Structuring the investment
A popular structure for holding real estate is through an ordinary company.
Subject to licensing requirements, this type of company will be able to own and lease Cayman Islands property, hire Cayman Islands-based employees, transact business, both with the public of the Cayman Islands and internationally, and apply for a TBL licence and an LCC licence (subject to the criteria mentioned in Section III, above).
While the fees for establishing an ordinary company are more attractive than for other types of companies, there are additional annual and other requirements that must be met to maintain an ordinary company (e.g., holding an annual general meeting (which may be done by proxy) and filing an annual declaration outlining details of shareholdings with the Registrar of Companies). The annual return must detail, inter alia, the names and addresses of shareholders and the number of shares held by them, the amount of the capital of the company and the number of shares into which it is divided, and various details about calls made on shares. An ordinary company is not able to apply for a tax exemption certificate (TEC). An ordinary company is one whose primary purpose is to carry out business in the Cayman Islands, and is therefore the main vehicle that is recommended where the business will entail direct dealings with the public of the Cayman Islands.
Another popular structure for holding real estate is through a foreign company. The foreign company model is particularly useful if a foreign company wants to operate a physical presence in the Cayman Islands directly without setting up a separate legal entity, and it may do so by registering under Part 9 of the Companies Law (2018 Revision).
Subject to satisfying licensing requirements, the foreign company will be able to own and lease Cayman Islands property, hire Cayman Islands-based employees, transact business both with the Cayman Islands public and internationally, and apply for a TBL licence and an LCC licence (subject to the various criteria for these; see Section III, above). When selecting the structure, certain activities of the main company (even where these are not conducted from within the Cayman Islands) could cause the foreign company to be subject to additional licensing requirements under Cayman Islands law. Examples of businesses where additional licensing may be imposed include banks, trust companies, insurance companies, management companies, mutual funds, mutual fund administrators or entities carrying on securities investment business.
The least popular form of investment vehicle is the Cayman Islands exempted company. This type of company will, in limited circumstances, be able to own or lease Cayman Islands property, hire Cayman Islands-based employees, and transact business internationally (but generally not with the public of the Cayman Islands).
The objects of an exempted company must be carried out mainly outside the Cayman Islands, and it is not permitted to trade in the Cayman Islands with any person, firm or corporation accepting furtherance of the business of the exempted company carried on outside the Cayman Islands. This does not prevent the exempted company from effecting contracts in the Cayman Islands and exercising in the Cayman islands all of its powers necessary for the carrying on of its business outside the Cayman Islands.
As a result, an exempted company structure usually suits a company that wants to own or lease an office to transact business externally from the Cayman Islands. Additionally, an exempted company may apply for a TEC.
As mentioned in Section I, above, individuals or companies may purchase up to one residential property for personal use and two further residential properties for rent without the need for trade and business licensing.
As also previously mentioned, the ownership of commercial real estate by either an individual or company will be deemed as carrying on trade and business in the Cayman Islands, and suitable business licensing will be required.
The primary legislation dealing with business licensing in the Cayman Islands is the Trade and Business Licensing Law (2014 Revision) (TBL Law) and the Local Companies Control Law (2015 Revision) (LCC Law).
Besides the exemptions set out above, an individual or a corporation engaging in almost any business locally is required to be licensed under the TBL Law (TBL licence). The provisions of this Law are mainly administrative. Depending on the nature of the business, certain other approvals may need to be secured in connection with the grant of the TBL licence (e.g., approvals from the Department of Environmental Health or from the Central Planning Authority of the Cayman Islands).
The application procedure for the TBL licence consists of completing the prescribed application form, and providing corporate information and certain other due diligence documents relating to the applicant to the TBL Board together with a cover letter outlining details of the business to be conducted. Currently, a processing fee of US$92 must be paid along with the licence fee as set out in the schedule to the particular law attributed to the business in question (licensing fees currently range between US$183 and US$487,808).
The applicant is able to designate a trading name for the business, which may be different from the name of the applicant. Such a name is subject to the approval of the TBL Board.
The TBL licence is renewable annually, and the renewal application form must be submitted 28 days prior to the expiry of the current licence together with the process and renewal fees (which are identical to the fees submitted on the initial application).
For an application to be entertained pursuant to the TBL Law, the applicant, if an individual, must possess Caymanian status or hold a work permit; if a corporation, the applicant must either be beneficially owned or controlled up to at least 60 per cent by persons of Caymanian status, or hold a licence under the LCC Law (LCC licence).
Where an LCC licence is required, the application should be made in conjunction with the TBL licence, as the TBL Board is also responsible for approving the LCC licence.
An LCC licence will not be required where the company falls into one of the following exempted categories (although a TBL licence will normally need to be held in these cases, unless an exemption exists pursuant to law):
- the company has 60 per cent Caymanian shareholders, who maintain 60 per cent of the economic and voting control of the company (the TBL Board must be satisfied that effective control is not, either directly or indirectly, or by reason of any arrangement, artifice or device, invested in, or permitted to pass to, persons who are not Caymanians (e.g., by way of shareholders' agreements, special share classes provided for in constitutional documents)). The TBL Board applies this rule (the 60/40 rule) strictly;
- the applicant has successfully applied to the Governor in Cabinet of the Cayman Islands subject to Section 4(3) of the LCC Law that exceptional circumstances exist (having regard to the public interest) to exempt the applicant from the provisions of the LCC Law (which may be done subject to such terms and conditions as the Governor in Cabinet may deem fit); or
- the applicant falls within one of the exceptions to the meaning of carrying on business as set out in Section 2(2) of the LCC Law, including the following:
- the applicant is carrying on, from a principal place of business in the Cayman Islands, business exterior to the Cayman Islands;
- the applicant is doing business in the Cayman Islands with any person, firm or corporation in furtherance only of the business of that company carried on exterior to the Cayman Islands;
- the applicant is buying or selling or otherwise dealing shares, bonds, debenture stock, obligations, mortgages or other securities issued or created by any exempted company, foreign partnership or a resident corporation incorporated abroad;
- the applicant is transacting banking business in the Cayman Islands with and through a licensed bank;
- the applicant is effecting or concluding contracts in the Cayman Islands and exercising in the Cayman Islands all other powers, so far as may be necessary, for the carrying on of the business of the company exterior to the Cayman Islands;
- the business of an exempted company is with another exempted company, a foreign partnership or a resident corporation incorporated abroad;
- the business is carried on by a mutual fund as defined by the Mutual Funds Law (2015 Revision) in the course of holding common management of an investment, or the acquisition or disposal of an investment;
- the activity is the administration of mutual funds by a person licensed as a mutual fund administrator under the Mutual Funds Law (2015 Revision); or
- the applicant's business is otherwise exempt from requiring an LCC licence.
Companies that are unable to avail themselves of one of the exceptions set out above will require an LCC licence, which, once obtained, will exempt them from complying with the 60/40 rule. An LCC licence enables a company to have more than 40 per cent foreign ownership and control where approved by the TBL Board.
The award of an LCC licence is discretionary, and the following factors, inter alia, will be taken into account by the TBL Board when considering an application:
- the economic situation of the Cayman Islands and the due protection of persons already engaged in business in the Cayman Islands;
- the nature and previous conduct of the company and any persons having an interest in that company, whether as directors, shareholders or otherwise;
- the advantage or disadvantage that may result from the company carrying on business in the Cayman Islands;
- the desirability of retaining in the control of Caymanians the economic resources of the Cayman Islands;
- the efforts made by the company to obtain Caymanian participation;
- the number of additional people from outside the Cayman Islands who would be required to reside in the Cayman Islands were the application to be granted;
- whether the company, its directors, and employees have and are likely to continue to have the necessary professional, technical and other knowledge to carry on the business proposed by the company;
- the finances of the company and the economic feasibility of its plans;
- whether the true ownership and control of the company have been satisfactorily established; and
- the environmental and social consequences that would result from the carrying on of the business proposed by the company.
Foreign investment, if considered beneficial to the Cayman Islands economy, is generally encouraged.
The initial and annual licence fee for an LCC licence is currently US$3,049, plus an initial and annual application and processing fee of US$244. The LCC licence is issued for a duration of no longer than 12 years, and in January of each year, the company will be required to file a return of shareholdings with the TBL Board as at 31 December of the previous year.
An existing foreign corporation wishing to purchase or lease (or otherwise hold an interest in) real estate in the Cayman Islands must be registered at the Cayman Islands Companies Registry as a foreign company; such a registration will then enable the corporation to apply for a TBL licence and an LCC licence (if required). Additionally, overseas investors may wish to incorporate an ordinary company and, once incorporated, the ordinary company will be able to own and lease Cayman Islands real estate and apply for a TBL licence and an LCC licence (if required).