Cayman Islands Scraps Plan To Tax Wealthy Expats

Authorities in the Cayman Islands have backed down from plans to impose a direct income tax on foreign workers earning more than $43,200 a year, reported Reuters on Wednesday, after several high-profile business leaders lobbied the government to withdraw the proposal, which would have overcome the tax haven’s budget shortfall.

Authorities in the Cayman Islands have backed down from plans to impose a direct income tax on foreign workers earning more than $43,200 a year, reported Reuters on Wednesday, after several high-profile business leaders lobbied the government to withdraw the proposal, which would have overcome the tax haven’s budget shortfall.

On Monday, Cayman Islands Premier McKeeva Bush told the press that the tax plan was “off the table and will not be implemented,” claiming that alternate sources of revenues had been already identified.

Bush though did not elaborate on what these alternative revenues might be, saying only that his administration was “satisfied that many of the commitments from the private sector” would be enough to cover a $592 million budget for the year.

[quote]”The tax would be taken off the table if robust, credible and sustainable revenue that did not hurt the poorest members of our islands was found. We are satisfied that many of the commitments from the private sector will meet these criteria,” he said.[/quote]

The Premier’s statement though was a complete u-turn from his announcement in late July, where he had suggested implementing a “community enhancement fee” that charged a 10 percent tax on expats earning over a certain amount each year.

Despite the fact that the proposed tax contained plenty of loopholes that would have excluded the majority of the top earners in the territory, both expats and locals complained that that the measure would likely destroy the islands’ main economic anchor in the financial sector.

A Facebook page called Caymanians & Expats United Against Taxation collected over 11,000 members in less than a week, while the Cayman Compass reported that many programmes, activities and businesses were considering pulling out of the tax haven due to the tax.

“We have lost three sales, which we had deposits for since the announcement of a payroll tax on expats last week. The combined amount for those sales was $1.3 million. One was a home worth $345,000 and two others worth $485,000,” said Paul Pearson, owner of Davenport Construction on the islands.

The tax plan was “probably the single greatest existential threat to the Cayman Islands in over 200 years,” added Anthony Travers, chairman of the Cayman Islands Stock Exchange, in an interview with the Associated Press.

[quote]”The whole economic structure in the Cayman Islands has been based on having no direct taxation,” Travers added.[/quote]

Nearly 53,000 people currently reside in the Cayman Islands, with about 50 percent of the labour force being foreign workers. These workers tend to be employed in the financial sector, which accounts for about 55 percent of the Cayman Islands economy and 40 percent of government revenue, who take advantage of the islands’ zero direct taxation and business-friendly regulations.

The Cayman Islands is also the 6^th largest financial centre in the world with $1.6 trillion officially booked international assets.

Related: Cayman Islands Economy

Related: Cayman Islands Economic Statistics and Indicators

Related: The Curse Of The Treasure Islands: How Tax Havens Are Sinking Europe’s Economy

Richard Murphy, the director of British-based policy consultants Tax Research LLP and a strong anti-tax evasion advocate, believes that the tax fears were overblown by the financial industry, in order to maintain the tax haven status of the country.

[quote]”The finance industry in Cayman exists to sell to foreigners, and, like it or not, many are heavily invested in Cayman structures. They’ll bear the additional price,” Murphy said in an email.[/quote]