Eternity Law International — News — Cayman Islands Investment Funds

Cayman Islands Investment Funds

Published:
August 22, 2024

The Cayman Islands was previously a leading center for setting up investment funds due to its low taxes and high confidentiality. These conditions have attracted many companies seeking to optimize tax obligations and protect the privacy of their clients. However, in recent years there have been changes in legislation. The Department of Financial Services, together with the CIMA, has introduced innovations in the regulation of investment funds, including changes to the process of their creation and operation. However, an investment fund Cayman Islands continues to be a profitable option for commercial prosperity for entrepreneurs from all over the world.

Our company is a leading firm specializing in providing comprehensive services for the registration and support of investment funds in the Cayman Islands. Our specialists have deep knowledge and experience in the field of international corporate law and financial regulation. We offer our clients consultations, assistance in drawing up legal documentation and support at all stages of creating and managing an investment fund, in particular. when obtaining an investment fund license, ensuring full compliance with all legal requirements.

Benefits of Cayman Islands investment funds

When establishing and implementing Cayman Islands fund management, this jurisdiction is attractive to investors for the following reasons.

  1. Recognized global financial center.
  2. Flexible legislation based on English law.
  3. Possibility of registering various types of funds.
  4. Wide range of financial services.
  5. Linking the local currency to the US dollar.
  6. Presence of the world’s leading banks.
  7. Competitive tax conditions.

Cayman Islands investment regulations

In 2020, laws on private and mutual funds came into force, promoting the development of the financial sector and increasing transparency and protection of investor interests. These laws create a legal basis for the functioning of funds and provide tax preferences, which makes investments more attractive.

  1. The Mutual Funds Act (MFA) regulates open-end funds that raise funds from multiple investors to invest in securities.
  2. Closed-end investment funds are regulated by the Private Funds Act (PFA), which allows investors to profit from a variety of assets.

Cayman Islands fund setup: the process of creating an investment fund

For starting a fund in Cayman Islands, you must complete the following steps.

  1. Register a physical address on the Islands.
  2. Hire a resident managing director and local staff.
  3. Maintain accounting policies and financial statements confirmed by the auditor.
  4. Fund managers must register with CIMA, file fund information and comply with professional and corporate governance requirements.
  5. You must also pay an annual registration fee and report changes in the fund structure.
  6. All funds are required to comply with anti-money laundering (AML/CTF) regulations and appoint responsible officers.

Following these requirements, the Cayman Islands remains an attractive jurisdiction for the creation and management of an investment fund.

Types of funds

There are several types of mutual funds in the Cayman Islands, subject to applicable law.

  1. Registered fund. Such an organization is exempt from licensing and local management requirements. Each investor contributes at least 100 thousand USD (or equivalent). The fund’s shares are listed on an exchange recognized by CIMA.
  2. The Master Fund owns more than 51% of the shares of other mutual funds, serving as the parent company.
  3. A restricted fund has fewer than 15 investors and is registered in Cayman, or is registered outside but offers shares to residents through a licensed entity.
  4. The managed fund uses a Cayman administrator’s license instead of its own license. The appointment of a resident administrator is required to notify CIMA of irregularities and financial problems of the fund.
  5. The licensed fund is open to the general public with no minimum subscription amount. Strict licensing process taking into account the reputation and qualifications of managers.

We are proud of our reputation as a reliable partner providing high-quality services in the areas of tax and corporate planning, licensing and compliance. Our experts are ready to offer customized solutions tailored to each client’s unique needs. We strive for long-term cooperation, helping our clients achieve their business goals in a dynamically changing legal environment. We help you quickly and without unnecessary fuss open an investment fund in any jurisdiction. We also have an extensive list of ready-made offers, in particular, we can offer an alternative investment fund in the Czech Republic for sale and much more.

Cayman Islands fund administration: key officials

Investment funds regulated by MFA or PFA appoint the following officers.

  1. Investment manager.
  2. Administrator.
  3. Auditor.
  4. Director.

These officials ensure that the fund complies with the law and is properly administered.

General requirements for Cayman Islands fund registration

  1. Offering Documents: You must have a current document that describes the key characteristics of the fund, including its objectives, strategy, risk profile and participation process.
  2. Allocation Documents: If applicable, the fund must provide information regarding the collection of funds from investors and the distribution of units.
  3. Updating of documents: If key characteristics change, documents must be updated within 21 days and submitted to CIMA.
  4. Annual audit: Funds are required to conduct an annual audit and submit audited financial statements to CIMA along with the annual return.
  5. Registration Fees: Registration fees and annual fees are required.

Note: CIMA has issued guidance on good governance that all mutual funds must follow.

Cayman Islands investment fund taxation

When setting up an IF in the Cayman Islands, it is important to consider that there is no immediate tax liability. Companies, mutual funds and LLCs may receive tax exemption. Exempt companies can maintain this status for 20 years, and mutual funds and limited partnerships can maintain this status for up to 50 years, subject to the required conditions.

Economic presence requirements

Entities operating in the Cayman Islands must meet economic substance requirements that demonstrate their sufficient economic status in the jurisdiction, especially for exempt companies (including SPCs).

Anti-money laundering (AML) regime

Establishing an FI in the Cayman Islands requires compliance with the AML regime, which includes measures and procedures to prevent money laundering and the financing of illegal activities.

  1. Verification of ultimate beneficial owners: Identification and verification of the real owners of the fund.
  2. Risk-based fund performance monitoring: Reviewing transactions and activity to identify potential misconduct.
  3. Implementation of risk management procedures: Developing strategies for identifying and managing risks.
  4. Substance Ineligible Countries List Compliance: Tracks countries that do not meet location requirements.
  5. Suspicious transaction notification procedures: Definition and reporting of suspicious transactions.
  6. Internal independent audit: Regular reviews and audits of internal procedures to assess their compliance with the AML regime.

Cayman Investment funds are subject to a variety of requirements, which may vary depending on the investor’s jurisdiction. This includes requirements for documentation, fund reserving, reporting and investment strategies.

If you are planning to open an investment fund in the Cayman Islands, our company’s specialists can provide advice on the registration and operation of funds, help with the preparation of the necessary documents and accompany the registration process, including interaction with registration authorities. We will also provide you with comprehensive support when establishing an investment fund in SVG, in Estonia, Switzerland and other countries.

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