Tax haven jurisdiction might seem like an ideal place for you to start your businesses because of the exemption of taxes. However, with that, there are some underlying disadvantages as well. In this article, our team at Tetra Consultants has highlighted 10 disadvantages of setting up a Cayman Islands company which may help with your decision to register company in Cayman Islands.
The annual maintenance fee of a minimum $1100 to the Government in Cayman Island is higher than other offshore centres in the Caribbean. Companies are also required to keep accounts which are additional costs to the business.
It is noted that filing fees in the Cayman Islands are significantly higher than in other countries.
In addition, experts expect the filing fees, import duties, work permit fees, registration fees and other costs to also gradually increase over time.
The new Due Diligence (“KYC”) was adopted in Cayman Island in 2001 where new businesses would have to provide information on the business activities, beneficial ownership, etc. This is in place to prevent the event of businesses being used for criminal purposes. However, this might discourage one from setting up a Cayman Islands company due to the additional information one would have to submit.
Difficulty of Proving Ownership:
In an effort to develop a business-friendly environment, the laws of the Cayman Islands provide protection for the privacy of the investors. They are not obliged to disclose the information of directors, officers and shareholders, allowing for maximum confidentiality to protect individual assets and financial security. However, with the absence of disclosure, proving one’s ownership of a company registered offshore may not be easy.
Exposure to Taxation:
Opening an offshore company to enjoy the exemption of taxes may seem ideal. However, you might need to be aware of the corporate and personal tax obligations of the country of your residence. One disadvantage would be that you may be exposed to taxation through the remittance and distribution of the income and assets.
Upon the remittance, they are subjected to taxation and this cancels out the benefit that was brought by the Cayman Island tax haven.
Higher Cost of Living:
There is a high cost of living in the Cayman Islands. The higher cost of living might translate to higher wages. Hence, with higher wages expenses, it results in a lower profit.
Challenging and Longer Process to open a Corporate Bank Account:
The process of opening a bank account in Cayman Island may be more challenging. This is because banks classify businesses operating in a tax haven as a high-risk client. Therefore, there is a requirement of additional due diligence documents and a higher standard of requirement for their application to be accepted. Furthermore, the opening of a bank account takes around 4 weeks which is considerably longer.
Attract Additional Scrutiny:
There is often skepticism about companies operating in tax haven jurisdiction. This results in customers and suppliers becoming increasingly reluctant to conduct business with these companies. In addition, companies operating in tax haven jurisdiction may also be viewed unfavourably by the government to tax audit. This attracts additional scrutiny to these businesses.
Not Good Conduit Vehicles:
Due to the classifications of companies operating in tax haven jurisdiction, it might raise skepticism about these businesses. This influences the investors, resulting in them being not keen in investing in projects through tax haven companies. Hence, the companies are not able to raise capital through equity most of the time. The only use of setting up a Cayman Islands company would be that it can be used as a holding company for international shares held by a single owner. Otherwise, it can be used for offshore asset protection.
Requirement of a Registered Agent and Registered Office:
There is the requirement of a registered agent and registered office in setting up a Cayman Islands company. A registered agent is a third party who is assigned to handle the management of the business located in the Cayman Islands. Furthermore, a registered office is required with the registered agent physically present on the Cayman Islands. The registered agent is also the point of contact for Cayman Islands authorities. Such agent services can be provided by an individual or by a company.
Poor Transportation Links:
The public transport system in the Cayman Islands is not advanced and well established. Therefore, in order to get to places, it can only be done by buses or taxis which are more expensive. It is worthwhile to consider the transportation links before setting up a Cayman Islands company. However, this only applies if you open your business operating inside the Cayman Islands. It does not apply to offshore businesses.
Although setting up a Cayman Islands company has some disadvantages, the developed legal system renders the Cayman Islands a stable jurisdiction that still has much to offer. If you are unsure whether you should start a business in the Cayman Islands, you may wish to engage the service of Tetra Consultants. With Tetra Consultants by your side, the registration process of your business in the Cayman Islands will be smooth and hassle-free. Our comprehensive service package includes planning and strategizing with our clients to select a suitable business entity, completing the registration process, obtaining required licenses, opening a corporate bank account, and ensuring your compliance with the government regulations.
Contact us to find out more about how to register business in Cayman Islands and our dedicated and experienced team will revert within the next 24 hours.