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Expats in the Cayman Islands are facing the prospect of a 10% income tax in proposals outlined by Premier McKeeva Bush.
The Cayman Premier doesn’t refer to the new tax in those terms but has dubbed it a ‘community enhancement fee’. Expatriates who earn more than $36,000 a year will be subject to the new tax as of September 1st.
“This is not an us-and-them story, no matter how many screaming headlines call this an expat tax.” Claimed Bush at a heated debate at a four hour meeting on Wednesday.
The proposed policy represents a seismic shift in taxation for this small nation where relaxed regulations and zero direct tax have made the Cayman Islands an attractive location for offshore banking and foreign investment operations.
The islands had become a tax haven with government data showing that 91,712 companies were registered there as of March 2011 which has transformed an economy that was originally reliant on fishing and rope-making.
There are various competing tax havens in the region such as the Bahamas which means the new proposals could spark an exodus. What is certain is that they are dividing opinion.
Some are claiming that it is a discriminatory tax and only targets the estimated 6000 expats who earn more than the $36000 threshold. The chairman of the Cayman Islands Stock Exchange, Anthony Travers, for example describes the tax plan as “probably the single greatest existential threat to the Cayman Islands in over 200 years.”
The government maintain that the tax is necessary amidst demands by the British government to diversify its resources of revenue with the current administration suffering from a budget deficit whilst government reports also claim most of the wealthiest residents are Cayman citizens.
However, fears of an exodus are premature according to Richard Murphy of Tax Research LLP who points out that many foreign businesses, “are heavily invested in Cayman structures”
Amidst the heated reaction, Mr Bush has told local television that he is open to alternative solutions. Discussion and debate will no doubt continue on the subject up until September.
