A question frequently asked by prospective purchasers of Cayman Islands real estate is what taxes are payable on such purchases. While there are no direct individual or corporation taxes payable on the sale of real estate in the Cayman Islands, a one-time stamp duty payment (similar to transfer tax in other jurisdictions) is payable on the transfer, lease or charge of real estate in the Cayman Islands.
Purchasing Property
The rate of ad valorem duty payable on a transfer of real estate varies from zero per cent to seven and a half per cent depending on the location of the real estate and whether or not the buyer is Caymanian or non-Caymanian. The rate of duty payable is seven and a half per cent across the whole of the Cayman Islands, including Little Cayman and Cayman Brac unless the purchaser is Caymanian and a first time buyer where concessions in some areas may be available subject to certain qualifying criteria being met.
The rate is zero where the purchaser is a first time Caymanian buyer and is purchasing raw land up to CI$100,000.00 (US$119,047.66) in value (providing an owner occupied house is to be constructed on the land) and where the purchaser is a first time Caymanian buyer and is purchasing a house, apartment or other dwelling up to CI$300,000.00 (US$357,143.00) in value, for owner occupation.
The rate is two per cent where the purchaser is a first time Caymanian buyer and is purchasing raw land above CI$100,000.00 (US$119,047.66) but not exceeding CI$150,000.00 (US$178,571.49) in value (providing an owner occupied house is to be constructed on the land) and where the purchaser is a first time Caymanian buyer and is purchasing a house, apartment or other dwelling above CI$300,000.00 (US$357,143.00) but not exceeding CI$400,000.00 (US$476,190.64) in value, for owner occupation.
Areas where the first time Caymanian buyer concession is unavailable include specified parts of Seven Mile Beach, West Bay Road, George Town and its surrounds.
The duty paid is calculated on the purchase price recited in the transfer of land or on the market value of the real estate transferred, whichever is the higher as assessed by the Valuation & Estates Office of the Cayman Islands Land Registry, irrespective of any mortgage, charge, lien or other encumbrance to which the real estate is subject. The purpose of the assessment is to establish the amount of ad-valorem stamp duty payable. If the Valuation & Estates Office determine that the market value is in excess of the purchase price then a stamp duty assessment will be issued, outlining the additional duty payable. The assessment provides a window of opportunity for review, as there will on occasion exist information affecting the value of the property of which the Valuation & Estates Office is unaware. The Valuation & Estates Office may review their assessment in the light of such information. In the event that the purchaser continues to disagree with the assessment issued, the purchaser may apply for the stamp duty to be adjudicated. By application to the Minister of Finance (and payment of prescribed fees), the assessment of stamp duty will be adjudicated as a binding decision (with limited right of appeal thereafter, upon payment).
Where a purchaser agrees to buy a property for a price that includes an amount properly attributed to chattels, that amount will not be charged to stamp duty. A just and reasonable apportionment is required, just and reasonable being considered the price that each chattel might be sold for in the market, taking into account its current condition and age and the Valuation & Estates Office has the right to make enquiries and to request information or records that are necessary or desirable for the purpose of determining whether the apportionment is just and reasonable for the purposes of assessing duty.
Stamp duty is payable upon the execution of a document, and should be presented to the Lands & Survey Department immediately thereafter. Outstanding stamp duty will attract interest and penalties if not submitted and stamped within forty five days of execution.
Subject to the prior approval of the Minister of Finance, certain transfers of real estate attract only a nominal or fixed duty and not an ad valorem rate of duty. For example, a transfer that is expressed to be for natural love and affection and made between a parent and a child, or between spouses or between children born of the same parent, or between a grandparent and a grandchild attracts only a fixed duty of CI$50.00 (US$60.98). Similarly, transfers to beneficiaries entitled under an estate and transfers which do not entail a change in beneficial ownership attract only a nominal duty of CI$50.00 (US$60.98).
When a purchaser of real estate enters into an agreement to purchase, he has a choice of stamping the agreement to purchase with either a fixed duty, which is currently CI$100.00 (US$121.96), or with the full amount of ad valorem duty. If the purchaser opts to stamp the agreement with the fixed duty, he must pay the full amount of ad valorem duty on the subsequent transfer of land document after closing but if he elects to stamp the agreement with the full amount of ad valorem duty, no additional duty will be payable on the subsequent transfer of land provided the transfer of land is executed in conformity with the agreement and it relates to the same real estate as the agreement. Where the agreement for sale expressly confers or does not specifically prevent a right of occupation, (which would include the right to receive rent), the purchaser must stamp the agreement with the full amount of ad valorem duty.
It is usual practice for the stamp duty payable on the transfer of land documents in relation to the purchase of real estate to be paid by the purchaser. However, this is a matter of negotiation between the parties and the agreement to purchase prepared in relation to the purchase should specifically set out who is responsible for payment of any stamp duty. The payment of stamp duty is a joint liability of all parties to a document unless the Law specifically directs otherwise. Whilst an agreement to purchase may direct a specific party to pay, this is a private obligation which cannot be enforced by a third party (e.g. the Cayman Islands Government), and all parties should therefore ensure that stamp duty requirements are complied with as the Government reserves the right to recover stamp duty from each and any party to a document.
Stamp duty is also payable on any legal charge of real estate. The current rate of stamp duty on a legal charge is one per cent of the sum secured where the sum secured is CI$300,000.00 (US$357,143.00) or less, and if the sum secured is more than CI$300,000.00 (US$357,143.00), the rate of duty is one and a half per cent of the sum secured. Therefore these amounts would be payable if a purchaser borrows money to purchase a property and the amount borrowed is secured by a charge in favour of the lender over the property purchased.
Purchasing Property in the Name of a Company
Purchasers may chose for a variety of reasons to buy real estate in the name of a company. It should be noted that there is a tax equivalent to stamp duty that is payable on the transfer of the equity capital in a land holding company pursuant to the Land Holding Companies Share Transfer Tax Law (2007 Revision). It should also be noted that, in order for a company to be allowed to hold land in the Cayman Islands, it must be either a company incorporated in the Cayman Islands as an ordinary or exempted company or a foreign company registered in the Cayman Islands and that both such incorporation or registration would attract a one-time Government incorporation or registration fee plus ongoing annual Government fees to maintain the company in good standing.
For the purposes of the above law, a land holding company is a company, other than a charitable corporation, which is the legal or beneficial owner of any land holding or is the legal or beneficial owner of any equity capital (which includes all stock and shares) in a land holding company.
“Transfer” includes not only a transfer of shares but also the issue of shares, the placement of shares, the conversion of shares, the grant or take up of any rights, the exchange of shares, the grant or exercise of an option or other means howsoever whereby equity capital undergoes a change of beneficial ownership or proportion of ownership or a change occurs in the entitlement or potential entitlement of any person to a share in the distribution of the company’s profits or capital.
The above law provides that within thirty one days of any transfer of any equity capital of a land holding company, such corporation must deliver to the Minister of Finance, (a) the instrument, if any, whereby such transfer is effected, (b) a return in the prescribed form and (c) a sum for the benefit of the revenue equivalent to either six per cent or seven and a half per cent (depending on where the landed property is situated) of the consideration for or of the taxable value of the transfer, whichever is the greater. However, not all transfers of shares in a land holding company are taxable.
For example, the above law does not apply to transfers effected as a result of an order of the court (unless the court otherwise directs) or a transfer between trustees or nominees which effects no change in beneficial ownership and a transfer for natural love and affection between a parent and a child or between spouses. In addition, transfers of shares effected as a result of a distribution of property by personal representatives acting in that capacity are tax free as are transfers effected as a result of the distribution of the estate of a bankruptcy.
A recent amendment to the above law increases the tax on land transfers to seven and a half percent from previous rates of four percent for Caymanians and six percent for non-Caymanians.
Leases of Real Estate
Leases of real estate in the Cayman Islands in writing must be stamped irrespective of their duration and whether or not the lease is required to be registered (only leases of more than two years duration are required to be registered) and the terms of the lease will usually provide that the tenant is responsible for paying the stamp duty (although that can be the subject of negotiation between the landlord and tenant). The rate of stamp duty payable on a commercial or residential lease varies depending on the duration of the lease. If the lease is for less than one year, the rate of duty payable is five per cent of the aggregate rent. If the lease is for more than one year but less than five years, the rate of duty is five per cent of the average annual rent and if the lease is for more than five years but less than ten years, the rate of duty is ten per cent of the average annual rent. Leases of more than ten years attract duty at the rate of twenty per cent of the average annual rent and if the lease exceeds thirty years, the amount of duty payable is the same as on a transfer of the real estate.
Ongoing or Recurrent Taxes
If the property purchased is part of a condominium or apartment complex, it is likely that it is part of a strata established pursuant to the Strata Titles Registration Law (2005 Revision) in which case the owner would be required to pay strata fees for general maintenance, pool upkeep, gardening and landscaping for example and for property insurance. The frequency of such payments depends upon each particular strata corporation but strata fees are often payable monthly – insurance payments may be included in the strata fee payments or they may be payable separately usually either quarterly or bi-annually.
There is no capital gains tax in the Cayman Islands so a seller of Cayman real estate will not be taxed locally in the Cayman Islands on any capital gain. However, if the seller is not a Cayman resident, any such gain may still be taxable in seller’s home jurisdiction. Again there is no income tax in the Cayman Islands so an owner of Cayman real estate will not be taxed locally in the Cayman Islands on any income received in connection with such ownership for example in the form of rent received from tenants. However, if the seller is not a Cayman resident, any such income may still be taxable in seller’s home jurisdiction.
There are also no recurrent property taxes payable in the Cayman Islands simply the one-time stamp duty payment made to the Cayman Islands Government upon purchase. However, if the property has been purchased in the name of a company, annual fees will be payable to the Cayman Islands Government to maintain the company in good standing as detailed above – failure to keep the company in good standing may result in it being struck off the register of companies and the forfeiture of the property.
This article does not purport to give legal advice. We recommend that you instruct an attorney-at-law if you propose to enter into a real estate transaction in the Cayman Islands. For further information, please contact the author, Stephen W. Porter at (345) 949 9710 or sporter@nellaw.com.
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