Cayman Islands

How can one obtain the right to reside in the Cayman Islands?

Access is structured around two types of certificates. The certificate for persons of independent means grants a right of residence for twenty-five years in exchange for an investment of around one million Cayman Islands dollars—a significant portion of which must be in built real estate—provided the applicant can demonstrate a specific level of annual income without engaging in local employment. The permanent residence certificate requires a higher investment—approximately two million Cayman Islands dollars in built real estate—and confers broader rights, notably the ability to apply for a work permit. Other schemes exist for employees of local companies and for certain entrepreneurs. Amounts are denominated in Cayman Islands dollars, a currency pegged to the US dollar at a rate above parity.

What is the economic substance regime?

It is the territory’s response to international pressure on zero-tax jurisdictions, and it has changed the landscape. Entities carrying out certain defined activities—such as headquarters functions, financing, fund management, intellectual property, or holding company activities—must demonstrate a genuine economic presence in the Cayman Islands: management decisions made locally, sufficient qualified staff, proportionate operating expenses, and suitable premises. Compliance with these obligations is subject to annual reporting and audits; non-compliance results in sanctions and the exchange of information with the authorities of the relevant jurisdictions. This regime has rendered purely nominal structures obsolete, while making those based on genuine business activity perfectly defensible.

Does a Cayman Islands structure pose a risk for a French resident?

It warrants careful prior assessment rather than outright rejection on principle. French law includes several mechanisms targeting equity interests held in entities established in jurisdictions with preferential tax regimes; these can render undistributed profits taxable in France, subject to safeguard clauses that require proof of genuine economic activity. Added to this is the issue of the territory’s inclusion on lists of non-cooperative jurisdictions—a status that has fluctuated over time and, when applicable, triggers increased levies on certain financial flows. Consequently, a Cayman Islands structure held by a French resident without genuine substance is a poor idea. Conversely, the same structure—backed by genuine business activity and held by a person actually established outside France—is generally defensible.

Why are investment funds domiciled there?

Because tax neutrality there serves a specific, often misunderstood function. A fund brings together investors residing in dozens of different jurisdictions. Domiciling it in a state that does not tax its profits avoids adding an intermediate layer of taxation between the underlying assets and the investors, with each investor remaining liable for tax in their own country under their own local rules. It is therefore not an avoidance mechanism for the investors, but a neutrality mechanism designed to prevent double taxation. Other contributing factors include flexible, English-style corporate law, extensive case law, a specialized regulator, and an unparalleled depth of professional expertise. These reasons explain the territory’s dominance in this sector, irrespective of any concerns regarding a lack of transparency.

What exactly does the Cayman Islands economic substance requirement entail?

It requires any entity engaged in a "relevant activity" to demonstrate that it is directed from within the territory, incurs proportionate local expenditure, and maintains premises and staff appropriate to its volume of activity (Cayman Islands Government). The activities covered include, among others, banking, insurance, financing, fund management, intellectual property holding, and headquarters operations. Merely having a registered address is no longer sufficient to meet these requirements. Consequently, while the operating costs of a Cayman Islands entity have risen, so too has its credibility in the eyes of foreign tax authorities. The issue thus becomes an economic one: does the volume of activity justify the cost of maintaining the necessary substance?

Must a Cayman Islands trust be declared to the French tax authorities?

Yes, and failure to do so carries a heavy price. Article 1649 AB of the General Tax Code requires the trust administrator to file both an event-based declaration and an annual declaration whenever the settlor, a beneficiary deemed to be the settlor, or at least one beneficiary is a tax resident of France, or if an asset held in the trust is located in France. Non-compliance is punishable by a fine of €20,000.