Tax Residency Criteria in the Cayman Islands
The Cayman Islands, a British Overseas Territory, has established clear criteria for determining tax residency, ensuring that individuals and entities with substantial ties to the jurisdiction contribute their fair share to its tax revenues.
Domestic Tax Laws
According to the Income Tax Law (2021 Revision), an individual is considered a tax resident of the Cayman Islands if they meet any of the following conditions:
- Physical presence in the Cayman Islands for more than 90 days in a calendar year.
- Domicile in the Cayman Islands, as determined by common law principles.
- Ordinary residence in the Cayman Islands, indicating a permanent and substantial connection to the jurisdiction.
For entities, tax residency is determined based on their place of incorporation or management and control. Companies incorporated in the Cayman Islands are automatically considered tax residents, while foreign companies may be deemed resident if their central management and control is exercised within the jurisdiction.
Impact of International Tax Treaties
The Cayman Islands has entered into several Double Taxation Agreements (DTAs) with other countries to prevent double taxation and facilitate cross-border economic activities. These treaties may modify or introduce exceptions to the standard tax residency criteria defined in domestic law.
For example, the DTA between the Cayman Islands and the United Kingdom provides that an individual is considered a resident of the Cayman Islands if they are liable to tax in the Cayman Islands by reason of their domicile, residence, or any other criterion of a similar nature.
The treaty also includes tie-breaker rules to determine residency in cases where an individual is considered a resident of both the Cayman Islands and the United Kingdom under their respective domestic laws.
Rationale and Objectives
The criteria for determining tax residency in the Cayman Islands are designed to ensure that individuals and entities with significant economic ties to the jurisdiction are subject to taxation on their worldwide income. This approach aims to prevent tax evasion and ensure that the Cayman Islands receives its fair share of tax revenues.
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