Cayman Islands Foundation Companies

If you have been in wealth protection long, you might be familiar with financial tools such as trusts and foundations. The former is used in Common Law jurisdictions, whereas the latter is in Civil Law ones.

In previous articles, I have discussed the differences between the two instruments, their pros and cons, and even described their main features in each territory. Territories such as Cyprus, the Cook Islands, Hong Kong, and Nevis have a strong British influence, so you can establish a trust in these jurisdictions to protect and/or multiply your wealth, enjoy privacy and get tax benefits.

Hawksbill turtle swimming in the blue Caribbean sea in Grand Cayman

WHY THE CAYMAN ISLANDS

The Cayman Islands is one of the most prestigious financial hubs of the Caribbean, and as such, it is attractive for international investment firms and investors who desire to set up an offshore company. This British overseas territory has a vibrant economy and a highly developed financial services industry. In addition, it offers a compelling tax incentive system for both companies and individuals. Individuals do not pay either income or withholding taxes, and Government policies help businesses to develop easily. The infrastructure is excellent too, and the territory provides high-quality modern educational and healthcare systems, as well as utility providers and roads. And last but not least, the Islands hold many big banking firms such as Goldman Sachs and UBS.

As you can see, this territory is a haven for anyone who wants to avoid high taxes and enjoy doing business easily. Despite being a British overseas territory, shockingly, its legislation allows for establishing foundations. Today’s article will help you get the gist of Cayman Islands foundation Companies, so read attentively because it might be the right instrument to secure your new life abroad.

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Georgetown, Cayman Islands

MAIN FEATURES OF A CAYMAN ISLANDS FOUNDATION

Like any other foundation or trust, a Foundation Company provides the founder with legal protection since this vehicle has a separate legal personality and is treated as an LLC (Limited Liability Company). The Law that regulates a Foundation Company is the Foundation Companies Law. Other Common Law jurisdictions that introduced their own particular Foundation structures were the Channel Islands and the Isle of Man. Thus, the Cayman Islands saw the opportunity to create a structure similar to those of the Civil Law territories. We could think of this vehicle as a mixture of a trust and a company. Additionally, this serves as a fantastic tool for clients who live in Civil Law jurisdictions where the tax treatment of a trust could be ambiguous or simple trusts do not even exist. As a result, Foundation Companies are extremely versatile, so let's see what they can be used for.

The Cayman Islands decided to resort to their previous Companies Act to define new rules for the Foundation Companies. As a result, in many ways, Foundation Companies will act as regular companies too. However, let’s see how a Foundation company can benefit you.

It has a separate legal personality, which means that it is a legal person. This simplicity will allow you to operate more smoothly. In addition, it offers significant flexibility, so you can define the governing rules, structure, and objectives. Not only that, but you can also benefit from great privacy in terms of internal operations and management. Like any Trust or Foundation, a Foundation Company can be used for various reasons, such as Private Trusts Companies, philanthropic or commercial purposes, charity, and private wealth. Let's touch on this last bit because this is what makes the Foundation companies interesting. This vehicle might operate like a Trust, so the assets are used for the benefit of the beneficiaries according to the governing documents of the Foundation. Instead of having a trustee who manages the assets, it is a board of directors that has this role.

Now let's see the requirements to set this up. According to The Foundation Companies Law of 2017, a company is a Foundation Company if it is limited by shares or by guarantee, with or without share capital. In other words, either shareholders own the company, or there are no shares or shareholders, in which case the company is managed by members (also called guarantors) and is incorporated without share capital. Another important requisite is the memorandum, which acts like a Trust Deed or, in simpler terms, the governing documents. This memorandum must state that the company is a Foundation Company, describe its purposes (for instance, being beneficial to certain persons), state either directly or, by virtue of the articles, that the surplus assets can be employed in the case of winding up (in other words, when the company has debts that it cannot manage), and forbids dividends or other distributions of profits or assets to its members or proposed members as such. Finally, the Foundation Company must adopt articles and have a qualified individual as a secretary.

Cayman Island Resort

ROLES OF A CAYMAN FOUNDATION COMPANY

Let's take a look at the roles a Cayman Foundation Company has. Firstly, there is a founder who, in practice, acts as a settlor of a trust. This person will set up the structure by supplying assets. The Foundation Company’s articles can specify the powers of the Founder, so if you set it up, you can enjoy, as pointed out above, great flexibility. For instance, you can reserve the right to appoint directors, update governing documents, or delegate responsibilities. Secondly, there is a board of directors. This means that at least one person is managing the Foundation. Although this board may have certain powers, directors must be aligned with the Foundation’s goals. Thirdly, there are the members. Again, as a Founder, you can enjoy the flexibility of having no members whenever you want, but at first, the Foundation must have at least one member. Fourthly, there is a set of supervisors, who may be directors too. Supervisors ensure everyone is fulfilling their role and tend to have access to documents, books, and transactions of the company.

Last but surely not least, let’s take a look at taxation. As mentioned above, the Cayman Islands has a tax and business-friendly environment. As a consequence, a Cayman Foundation Company does not pay corporate, income, capital gains, gift, wealth, or inheritance taxes.

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Seven Mile Beach on Grand Cayman island

CONCLUSION

The Cayman Islands is a major territory in the financial services industry, and its Foundation Companies offer many features that could help you protect, manage and multiply your wealth with much flexibility and freedom. Not only does it have many tax benefits, but it also helps you structure your organization in a way that favours your interests, whether estate planning, asset protection, or philanthropic purposes. All in all, if you want to protect your wealth, this financial vehicle might be the right option for you.