Tax Havens of the Caribbean-- the Tax Havens of the Caribbean-- Tax Havens of the Caribbean-- the Cayman Islands

Tax Havens of the Caribbean-- the Cayman Islands
by: Howard Giske

Investors and corporations desiring to get away from SEC regulations, and US taxes can conduct business operations from the Caribbean, including the British Virgin Islands, the U.S. Virgin Islands, the Dutch Antilles, and the Cayman Islands. The banking sector of the Caymans contains 450 banks from 65 countries, and is the fifth largest banking centers in the world.

The Cayman Islands have never implemented income tax or corporate tax. This is as a form of “tax competition”, against all the taxing monetary authorities and governments all over the world. Places like the Cayman Islands play a key role in “globalization”, since they are a place where investment deals between corporations from many countries can be made without the interference of national sovereignty or tax law. Unlike their reputation as rogue centers for finance, they are connected to all the money-center banks in New York, Tokyo, London, and Hong Kong.

Over 650 Hedge funds were recently registered in the Cayman Islands, bringing the grand total of hedge funds there to over 7,000. Hedge funds routinely set up in this tax haven to attract investments and avoid taxes in the USA, Europe and other countries. Even U.S. Pension funds invest in Hedge Funds, through their shell companies to avoid paying taxes. Assets of the hedge fund sector exceed $1.3 trillion. Another $2.5 billion in pension funds from Japan were moved into hedge funds and similar investment vehicles recently. There were also over 2,000 mutual funds operating out of the Caymans. Financial regulation is administered by the Cayman Islands Monetary Authority. International pressure exists to improve the regulation of the securities and investment business. These questions were dealt with in discussions in a British parliamentary White Paper. Tax-treaties between the U.S. and Great Britain and the Netherlands are being revised to deal with such problems.

The Caymans took steps to improve anti-money-laundering measures, which got it removed from the NCCT, the Non-cooperating Countries and Territories list. The Cayman Islands have complained that they want to make sure there is a level playing field so the regulations that they must exchange tax information are applied to other well-known tax havens.

With the U.S. stock-markets going nowhere for several years, there has been a shift to non-traditional investment methods. The idea of the hedge fund is to be market neutral. It makes money by taking short and long positions in a variety of derivative instruments. They often use a lot of derivatives, such as options, calls, puts, warrants and so on. Many hedge funds in Europe are headquarted in the Cayman Islands, and are listed on the Dublin Ireland stock Exchange, while others use Luxembourg as their European base of operations.

Hedge Funds can get investments through a “Fund of Funds”, which allows smaller investors to have their funds pooled and be invested in a hedge fund. So instead of a minimum investment of $1 million, investors can join the Fund-of-Funds pool for as little as $25,000. This involves hedge funds fees, and a second layer of fees at the Fund of Funds level

About The Author
Howard Giske is a legal consultant. For legal information for small business: Legal Form Guide, for Incorporation services: incparadise.com