Cayman Islands plans income tax on foreign workers
30 July 2012
Cayman Premier McKeeva Bush has surprised the
jurisdiction's financial sector by announcing plans for an income
tax on work permit holders earning over USD20,000 a year.
The Cayman Islands, which is a UK overseas
territory, has come under UK government pressure to reduce its
public sector budget deficit. The deficit has risen sharply in the
years since the global financial crash of 2008, as government
revenues from Cayman's large investment fund sector collapsed. For
a while the government tried to balance the books by borrowing,
with the result that its national debt has tripled. Annual interest
payments to service this debt have reached USD29 million.
In January this year, in an attempt to bring
government expenditure under control, Bush circulated new budgetary
restrictions to all government departments for the fiscal year
starting July 2012, with strict instructions not to exceed them.
But in the event, despite significant cuts, departmental cash
demands for the coming year exceed these limits by no less than
As a result the UK Foreign & Commonwealth
Office has rejected Bush's budget. It is insisting that the Cayman
government must raise extra funds through the imposition of new
Bush has decided on two major new levies. One
is a new regulatory fee imposed on the Caymans' large hedge fund
industry. No further details are yet available on this levy.
The other, far more controversial levy is a
Community Enhancement Fee, in fact an income tax in all but name.
Employees on a work-permit and earning over USD20,000 a year will
pay a levy calculated at 10 per cent of their remuneration.
There appears to have been no consultation
with industry about this tax, and it is bound to be unpopular with
the financial and other sectors. Cayman Finance, the Cayman Islands
Tourism Association and the Chamber of Commerce have already
objected. But Bush is hoping to soften the blow by removing the
requirement that non-Caymanian employees and their employers must
each contribute 5 per cent of the employee's remuneration to a
Anthony Travers, the former President of
Cayman Finance and now Chair of the Cayman Islands Stock Exchange,
said the tax would cause an exodus of permit holders, and would
thus have to be increased again in due course.
Other jurisdictions were quick to point out
the likelihood that financial talent may start to leave the Cayman
Islands if the new tax takes effect. ‘Bermuda may be looking better
and better in its battle for international business with the Cayman
Islands’, said the Bermuda Royal Gazette. Bermuda raised its own
payroll taxes to 14 per cent two years ago, which industry says led
to a ‘silent exodus’ in the insurance sector.
The new budget proposals are still
provisional. The UK’s FCO has not yet offered a view.
Cayman Islands government
Bermuda Royal Gazette