While Cayman Islands homeowners and businesses have been paying a 7.5 percent duty rate on property transfers since late 2012, a corresponding tax increase for corporate share transfers in Cayman was never put into effect.
Finance Minister Marco Archer revealed the oversight in Legislative Assembly last week as lawmakers voted to approve changes to the Land Holding Companies Share Transfer Tax Law (2007 Revision). The 2007 law applies to the “equity capital” (shares, stocks etc.) held by a corporation that has land holdings within the territory.
Under the law – which operated in the same way as the former Stamp Duty Law – corporations holding land within higher value tourism areas had to pay 7.5 percent share transfer taxes. However, everywhere else, the duties on transfers were charged at a 4 percent rate for Caymanians and 6 percent for non-Caymanians.
“With respect to the transfer of shares within a company that owns land, The Land Holding Companies Share Transfer Tax (Amendment) Bill, 2013, was approved by Cabinet in February 2013, but was not passed in the Legislative Assembly to amend the law,” Minister Archer clarified.
Mr. Archer said the rates should have been changed in the Land Holding Companies Share Transfer Tax Law in the same way the Stamp Duty Law was changed for individual property purchasers.
“As a result of the Land Holding Companies Share Transfer Tax Law (2007 Revision) not being amended, the Lands and Survey Department has been charging the rates of 4 percent and 6 percent, when it was the government’s intention back in 2012 to charge 7.5 percent,” Mr. Archer said.
The minister could not immediately say whether the government had lost significant revenue due to the delay in raising the share transfer tax from either 4 or 6 percent to 7.5 percent.
“[This] would require a detailed analysis of every property valuation report for share transfer transactions within a land holding company since November 2012,” Mr. Archer said. “However, such an analysis would not enable the government to collect any additional revenue because the legally applicable rates would have been paid at the time of each transaction since November 2012.”
The stamp duty changes on land transfers were expected to earn the government about $3.5 million per year, according to government estimates when the law was passed.
There were no corresponding estimates given at the time from what was supposed to be collected on the share transfer taxes.