Exempted vs. Ordinary Companies in Cayman: Which Suits Your Business?

The Cayman Islands are a premier offshore financial hub, renowned for its tax-neutral environment, political stability, and business-friendly regulations. For entrepreneurs and investors considering company formation in the Cayman Islands, choosing the right corporate structure is critical. Two popular options are the Exempted Company and the Ordinary Non-Resident Company. Each offers distinct advantages and compliance requirements, making them suitable for different business objectives. This blog examines the distinctions between these structures, their advantages, and when to select one over the other for company registration in the Cayman Islands.

Understanding Exempted Companies

An Exempted Company is the most common corporate structure for international businesses in the Cayman Islands. Designed for operations conducted primarily outside the jurisdiction, it is ideal for foreign investors seeking flexibility, privacy, and tax efficiency. Governed by the Companies Act (2023 Revision), Exempted Companies are particularly popular for hedge funds, holding companies, and global trading operations.

Key Features of Exempted Companies

• Tax Exemption: Exempted Companies benefit from a tax-free environment, with no corporate, income, capital gains, or withholding taxes. They can also obtain a 20-year tax exemption certificate.

• Operational Flexibility: These companies are prohibited from conducting business with residents of the Cayman Islands but can engage in contracts to support overseas operations.

• Privacy: Shareholder and director information is not publicly disclosed, though a beneficial ownership register must be maintained and accessible to local authorities.

• Minimal Requirements: Only one shareholder and one director are required, with no residency restrictions. Annual general meetings (AGMs) are not mandatory, and meetings can be held anywhere globally.

• Naming Flexibility: The company name does not need to include “Limited” or “Ltd..,” and share capital can be in any currency.

• Annual Compliance: A simple annual return must be filed in January, confirming compliance with the Companies Act and that operations occur primarily outside the Cayman Islands.

Benefits of Exempted Companies

• Tax Efficiency: The zero-tax regime and long-term tax exemption certificates make Exempted Companies ideal for minimizing tax liabilities.

• Global Operations: Perfect for businesses operating internationally, such as investment funds, trading companies, or asset-holding entities.

• Simplified Compliance: No mandatory audits or AGMs reduce administrative burdens.

• Confidentiality: Strict privacy laws protect shareholder and director identities, appealing to businesses prioritizing discretion.

Understanding Ordinary Non-Resident Companies

An Ordinary Non-Resident Company is designed for businesses that do not conduct commercial activities within the Cayman Islands but may need to engage in local contracts to support overseas operations. These companies are also governed by the Companies Act but have different compliance requirements compared to Exempted Companies.

Key Features of Ordinary Non-Resident Companies

• Non-Resident Status: A certificate of non-residency is issued by the Financial Secretary, confirming the company does not trade within the Cayman Islands.

• Tax Benefits: Like Exempted Companies, they are exempt from corporate, income, and capital gains taxes.

• Annual Requirements: An AGM must be held in the Cayman Islands, and a list of shareholders must be submitted annually to the Registrar.

• Registered Office: A local registered office and a registered agent are mandatory.

• Limited Local Activity: These companies can hold shares in foreign companies or engage in contracts for overseas business but cannot trade locally.

• Conversion Option: Non-Resident Companies can convert to Exempted Companies if business needs change.

Also Read: Documents Required for Company Registration in Bermuda

Benefits of Ordinary Non-Resident Companies

• Tax Neutrality: No taxes on income, capital gains, or dividends, similar to Exempted Companies.

• Asset Holding: Ideal for holding shares in foreign companies or managing international assets.

• Foreign Ownership: Allows 100% foreign ownership with minimal setup requirements.

• Flexibility for Specific Needs: Suitable for businesses requiring occasional local contracts for overseas operations.

Key Differences Between Exempted and Ordinary Non-Resident Companies

When to Choose an Exempted Company

An Exempted Company is ideal for:

• International Businesses: Companies operating globally, such as hedge funds, private equity firms, or trading businesses, benefit from the tax-neutral environment and operational flexibility.

• Privacy-Conscious Investors: Businesses requiring confidentiality for shareholders and directors, such as high-net-worth individuals or holding companies.

• Hedge Funds and Investment Vehicles: Approximately 80% of global hedge funds are registered in the Cayman Islands as Exempted Companies due to their tax exemptions and minimal compliance requirements.

• Cost-Effective Operations: Businesses seeking to minimize administrative costs, as no AGMs or audits are required.

• Long-Term Tax Planning: The 20-year tax exemption certificate provides stability for long-term investments.

Also Read: Requirements for Company Incorporation in Netherlands

When to Choose an Ordinary Non-Resident Company

An Ordinary Non-Resident Company suits:

• Asset Holding: Businesses focused on holding shares in foreign companies or managing international assets without local trading.

• Businesses Needing Local Contracts: Companies that require occasional contracts in the Cayman Islands to support overseas operations, such as service agreements.

• Flexibility for Conversion: Entrepreneurs who may later transition to an Exempted Company as their business evolves.

• Simpler Structures: Businesses with straightforward holding or investment goals that can accommodate annual shareholder reporting and AGMs.

Steps for Company Registration in the Cayman Islands

The Cayman Islands business registration process is straightforward for both company types but requires compliance with local regulations. Here are the key steps:

1. Choose a Company Type: Decide between an Exempted or Ordinary Non-Resident Company based on your business goals. Then comes choosing the company name.

2. Appoint a Registered Agent: A licensed local agent is mandatory to handle legal documents and correspondence.

3. Prepare Documents: Submit a Memorandum and Articles of Association, along with details of directors, shareholders, and beneficial owners. For Exempted Companies, a declaration stating operations will occur outside the Cayman Islands is required.

4. Pay Fees: Registration fees vary based on share capital (e.g., CI$700 for Exempted Companies with share capital under CI$42,000). Annual fees are also required.

5. File with the Registrar: Submit documents to the Cayman Islands General Registry. Incorporation typically takes 3-5 days, with express options available.

Compliance and Ongoing Obligations

Both company types must adhere to Cayman Islands business registration requirements, including:

• Beneficial Ownership: Maintain a register of beneficial owners, accessible to authorities but not publicly disclosed.

• Economic Substance: Companies conducting specific activities (e.g., banking, insurance) must demonstrate economic substance in the Cayman Islands.

• Annual Filings: Exempted Companies file a simple annual return, while Non-Resident Companies submit shareholder lists and hold AGMs.

• Registered Office and Agent: Both require a local registered office and agent for official communications.

Conclusion

Choosing between an Exempted Company and an Ordinary Non-Resident Company for company formation in the Cayman Islands depends on your business objectives, operational needs, and compliance preferences. Exempted Companies offer greater flexibility, privacy, and minimal compliance requirements, making them ideal for global businesses and investment vehicles. Ordinary Non-Resident Companies suit asset-holding entities or businesses needing local contracts, with the option to convert to an Exempted Company later. Both benefit from the Cayman Islands’ tax-neutral environment and robust legal framework.

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