Cayman Offshore Bank

Offshore Banking in the Cayman Islands

Offshore banking in the Cayman Islands is big business. It is one of the largest banking centers in the world, 5th in terms of liabilities and 6th in terms of assets. The tax haven has no Capital gains tax, corporation tax, property tax or income tax payable by employees. Furthermore there are no exchange controls allowing for free transfer of funds in and out of the islands, irrespective of currency.

Over 40 of the top 50 banks hold licences in the Cayman Islands. Bearing in mind the recent financial crisis I will leave you to make up your own mind whether or not this is a good sign. Many banks use their offshore Cayman Islands subsidiary to provide them with loans or vice versa. Their reasons for choosing the Cayman Islands include a strong reputation for sensible regulation, professionalism, confidentiality, tax advantages, asset protection, political stability, good infrastructure and geographical location.

Hedge Funds have commonly incorporated in the Cayman Islands, in addition to the investment management subsidiaries of major banks and a large number of High Net Worth Individuals. These HNI's mainly invest from an asset protection rather than a tax avoidance standpoint, due to the close information sharing agreements between the Cayman Islands and high tax countries.

Cayman Offshore Bank Account

But what about for the smaller investor? If you are looking to get a hassle free account at a Cayman Islands offshore bank, the hard truth is it's far easier to open an account at a regular US bank. The Cayman Islands have come under severe pressure to 'clean up' their banking act and crack down on money laundering. This inevitably has led to greater regulation and increased foreign intervention.

In 1990 a Mutual Legal Assistance Treaty with the United States Government came into effect. The treaty provides for the exchange of information required in the investigation of a range of criminal activity. Although it nominally excludes tax matters, the interpretation of the treaty is so broad that you can take as a given, if the authorities want you for tax evasion, they are going to get you.

Statutory confidentiality of client information is provided by the Confidential Relationships Law, which is in letter very strict and clear. Those who unlawfully break bank secrecy face a jail term. In practice disclosure of information, where backed by the US or other high-tax authority is more likely to provoke a reward than a punishment. Furthermore, disclosure of information is standard where there is any evidence of criminality.

For Citizens of the EU the tax free benefits of Cayman accounts are not clear. The Cayman Islands are part of the EU Tax Savings Directive, which means 35% withholding taxes must be paid on interest if you are an EU citizen. You must either declare that account in your home country or pay a withholding tax to the Cayman government, neither of which are particularly palatable options.

Opening a Cayman Offshore Bank Account

How can I open a Cayman Islands Account? This is a question frequently asked by US investors looking to make their first move offshore. Here's what you need:

Proof of Identification such as a passport
Proof of Residence

Due diligence rules that came into force in March 2004 also require both new and long-standing account holders to provide an explanation of their banking activities.

Ask your self this: Do you really want to spend hours on the phone explaining why your banking activities are legal. Do you want a clerk scouring through your bank statements, looking for irregularities?

These unnecessary and intrusive laws have made opening a Cayman account at the best far too complicated for the average investor, at the worst plain dangerous.

Another way of opening an account is by paying a 'financial expert' upwards of 1000 US dollars to introduce you to a bank. They will inevitably tell you how they are getting you the best deal for your money. At the end of the day you are still going to need a valid passport and proof of evidence, and probably the bank reference too.