Government has released a bill to amend the Local Companies (Control) Law that would allow exempted companies to carry out business in the islands.
“The Companies and Local Companies (Control) amendments would allow exempt companies to do business locally; however, these companies would be required to follow the same rules as local companies,” the ministry of financial services said in a press release.
Under current laws, exempted companies are not allowed to trade with any person or business locally, except to further the business of the company carried on outside the Cayman Islands.
With the proposed legislation, the Cayman Islands government is reacting to pressure from the European Union, which considers parts of Cayman’s tax regime as harmful.
The EU Code of Conduct Group for Business Taxation assessed Cayman’s tax system last year and the EU Council warned the Cayman government in a letter sent in November 2017 that it was treating domestic and foreign companies differently.
The Code of Conduct group, which evaluates countries for a potential blacklisting, said in its analysis that legal mechanisms exist in Cayman “that enable the granting of advantages only to non-residents or in respect of transactions carried out with non-residents, in particular, through the incorporation of entities which are not permitted to carry on business in your jurisdiction.”
The EU Council letter asked the government to abolish or amend any legal mechanism that would give advantages only to non-residents or in respect of transactions carried out with non-residents.
Paul Byles, former president of the Chamber of Commerce, said the changes will put exempted companies on the same legal footing as local companies, as exempted companies could now apply to carry out business locally.
However, Mr. Byles believes that the impact will be limited.
“The vast majority of these existing exempted companies have an international focus. For example, many are hedge funds or asset holding companies and have no interest in doing business in the local markets,” he said. “They are also already subject to reporting and tax obligations in other jurisdictions. Therefore, the LCCL change is unlikely to have any negative impact on local businesses or the economy generally.”
The bill is expected to be debated in the Legislative Assembly before the end of the year, together with the The International Tax Co-operation (Economic Substance) Bill, 2018 and The Companies (Amendment) (No. 2) Bill, 2018.