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The Cayman Islands is the dominant offshore jurisdiction for investment funds and one of the most-used jurisdictions for cross-border holding companies. Unlike the BVI, Cayman maintains a tightly regulated funds industry around the Cayman Islands Monetary Authority. This article covers the four main corporate vehicles, the funds regime, and the post-2019 economic substance rules.
The Cayman corporate landscape
Cayman is a British Overseas Territory with a common-law system and a Privy Council appellate route. There is no direct taxation on companies or individuals. There is no income tax, no capital gains tax, no corporation tax, no estate duty, and no withholding tax. The headline products are the exempted company, the Cayman LLC, the foundation company, and the regulated fund.
Two regulators matter. The Cayman Islands Monetary Authority licenses and supervises the financial services industry, including funds, fund managers, banks, insurers, and trust companies. The Department for International Tax Co-operation, working alongside the Tax Information Authority, administers the substance regime and exchange of information.
The exempted company
Exempted companies are formed under the Companies Act and remain the most commonly used Cayman vehicle for offshore purposes. A company may be registered as exempted if its operations will be conducted mainly outside the Cayman Islands. The incorporating subscriber files a signed declaration to that effect with the Registrar of Companies.
Exempted companies are not required to keep their register of members open for public inspection. They can transfer by way of continuation into or out of Cayman, and they can alter their memorandum and articles without restriction, subject to notice to the Registrar. They are prohibited from trading in Cayman except in furtherance of business carried on outside, unless they hold a separate Cayman trading licence.
A company is required to have at least one director. There are no statutory minimum capital, residency or qualification requirements for directors generally, but registered investment funds must have at least two individual directors under CIMA rules, and directors of regulated mutual funds and securities investment business entities must be registered or licensed with CIMA under the Director Registration and Licensing Act.
Exempted companies can apply for a written undertaking from the Cayman government that, should taxes ever be introduced in Cayman, the company will remain tax-free for a specified period of up to 30 years from the undertaking. The undertaking is contractual, not statutory, and is the standard insurance policy for sponsors uncomfortable with the perceived risk that the Cayman zero-tax position might one day change.
The Cayman LLC
Cayman limited liability companies are formed under the Limited Liability Companies Act. The vehicle was introduced to give US sponsors a familiar pass-through-style structure, but a Cayman LLC is not automatically transparent for any non-US tax purpose; the tax classification of the LLC for any jurisdiction will follow that jurisdiction's own rules.
Cayman LLCs have separate legal personality, limited liability, and a flexible governance model based on an operating agreement rather than a memorandum and articles. They can be managed by their members or by appointed managers, and member economic and governance rights are largely freely contractable. They are used heavily as general partners of exempted limited partnerships, as joint venture vehicles, and as feeder vehicles in master-feeder fund structures targeted at US investors.
Foundation companies
The Foundation Companies Act 2017 came into force on 18 October 2017 and introduced a distinctively Cayman product: a corporate vehicle that functions like a civil law foundation or a common-law trust. A foundation company has separate legal personality and limited liability, but it can exist without members, it is prohibited from distributing profits to members, and its constitution can only be amended where the constitution itself expressly allows.
Foundation companies are governed by the Foundation Companies Act (2025 Revision) read with the Companies Act, with the Foundation Companies Act prevailing in case of conflict. The Companies Act applies as the underlying corporate law, which means foundation companies inherit the Cayman case law and the established practitioner expectations that flow from it.
The Act requires a foundation company to be limited by shares or by guarantee, to provide for the disposal of surplus assets on winding up, to prohibit dividends to members, and to have a secretary who is licensed to provide company management services in Cayman. It is not subject to any statutory minimum number of directors, though a foundation company that adopts the Act's model constitution must have at least two. The firewall provisions of the Trusts Act are extended to foundation companies, giving protection against the recognition of foreign court orders attacking transfers of assets to the foundation. The Grand Court can be asked for directions, opinions or advice, in the same way it can be asked by trustees.
Foundation companies are used for private wealth structures, for orphan SPVs in securitisation and joint ventures, for purpose trusts and protocol-governance vehicles in the digital assets industry, and as the holders of management shares in fund structures.
The funds regime
Cayman funds are regulated under two principal statutes. The Mutual Funds Act governs open-ended funds, broadly funds whose investors have a right to redeem at net asset value. The Private Funds Act governs closed-ended funds, broadly funds where investors do not have ongoing redemption rights. Both are administered by CIMA.
Registration runs through CIMA, with offering documents filed and reviewed, directors registered or licensed where required, and ongoing financial reporting obligations imposed. CIMA also licenses fund managers and administrators, runs anti-money-laundering supervision, and maintains the public entity search. The Cayman funds industry's scale, plus the long-standing predictability of the regulator, is the practical reason Cayman dominates the offshore funds market.
Funds are typically formed as exempted companies, exempted limited partnerships (under the Exempted Limited Partnership Act), Cayman LLCs, or segregated portfolio companies. SPCs allow a single fund to operate multiple ringfenced classes with statutory segregation of assets and liabilities between portfolios, much like the BVI SPC.
Economic substance
The International Tax Co-operation (Economic Substance) Act came into force on 1 January 2019. The Act mirrors the OECD and EU framework for no- or nominal-tax jurisdictions and sits alongside Guidance and Enforcement Guidelines issued by the Department for International Tax Co-operation.
Relevant entities include all Cayman companies (including foundation companies), Cayman LLCs, Cayman LLPs, registered foreign companies, and partnerships including exempted limited partnerships, general partnerships, limited partnerships, and foreign limited partnerships. Partnerships were added to scope from 1 January 2022 under the 2021 Amendment Regulations. Investment funds, and entities through which investment funds directly or indirectly invest or operate, are not relevant entities and so are outside the test.
The nine relevant activities are banking, distribution and service centre business, financing and leasing, fund management, headquarters, holding company business, insurance, intellectual property, and shipping. An entity carrying on a relevant activity must satisfy the economic substance test in respect of each relevant activity: conduct of Cayman core income-generating activities in respect of that activity, direction and management in Cayman, and adequate operating expenditure, physical presence and personnel in Cayman.
Pure equity holding companies, which only hold equity interests and earn dividends and capital gains, are subject to a reduced test. They satisfy substance by confirming compliance with their statutory filing obligations and by having adequate human resources and premises in Cayman for the holding and management of equity interests, which in practice is typically satisfied by a properly resourced registered office.
High-risk intellectual property business is the toughest category. The entity must demonstrate a high level of historical and current control over the development, exploitation, maintenance, protection and enhancement of the IP, exercised by an adequate number of qualified full-time employees permanently resident in or performing their activities within Cayman.
Reporting is annual. An Economic Substance Notification is filed before the entity files its annual return. Relevant entities carrying on a relevant activity then prepare and submit a detailed Economic Substance Return within 12 months of the financial year end via the DITC Portal. Entities claiming tax residence outside Cayman submit a tax-resident-outside return with documentary evidence; the information is then shared with the foreign tax authority.
What Cayman structures are used for
The most common applications are open-ended and closed-ended investment funds, with the fund itself often an exempted company or exempted limited partnership and the general partner or management company often a Cayman LLC; cross-border holding companies, often paired with a 30-year tax undertaking; foundation companies in digital-asset protocol governance, family office structures, and orphan SPVs; segregated portfolio companies for multi-class funds and captive insurance; and joint venture or M&A structures using exempted companies as neutral common-ground vehicles.
Cayman, like the BVI, has a thin treaty network and is not the right tool when treaty access is the point of the structure. It is the right tool when scale, regulator credibility, and the depth of practitioner support outweigh the absence of treaties.
When Cayman is the right tool
Cayman is the right tool when the structure is funds-related and CIMA regulation is a feature rather than a cost; when family or commercial purposes call for the trust-like flexibility of a foundation company; when the substance requirements can either be met meaningfully in Cayman or are satisfied by claiming tax residence elsewhere; and when treaty access is not required. It is rarely the right tool for a small operating business that would be better served by a single in-country company.
If you are considering Cayman for a fund, holding company, or foundation structure, the right next step is a structuring conversation that sequences regulator, substance and tax-residence questions in order, rather than treating them as separate problems.
This material is produced by Cadena International. It is intended to provide general information and opinions on legal topics, current at the time of first publication. The contents do not constitute legal advice and should not be relied upon as such.
