Cayman Islands Summary
|Fund Structure||Exempted Limited Partnership|
|Cost||US$1220 to form the ELP|
Annual registration fees
Audited financial statements to file with CIMA
Since ongoing compliance is onerous, most funds engage a service provider to fulfill the fund’s compliance requirements. Costs for these services can be high.
|Timing||Confirmation of registration can take ~2-4 weeks to receive|
|Fund Marketing||Marketing documents are not required, however if the fund has marketing materials then they must be registered with CIMA to ensure compliance with Rule on Contents of Marketing Material|
|Tax Treatment||Tax neutral – neither an ELP nor any partner is subject to any form of direct taxation in the Cayman Islands|
Cayman Islands Overview
For decades, the Cayman Islands have been one of the leading domiciles for investment funds due to the political and economic stability of the area, the existing solid legal infrastructure, tax neutrality, and copious amounts of expertise in the investment fund space. One notable difference between Delaware and the Cayman Islands with respect to forming your venture fund is the way laws work in each jurisdiction. In Delaware, the Delaware Limited Partnership Law thoroughly outlines the rights and remedies in its provisions. In Cayman, the Cayman Islands Exempted Limited Partnership Law presumes that where the regulation is silent, the fund’s agreement shall control. Cayman funds are typically formed as an Exempted Limited Partnership (ELP). An ELP is not a distinct entity from its underlying owners and does not have a separate legal personality and neither the ELP nor any underlying investors are subjected to taxation in the Cayman Islands. Fund managers can opt for a fully Cayman fund structure or a hybrid structure (usually a Delaware General Partner with a Cayman ELP).
In February 2020, the Cayman Islands enacted the Private Funds Law 2020 in an attempt to shed its “tax haven” moniker. Doing so has imposed stricter and more onerous compliance measures on fund managers. Fund managers are now required to register with the Cayman Islands Monetary Authority (CIMA) and also face ongoing operating obligations that include implementing a compliance regime for the fund and an annual fee payable to CIMA. Cayman also has stricter KYC regulations, which results in more work for investors to subscribe to a fund.
The Private Funds Act does not require a venture capital fund to have an offering document or other marketing materials, however if there are marketing materials for the fund to solicit investments, the marketing materials must be filed with CIMA. CIMA’s Rule on Contents of Marketing Material requires detailed disclosures be provided to prospective investors. As such, fund managers who wish to domicile their fund in the Cayman Islands should seek the advice of counsel before providing prospective investors with any marketing materials.
It is worth noting that many investors are not comfortable investing in a Cayman domiciled fund. The Cayman Islands was blacklisted by the EU Council in February 2020 for being a noncooperative jurisdiction in tax matters. The EU Council subsequently removed Cayman from its blacklist in October 2020 given the tax reforms instituted by the Cayman Islands. Despite this, some prospective investors may still have reputational concerns about investing in funds formed in the Cayman Islands. Another consideration is that FIRRMA regulations may lead some US investors to opt for Delaware over Caymans to have easier access to US mega-tech deal flow.
More Domicile Analysis
For more information on fund domiciles, including details and analysis below: