Idea of expat tax ‘raises serious concerns for everyone’

While all the actual details relating to the Government’s proposed 10 per cent income tax on expats have yet to be released, just the notion of such a tax has sent prospective real estate buyers running and some expats declaring they no longer want to remain on-island. To some extent this is may be just a knee-jerk reaction to the proposition; nevertheless, the very idea raises serious concerns for everyone on-island, expat and local alike. 

Government has yet to inform the public as to how the tax will be implemented, collected or utilised, yet the effect of simply announcing the possibility of such taxation has created negativity amongst the business community, which should be of concern to everyone in Cayman. We also do not know if this latest proposal is simply a scare tactic to soften the blow of an alternative measure of which we know nothing about as yet. 

The potential negative impact the proposed tax could have on the real estate industry in particular should be of particular serious concern to the country. A few years ago Government made the first discriminatory step against foreign ownership by reducing stamp duty for Caymanians only. This latest proposed move will only hit expats harder – not only do they have to pay more for purchasing their property; they now will have less money to purchase it.  

Within 24 hours of the announcement of this new income tax, associates at RE/MAX Cayman Islands noted at least 10 real estate deals falling through as nervous buyers decided to pull out of the buying process, at a cost to government of about CI$250,000 in stamp duty revenue. I believe Government should be working harder to attract foreign ownership and not focus on giving breaks for local ownership necessarily.  

After all, Cayman is home to local people, so they will hopefully always have the long-term benefit and are not forced to sell as persons on work permits are impacted by the rollover policy; expats will now be less likely to buy and other foreigners can easily go elsewhere for their second home as the cost of living here increases uncontrollably. The economy will suffer without foreign investors purchasing property to the extent that locals will be detrimentally affected more as a secondary effect than directly.  

New developments will also now become more costly, should the tax actually be implemented.  

This is because of the clause known as a force majeure in contracts between construction companies, developers and buyers, which states that any additional taxes imposed after the signing of the contract will have to be passed on.  

The developer in turn must reap their costs back from buyers, forcing the price of new developments up. As prices go up people are less likely to invest, thereby having a detrimental effect on the economy in a market place that might have been showing signs of improving, but will only now be further hindered by this type of tax.  

At the end of the day it will most likely be business that will suffer from the implementation of this tax as expats either ask their employers to pay the additional fee or will simply up sticks and move away from Cayman. Both scenarios will hurt the business owner.  

After a succession of hits on the business community by Government attempting to increase its revenue in recent years, such as duty hikes and work permit fee increases, I believe that businesses will just not be able to tolerate this latest squeeze. 

The real estate industry would welcome the chance to provide their input as to how they believe the Government could increase revenue, but they would most likely focus on the reduction of cost, primarily the size of Government itself. There just seems to be too many ongoing costs that Government and the private sector cannot afford to pay for, and something has to give.  

But the real estate industry would appreciate the chance to forge a proper public/private sector relationship, which I believe is the only way Cayman is going to improve its economy for the good of everyone living on the island – expat and local alike. 

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9 COMMENTS

  1. Deals worth one quarter of a million dollars in Stamp Duty alone fell through last weekend.

    Hey indigenous, how’s the REVOLT going? Still having fun?

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  2. There are those who are rebels without a clue and will readily voice the PACK UP AND LEAVE mentality but they don’t really understand how government and businesses work in Cayman.
    It would be a shame were Cayman to willingly surrender its tax free status and once lost it could never return.

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  3. I really should add as well, that this was from just one realty agency, ReMax. I wonder how many deals in total simply evaporated because of this.

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  4. It is staggering that the consequences of introducing taxation do not appear to have been thought through. International clients will view this development with justifiable suspicion. If the tax free status is lost, where will the line be drawn? The Cayman Islands have a difficult time of it as it is trying to rebutt allegations of tax evasion etc. from the international community. Hopefully this is not the beginning of the end of a truly successful era for these islands.

    And the selective nature of the proposed tax will drive a wedge between Caymanians and expats; just at a time when relations between the two groups were better than they have been for a long while.

    I used to think Prenier Bush was mindful of the importance of protecting the Cayman business model. It seems that he has lost his way.

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  5. CaymanSense, I personally think that the line has long been crossed and the precedent set, it’s just starting to materialize in more obvious ways. It seems that the culture of Cayman which is bred deep in its government as well as it’s people has developed to a state where people truly believe that you can live above your means and not pay for it in the long run or have to pay for it. Just read the comments such as Expats should have to contribute to help the community, yet the same people do not believe Caymanians should have to as well. Those who think taxing only expats is a good idea, will soon live to regret supporting this when the infrastructure for collecting taxes is in place and next year’s election has passed and they find themselves in the line of fire.. I don’t think this tax will mean no more expats in Cayman some may leave but I’m sure more will come because most of the world is used to direct taxation so it will be nothing new but to Caymanians this will be destructive and will drive the cost of living even higher, but times do change.

    Government spending has long been on out of hand for Cayman as well as other countries, the difference Is that Cayman does not have the tax revenue nor the population to maintain their standards. The government has already set a precedent that when the money gets low they just make up new fees or increase existing ones to cover it, in lieu of controlling their own expenditures. Last year it was a fee on every hedge fund, this year it’s the expat tax, Excuse me Community Enhancement Fee, as if a penny of it will be used to actually enhance the community. Don’t be surprised if next year there’s another tax on Tourists just to step foot on the island or a tax to swim in Caymans Water.

    Something to consider people, the same government that say this tax will only be on expats should hope to raise 50 million Dollars, if I am correct the are about 20,000 expats on the island. If the government wants to raise that amount of money they would have to collect an average of 25,000 dollars from each and every Expat and that could only be done if each one of them made 250k a year and paid 10 percent.. That number changes significantly given the fact that this is only supposed to be levied against those making more then 20k a year. So ask yourselves when the CIG falls short of what they want, what do you think will happen, raise the tax to 20 or 30 percent or start taxing Caymanians making it even harder for them to survive with an ever increasing cost of living.

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  6. Fewer Work Permits now and more unemployed Caymanians

    How many Caymanians lose their job per thousand expats that leave?

    USA already has dim view of Cayman in respect of the Mitt Romney tax thing, how do you think they’ll react when they find US Expats don’t get a vote and have to pay taxes Caymanians don’t!

    Many have heard the phrase For whom the bell tolls, Hemmingway took this from a poem written by John Donne in the same era as Columbus discovered Cayman – No man is an Island, he was saying that we are all part of humanity and if we diminish others we diminish ourselves. Don’t ask for whom the bell tolls, it tolls for thee. (i.e. even the death of a stranger makes me less, for it lessens mankind)

    Thinking of Cayman as an Island only lessens it. Be a citizen of the the world and embrace fellow citizens of the world. Are Caymans rules for expats the same rules they would like to experience if they worked abroad as expats.

    An expat may send money home, but their true wealth always stays with them – knowledge and experience.

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  7. Students of history will remember the great depression.

    Banks failed – they used to call it a ‘run’ on a bank. One person would withdraw all their money, rumours start, other people would follow suit and the bank would start to lose credibility and trust. Eventually the demand from closing accounts would exceed the available cash and the bank failed despite having massive assets – equity in loans/mortgages cannot be released instantly.

    Even whispering the word TAX in a tax haven economy is likely to make investors nervous. Expats first, Caymanians second, then maybe property, or… perhaps my tax free investment portfolio ? ?? ????

    sell, Sell SELLLL……

    If the investors start a ‘run’ on Cayman, the economy will be destroyed and it will take many more (Caymanian) jobs than the 500 civil servants Bush is trying to protect.

    I disagree with SOME of the previous math though.

    Take 1000 from 20,000 expats would yield 20 Million so it needs an average 2,500 per expat.

    If we don’t pay on the first 20k then that would need an average expat salary of 45,000 – The average UK salary is equivalent to 27k CI so that still doesn’t work.

    Add 50,000 ‘Caymanians’ and the per taxpayer drops to 700 plus change so an average salary of 27k which might appear to work BUT there are Kids and Students as well as retired, disabled and so on – NO still doesnt quite work – But if Bush says he’ll raise 50M from taxes it shows he doesn’t have only expats in the cross hairs.

    Just working the math the other way, if EVERYONE pays e.g. VAT /Purchase Tax then that is less than 2 bucks each a day!

    On the flip side look at the salaries of civil servants due to retire in the next 5 years – they are at the peak of the salary scale – an early retirement scheme could yield between 10 and 20M saving for a tiny fraction of the 500 job losses talked about. Terminate a few department heads who fail to stay within budget and the message will ensure next years accounts are complete and on time. Can Cayman manage with less civil servants – YES – there are at least 4 times more civil servants per capita than is typical.

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  8. Sonic…

    You’re bang on target with your maths and reasoning here, mate.

    The only way this scatterbrained, idiot’s tax idea could work, purely from a numbers point of view is if this tax was levied on the expat salaries of 60,000 pa and up…and that will definitely drive those in-demand professionals out of Cayman…and kill the interest of any others who might have harboured thoughts and plans of seeking jobs in Cayman.

    And those expat professionals support Cayman’s economy enough already by spreading the spending of their income across a wiser range of services simply because they have more disposable income to spend.

    It will also cause those global companies that conduct the type of business in Cayman that hire these professionals to seek other jurisdictions from which to operate…in other words, to take their presence out of Cayman.

    The only way a tax scheme could operate in Cayman would be to implement a full scheme of corporate and income tax across the board…at a slightly lower rate than is levied elsewhere, say between 5 and 7.5%, which is still more attractive than the basic 20% most other countries are charging…

    And definitely better than the 40-50% that Canada, the Scandanavian countries charge, and that England charges on all earnings of anything over 37,500 pounds pa.

    How does Bush expects to charge expatriates taxes to pay for services that every single person in Cayman uses, regardless of where they were born ?

    Some of these proposed taxes need to go to paying for him to get the mental health treatment that he obviously needs…and then declare him mentally incompetent to hold political office in Cayman, ever again.

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  9. You’re right Sonic, I was off by one digit, lucky I don’t workin the financial industry..However I see it still just doesn’t add up with numbers which are obviously more accurate

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