Wednesday 1st August 2012

New taxes could be implemented in the Cayman Islands

A major outrage was sparked in the Cayman Islands last week when the government there indicated that they might roll out a new tax for expatriate workers in the country.

The proposal, which was announced by Cayman political leader William McKeeva Bush, recommends that all expatriates who earn over $24,000 USD per year and who live on the island on a work permit are charged what will be known as a “community enhancement fee.” Those whose income is above this threshold will be expected to pay an income tax that amounts to a rate of 10%.

Since achieving notoriety as a tax haven, the Cayman Islands have attracted banks and businesses from throughout the world. However, amid growing pressure from the U.K. government, the leaders of the Cayman Islands believe that they have been left with no choice but to implement the tax: “[The UK] would not be satisfied with anything but a broadened revenue base that was to them ‘sustainable’” William McKeeva Bush said. “To meet that demand we proposed the community enhancement fee.”

News of the proposals has not been well received with the expatriate population, many of whom are accusing the Cayman government of discrimination. The criticism does not stop there. The local population has also voiced concerns that the implementation of the new expat tax could serve to drive foreign capital to other low-tax jurisdictions, with this having a negative impact on local economy.

Opposition leader Mr. McLaughlin has also criticized the plans, publicly stating that the Premier has made a big mistake in even considering the implementation of a payroll tax. According to CayCompass.com, Mr. McLaughlin does not believe the U.K. government are involved: “the UK had demanded no specific fee from the Cayman Islands government, but rather was looking for a more predictable and sustainable source of revenue for the overseas territory.” He is quoted as saying: “My sources in the UK have said there is no requirement that Cayman have a payroll or income tax.”

A spokesman for the Foreign Office said that discussions between the UK and the Cayman Islands' government about its financial situation were ongoing, and that the islands "must continue to give careful consideration to each of their budget measures and ensure that they are credible and fiscally sustainable."

The Cayman Islands has a strong expatriate population with thousands of financial institutions being based there, including 9000 hedge funds, 260 banks and 80,000 companies. Approximately half of the labor force in the country comes from overseas.

According to press reports, the tax could take effect as soon as next month.

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