What is Cayman Exempted Company?

How it works

The Cayman Exempted Company is governed by the Cayman Companies Act. It's the standard offshore vehicle in Cayman, used for hedge funds, private-equity funds, fund-of-funds, structured-finance SPVs, securitisations, and family office structures. Cayman has no direct tax — no corporate income tax, no capital gains tax, no withholding tax, no inheritance tax for individuals — making it the dominant fund jurisdiction globally (alongside Delaware for US funds).

Core features:

• Zero direct tax — Cayman doesn't impose income tax, CGT, dividend WHT, or stamp duty on share transfers.
• 20-year tax-undertaking certificate — at registration, the company can apply for a government certificate guaranteeing zero tax for 20 years (renewable).
• Foreign ownership unrestricted.
• Conducts business "mainly outside" Cayman — the "exempted" qualifier. Limited domestic activity allowed (banking with local banks, employing local staff).
• No annual financial accounts filing required at the registrar (though regulated funds file with CIMA).
• Bearer shares prohibited.
• Single director and single shareholder allowed.

Annual obligations

• Government licence fee: scaled by share capital, typically USD 850-3,000+ depending on size.
• Registered office in Cayman: mandatory; provided by licensed agents.
• Beneficial owner data: maintained internally + with the registrar (private but accessible to authorities).
• CRS / FATCA reporting: Cayman is fully CRS-compliant; financial-account reporting flows through Cayman tax authority to other jurisdictions.
• Economic Substance return: annual filing for entities engaged in relevant activities (since 2019, under the Cayman International Tax Co-operation (Economic Substance) Act).

Economic substance

Cayman implemented its substance regime via the International Tax Co-operation (Economic Substance) Act in 2019, similar in scope to BVI / Bermuda. Relevant activities (banking, insurance, fund management, financing & leasing, headquarters, shipping, holding, IP, distribution & services) require:

• Adequate operating expenditure in Cayman.
• Adequate qualified employees in Cayman.
• Adequate physical premises.
• Core income-generating activities (CIGA) in Cayman.

Pure equity-holding companies face a reduced test. IP holding (especially "high-risk IP") faces a much heavier substance test that essentially precludes letterbox structures.

Common uses

• Hedge funds and private-equity funds — Cayman exempted company + Cayman ELP (Exempted Limited Partnership) is the dominant global fund structure outside Delaware.
• Joint venture vehicles for cross-border M&A.
• Securitisation SPVs — bond issuance structures.
• Family office holding structures for HNW global families.
• Pre-IPO holding structures for companies listing in the US (NYSE / Nasdaq) or Hong Kong.

Examples

• US private-equity fund managers form a Cayman exempted company as the master fund vehicle. Investors subscribe via the Cayman exempted company; investments flow into US/EU portfolio companies via SPVs. Cayman has zero tax → no fund-level tax leakage; investors pay tax in their own jurisdictions on distributions.
• HNW family forms Cayman exempted company as PIO holding (Private Investment Office). Holds family's global investment portfolio. Substance test: pure equity holding (reduced). Annual cost ~USD 5-10k.

Common mistakes

• Using Cayman for individual founder operating businesses. CFC rules in your home country typically claw back any benefit. Cayman 0% rate is irrelevant when France / Germany / US re-include the income.
• Underestimating annual costs. Government fees + registered agent + director services + substance + audit (for funds) easily reach USD 10-30k/year for a meaningful operating Cayman entity.
• Ignoring banking friction. Cayman entities face significant onboarding hurdles at most international banks.
• Skipping the 20-year tax-undertaking certificate. Cheap insurance against future Cayman tax changes — apply at incorporation.