With an abundance of natural beauty, warm weather and easy access to North American markets, the Cayman Islands have developed into both a world-class tourism destination and international financial centre. Not only does this tropical paradise offer a picture perfect environment in which to live and work, but also its stable political environment, high literacy rate, low unemployment and low inflation, modern infrastructure, high quality telecommunications and transportation systems, and education and healthcare programmes have created a standard of living unparalleled in the Caribbean. The country won the Best IT and Best Human Resources categories in fdi’s Caribbean Country of the Future 2005/06 competition.
“Our cost of living might be high but we do not pay property taxes or income tax,” says Naul Bodden, chairman of the Cayman Islands Investment Advisory Board. “We enjoy the highest standard of living in the Caribbean. It is on par with Bermuda.”
Although the Cayman Islands are a British Overseas Territory, the islands have been self-reliant for almost two decades. Driving the economy has been the tourism and financial services sectors along with supporting service industries, such as construction, real estate, retail trade and water sports. All of these continue to flourish with no signs of slowing down any time soon.
“Tourism and financial services are the two main pillars of the economy, providing residents with one of the highest per capita incomes in the world,” says the Honorable Charles Clifford, minister of tourism, environment, investment and commerce.
The Cayman Islands have long been known as an upscale tourist destination. Encompassing three islands, 480 miles south-west of Miami, in the US state of Florida, the group of islands offers some of the best diving in the Caribbean and is considered to be one of the top three snorkelling destinations in the world. With more than 300 dive and snorkel sites between the three islands, divers enjoy spectacular underwater visibility of up to 30 meters and temperatures of about 80°F.
The Cayman Islands also have much to offer visitors above the sea with attractions such as the highly acclaimed Cayman Turtle Farm, the Queen Elizabeth II Botanic Park, Pedro St James Castle and Rum Point.
The hotel industry accounts for much of the Cayman Islands’ current foreign direct investment activity. Ritz-Carlton and Mandarin Oriental resorts are soon to be added to its offerings. The six-star luxury Ritz-Carlton Grand Cayman flagship project is the company’s largest resort project with a residential component. When fully operational, it will be the first Ritz-Carlton managed, full-ownership residential development in the Caribbean. It will also be one of the company’s most extensive properties, spanning 144 acres along the Seven Mile Beach and across to the island’s North Sound.
The Mandarin Oriental Hotel Group has announced that it will manage an exclusive hideaway resort, which is under development in the secluded Barefoot Beach area of Grand Cayman Island. The resort is scheduled to open in 2007.
“We have also been told that the Four Seasons is looking at the Islands. If this happens, we could have three major players in the market here,” Mr Bodden says.
Tourism provides thousands of jobs both for local residents and expatriates with work permits. The industry contributes hundreds of millions of dollars to the local economy each year, making up more than 50% of the Cayman Islands’ GDP; 75% of foreign currency earned is generated from tourism.
Since the birth of the Cayman Islands’ financial industry in the 1960s, this sector has been heralded for its rapid, sustained development and prosperity. In the past 15 years in particular, the Cayman Islands have focused on two main objectives: building a world-class specialisation of institutional business and developing strong international co-operation agreements with the US and other countries.
Hurricane Ivan may have caused a temporary setback in 2004 but the islands’ financial services industry was back in operation just days after the storm, a testament to the resilience of the business infrastructure.
“The sector is booming now, especially hedge funds,” says Mr Bodden. “This is because of our rules and regulations and the fact that we offer good professional services in addition to our proximity to financial markets.”
Currently, 80% of all hedge funds are domiciled in the Cayman Islands. A plus for those in the business are the direct flights to and from New York City and London. “We also have excellent communications systems here compared with some other Caribbean islands,” Mr Bodden adds.
The Cayman Islands have been at the forefront of telecommunications. With the enactment of the Information & Communications Technology (ICT) Authority Law in 2002, it became one of the first countries in the world to officially recognise the convergence of telephony, radio and broadcasting, the internet and e-business. Today, the islands are served by three telecommunications companies licensed to provide a full range of state-of-the-art fixed voice and data telecommunications services, and three others to provide mobile services. These include Cable & Wireless, Cingular Wireless and Digicel. Caymanians are well connected. In 2003, there were 765 phone lines per 1000 people. About 70%-75% of the population is estimated to have a mobile phone; in 2003, 23% had internet access.
The absence of exchange controls, a solid legal system, a stable banking environment and a sound regulatory regime make the Cayman Islands an attractive choice among sophisticated investors – particularly for banking, trust services, company services, mutual funds, insurance, vessel registration and capital markets products.
The establishment of the Cayman Islands Stock Exchange (CSX) in 1997 further enhanced the funds industry, resulting in the location becoming a first-class listing facility for funds. The CSX has continued to grow: more than 850 issues have been approved for listing, a large proportion of which are mutual funds, making it one of the fastest growing international stock exchanges.
Industry insiders pinpoint the introduction of a Mutual Funds Law in 1993 as the catalyst for growth in the funds sector, providing a clear, tailored and effective regulatory framework. “We ensure from the government perspective that there is an appropriate regulatory environment that respects both our commitment to adhering to international standards and making sure the Cayman Islands remain commercially attractive,” says Deborah Drummond, the government’s deputy financial secretary.
“We also provide government relations service to make sure there are no undue barriers to business between the Cayman Islands and other jurisdictions. We work extremely close with the private sector.”
Ms Drummond says that, contrary to any assumptions outside the business, efforts to introduce appropriate regulatory regime has resulted in additional business. “For example, when we introduced the Mutual Funds Law in 1993 – a previously unregulated area – it spurred growth and business,” she says. “We have seen this again more recently with the Securities Investment Business Law which was brought in 2003.”
The Cayman Islands have been lauded by the Financial Action Task Force in Paris for enhancing existing laws designed to convert anti-money laundering polices and voluntary codes of practice into legislated requirements. A recent report released by the IMF, in which it assessed supervision and regulation in the Cayman Islands’ banking, insurance and securities industries, as well as its anti-money laundering regime, recognises the jurisdiction’s comprehensive regulatory and compliance frameworks.
“An extensive programme of legislative, rule and guideline development has introduced an increasingly effective system of regulation, both formalizing earlier practices and introducing enhanced procedures,” note IMF assessors. The report also states: “The supervisory system benefits from a well-developed banking infrastructure with an internationally experienced and qualified workforce as well as experienced lawyers, accountants and auditors.” It adds: “The overall compliance culture within Cayman is very strong, including the compliance culture related to AML [antimoney-laundering] obligations…”.
The Cayman Islands are home to about 300 banks, including 43 of the world’s largest 50 banks. The majority are subsidiaries of established international banks that conduct business in the international market.
Given the expertise and sophistication of the professionals who work there, the Cayman Islands have also become a global leader in the formation of new captive insurance companies.
“The Cayman Islands and Bermuda are now considered the captive insurance centres in the offshore world,” says Mr Bodden. “Here, Bermuda is our biggest competitor, but in the hedge fund business we excel.”
Governed under the Insurance Law (2003 Revision), the Cayman Islands are firmly established as the domicile of choice for companies seeking a formal self-insurance programme that provides actuarial risk coverage and maximum profit retention. This position was further strengthened by the introduction of the Segregated Portfolio Company (SPC) structure. The SPC structure caters to small-to-medium-sized insurance companies that want to establish a captive but who are unable to meet the specified capital requirements individually.
Today, more than 600 captive insurance companies are registered in the Cayman Islands. The predominant portion of these continues to be healthcare-related captives, although in recent years the location has become the choice of companies across all commercial and industrial sectors.
Another pillar of the Cayman Islands’ financial industry is company registration, which continues to grow. The Registrar of Companies is responsible for the registration of corporations under the Companies Law (2004 Revision). It also registers limited partnerships and exempted trusts. Advantages of registering a company in the Cayman Islands include: tax neutrality, a well-established companies regime, reasonable reporting requirements and flexible corporate structures.
The range of purposes for which a Cayman company can be used include investment, sales processing, trading, shipping operations, stock dealing, real estate holding, the ownership and licensing of patents, and international financing. Companies can be formed with one shareholder and with no minimum capitalisation requirements (except for exempted limited duration companies). Client privacy is protected by the fact that the Registrar of Companies can only release the name and type of company, its date of registration, the address of the registered office and the company’s status. Disclosing any other information is prohibited, except where assistance to law enforcement agencies is required.
Overall, the Cayman Islands offer a full range of banking products for local and international clients. Other readily available services include letters of credit, foreign exchange, guarantees, safe custody, commercial loans and mortgages.
“The strength that we bring from a client perspective is our service offerings that allow us to be a one-stop shop for all business transactions,” says Ms Drummond. In addition, the domestic banking scene reflects a buoyant economy making the industry one of the largest employers on the islands.
Apart from its excellent physical and professional infrastructure, one of the main factors attracting foreign companies to the Cayman Islands is the fact that they remain a no-tax jurisdiction. The government does not impose income or corporation tax, nor capital gains, inheritance or gift taxes. There are no property taxes or rates and no controls on foreign ownership of property.
The bulk of government revenue is earned through consumption-based taxes, such as licences, fees and custom duties. Although real estate for business purposes is subject to licensing, the fees are reasonable and the land acquisition process is safe and straightforward. A company can be incorporated in less than a week provided all documentation is submitted, fees paid and due diligence satisfied.
In addition, living and working in the Cayman Islands is unique because the islands attract people from all over the world. Caymanians are culturally and racially mixed and embrace other nationalities. About 60% of residents are locals, while the other 40% are mainly from North America and other Caribbean islands, such as Jamaica. More than 90 nationalities are represented in the total population, a diversity of cultural influences that produces a fusion of music, fashion, cuisine and lifestyles. This melting pot is a contributing factor to the creativity and innovation that continue to drive the Caymanian economy forward.