TAXATION

In the Cayman Islands there is no direct personal, corporate or property tax, however there are other indirect taxes imposed in the jurisdiction. 

Stamp Duty

Stamp duty is imposed at various rates on the transfer of land/property in the Cayman Islands and execution of certain documents at 7.5% or 9%.

Import Duty

The government imposes a 22% import duty on specific goods that are brought into the country, with the exception of a few items/ products.

US Citizens in Cayman

  • If you are a U.S. citizen and you live in the Cayman Islands, your US expat tax return in the Cayman Islands is based on your worldwide income so you must file a U.S. return for all the years that you are residing in the Cayman Islands. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings. In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion .

 

  •  A U.S. taxpayer working overseas in the Cayman Islands may be able to reduce U.S. taxable income and “double taxation”( paying in 2 countries) by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.

A common mistake is the assumption that if there are zero taxes owed with these tax benefits that a US tax return while living in the Cayman Islands does not need to be filed. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that these tax benefits, such as the foreign earned income exclusion and foreign tax credit are not applicable to the outcome of your tax liability and tax return until they are claimed on a filed tax return.

UK Expats

According to ExpertsforExpats.com, a common mistake of British expats when they first consider moving abroad is that when they move they are instantly exempt from UK tax.

The Statutory Residence Test was introduced in 2013 to establish whether a person is a UK resident or not.

Statutory Residence Test: Key components

There are four essential components to the Statutory Residence Test:

  1. How much time you have spent in the UK in a tax year
  2. Automatic Overseas Test
  3. Automatic UK Tests
  4. Sufficient Ties Test

You will be considered a non-UK resident for tax purposes if you meet the automatic overseas test and you do not meet the automatic UK test or Sufficient Ties Test.

You will, however, be considered a UK resident if you do not meet the Automatic Overseas Test and you meet one of the Automatic UK Tests or the Sufficient Ties Test.

Calculating the number of days spent in the UK in a tax year

Under the simplest terms, if you spent more than 183 days in the UK in a given tax year, you would normally be considered a UK resident. However, calculating the number of days spent in the UK is not straight forward.

The HMRC set out a number of criteria for determining whether you spent a day in the UK. Normally you are considered to have spent a day in the UK if you are here at midnight on any given day.

However, this is also subject to three other factors: The deeming rule; transit days; time spent in the UK due to exceptional circumstances.

Firstly, the deeming rule which takes into consideration if you have:

  • been UK resident in one or more previous tax years
  • three UK ties for the tax year or
  • been present in the UK for 30+ days without being present at the end of each day.

The deeming rule will automatically change the number of days you spent in the UK, even if you were not present at the end of the day. To get a correct calculation of the number of days you have spent in the UK, and whether the deeming rule applies to you, you should seek expert advice.

Secondly, transit days. Transit days typically are not considered full days under the Statutory Residence Test. A transit day is a day where you entered the UK from another country en route to another country.

To be considered a transit day you must not have conducted any other business during your time in the UK and you should leave the day after you arrive. Any other business could include conducting a meeting, meeting up with friends. However simply having breakfast or dinner would be considered as part of your transit.

You should seek clarification about your activates during your time in the UK as they could have an impact on your total days spent in the UK.

Finally, if you are in the UK due to exceptional circumstances, such as a bereavement, you may be granted special conditions with regards to the total number of days you have spent in the UK.

The number of days spent in the UK may also be affected by the amount of time and type of work you have conducted in the UK during your stay. Factors such as your location, type of work and whether the work is voluntary.

As with all other elements you should always seek advice if you are unsure about how you work may affect the number of days spent in the UK.

The Automatic Overseas Test

You would normally be considered a non-UK resident if you meet any one of the following elements of the Automatic Overseas Test:

  1. You were considered as a UK resident in one or more of the previous three tax years, but you spend fewer than 16 days in the UK in the current tax year
  2. You spend fewer than 46 days in the UK in the tax year AND you were non-UK resident in the preceding three tax years
  3. You work full time outside the UK and spend fewer than 91 days in the UK and you work fewer than 31 days in the UK for three hours or less in any given day.

In terms of calculating the amount of time working in/out of the UK, you should always seek advice. There are a number of intricate calculations and considerations which will be taken into consideration which will affect the amount of time you have officially spent in the UK.

Finally, if you work in the UK for 365 with no significant break. However, there are a number of calculations and requirements to fulfil, so please seek advice if you are concerned

The Sufficient Ties Test

If, after reviewing the previous tests, you are still unsure about your residence status, you need to consider the sufficient ties test.

The Sufficient Ties Test essentially looks at whether you have ties which would deem you to be a resident in the UK. Ties would include:

  • Family members in the UK (for example a spouse or children)
  • Accommodation, that is a place to stay which is available to you for a continuous period of 91 days (thus excluding hotels)
  • 40 working days of 3+ hours per day or more in the UK
  • More than 90 days spent in the UK in at least one of the previous two tax years
  • You have spent more days in the UK than in any other country during the tax year

Understanding how many ties which are required to determine your residence status will depend on the number of days you spent in the UK during the tax year.

The following table simplifies this, however you should seek advice for an accurate assessment