income tax applicable to the resident, and the amount will be equal to the tax paid in the territory in question.
The provisions of the UK/Cayman Islands DTA are only briefly described in this article. Investors from the UK who are interested in Cayman Islands company formation and wish to know more can reach out to our agents.
Similar provisions in terms of the persons and the taxes covered as well as the general definitions will also apply in case of other double tax treaties. The OECD model for this type of agreement is the one commonly used by all jurisdictions.
One of our agents who specialize in the registration of a Cayman Islands exempted company can provide investors with more details about the other DTAs.
Taxation transparency in the Cayman Islands
In an effort to be removed from the OECD lists of territories that have no substantial tax transparency standards, the Cayman Islands have signed a number of tax information exchange agreements and various memorandums of understanding with jurisdictions around the world.
Some examples of the countries with which the Cayman Islands have signed tax information exchange agreements include Argentina, Australian, Belgium, Canada, Denmark, France, Germany, Italy, the Netherlands, Poland, Sweden, the United Kingdom, and the United States. Please keep in mind that this list is not an exhaustive one. While some of the treaties are in-force, others are pending.
Cayman Islands incorporation is attractive for many foreign investors, both from countries that have signed various bilateral treaties with the Cayman and from countries that have no agreements with the Islands. Some of the statistics for the evolution of the number of companies are the following:
- 109,818: this is the number of active companies in the second quarter of 2019;
- 26,381: the number of active partnerships in the Cayman Islands in 2018;
- 9: the number of trusts registered in the Cayman Islands in June 2019;
- 8,340: the number of Cayman Islands companies that have been terminated in 2018.
Investors can contact our Cayman Islands incorporation specialists for more information on the bilateral treaties and for complete assistance for incorporation.