Tag Archives: HSM Cayman
Most clients are now relatively familiar with the Cayman Islands Economic Substance regime requiring real economic substance for certain entities (known and ‘Relevant Entities’) carrying or certain activities (known as ‘Relevant Activities’).
Our firm’s previous article on the introduction of the International Tax Co-operation (Economic Substance) Act (the ‘ES Law’) can be found here.
The recent enactment of the International Tax Co-operation (Economic Substance) (Amendment of Schedule) Regulations, 2021 (‘ES Regulations’) on 29 June 2021 has now expanded the scope of the ES Law to include the following entities in the definition of Relevant Entities:-
- A partnership (as defined under s.3 of the Partnership Act (a Revised)) except where the partnership is a local partnership;
- An exempted limited partnership (as defined under s.2 of the Exempted Limited Partnership Act (as Revised)); and
- A foreign limited partnership registered in the Cayman Islands under s.42 of the Exempted Limited partnership Act (as Revised)) (together with the other types of partnerships referenced above hereinafter referred to as the ‘Partnerships‘).
Based on this expansion of the definition of Relevant Entities it should now be noted that any Partnerships carrying on a Relevant Activity will now need to have the requisite economic substance in the Cayman Islands, be able to pass the Economic Substance Test (the “ES Test”) and make the necessary annual Economic Substance filings.
Albeit for the above a Partnership will not be a Relevant Entity and will not be required to pass the ES Test if it is:
- an investment fund or an entity through which an investment fund directly or indirectly invests or operates;
- tax resident outside of the Cayman Islands; or
- a local partnership (where two persons or more carry on a business in common with a view of profit that is not part of an MNE Group (for tax purposes) and such partnership is only carrying on business in the Cayman Islands.
Compliance Timeline
The International Tax Co-operation (Economic Substance) (Prescribed Dates) (amendment) Regulations have introduced a transition period for compliance.
Partnerships formed on or after 1 July 2021 will be required to meet the ES Test from the date on which they commence their Relevant Activities. Partnerships formed prior to 1 July 2021 must satisfy the Test from 1 January 2022.
Partnerships operating as investment funds and partnerships tax resident outside of Cayman will only need to submit the usual ES Notification the Authority.
Key Contact:
Peter de Vere (Head of Corporate and Commercial)
pdevere@hsmoffice.com
Tel: +1 345 815 7360
As we draw closer to the end of 2021, many clients will be considering their Cayman Islands company structures and querying whether any entities are surplus to requirements.
The desire to wind up any Cayman entities before the end of the year is fueled primarily by the need to avoid any annual fees for the maintenance of the Company being incurred next year.
To avoid those fees the voluntary liquidation of a Cayman Company would typically need to commence in late November early December (at the latest) with the final meeting being held before the end of January.
This timetable results in an effective dissolution date into the next calendar year, while still avoiding the government fees for that year.
If a dissolution is not completed (i.e. if the final return is not filed) by 31 January then the full annual return fees for the new-year are due and payable to the Cayman Islands Government.
For a Cayman company to be dissolved by 31 December (and receive a 31 December date on a certificate of dissolution) its voluntary liquidation will need to have commenced before 30 August (assuming a zero balance sheet liquidation). If the liquidation is more complicated then more time would be required and an even earlier start date would be necessary. It is important to note that the Companies Act (as Revised) stipulates that a company is dissolved upon the expiration of 3 months from the registration of the final return and this timing must be considered if a 31 December (or earlier) dissolution date is required.
The above timing considerations also come into play if there may be increased operational efficiencies in completing the dissolution within the current calendar year (if additional regulatory filings and other costs for stub years can be avoided).
For example, investment funds that are registered with the Cayman Islands Monetary Authority (“CIMA”) may need to consider an earlier commencement date to ensure that the final audited financials are completed and filed with CIMA prior to the final meeting of the Fund. CIMA requires that a Fund undertakes a final audit for the period either up to the date of the appointment of the third party liquidator or to the date of the full payment of the final redemptions.
Strike Offs
The option to strike off a company remains an attractive (and cheaper) option for many clients whose companies do not have an active history of trading or were set up only to hold a single asset.
Whilst a strike off does not entail the process of appointing a liquidator and carrying out a formal liquidation it should be remembered that a) the Registrar only strikes off companies in batches at the end of each financial quarter and as such if a year-end dissolution is required then a strike off application should be filed ideally no later than November and b) a strike off remains reversible within a 10 year time frame and should not be viewed as having the same finality of a formal liquidation.
Conclusions
HSM Chambers has a wealth of expertise in advising on both voluntary liquidations, official liquidations and strike offs. We can accept liquidator appointments and would be happy to provide a fee quote for any of your dissolution needs.
Key Contact
Peter de Vere
Head of Corporate and Commercial
Tel: 1 345 815 7360
pdevere@hsmoffice.com
HSM is delighted to yet again be ranked by Benchmark Litigation Latin America 2021 where they have recognized HSM Managing Partner Huw Moses, HSM Partner Adam Crane, HSM Partner Sarah Allison and HSM Consultant William Helfrecht as ‘Litigation Stars’. In addition, Benchmark Litigation Latin America 2021 has also recognized HSM Partner Kerrie Cox as a ‘Future Star’.
Benchmark Litigation Latin America shares:
“The George Town, Cayman Islands-based full-service law firm HSM is among the fastest growing firms in the region and maintains a strong presence in the country and beyond, servicing legal needs throughout the Caribbean. The firm provides premier legal services in an abundance of practice areas, such as dispute resolution, insolvency and restructuring, immigration law, trusts and private client, labor and employment, corporate services, and intellectual property to name a few. The firm’s legal team is equipped with strategic relations with leading firms across the United States, Europe, Asia, Australia, and Canada as well as engaging in regular collaboration with leading attorneys in the US, the United Kingdom, and Australia with the express purpose of providing counsel of the highest possible caliber. In both 2019 and 2020, the firm was named one of Benchmark Latin America’s Recommended Firms for the region.
The firm’s leadership presents a diversity of legal backgrounds. Managing Partner Huw Moses has extensive experience and high-caliber expertise in the practices of labor and employment as well as in commercial and civil litigation. In March of 2021, the firm promoted Adam Crane from the position of senior associate to partner and head of the firm’s insolvency department. In addition to Crane’s subject matter expertise in insolvency, he also specializes in restructuring and commercial litigation.”
HSM is pleased to announce the elevation of Adam Crane to Partner and Head of HSM’s Insolvency and Restructuring team, effective 1 June 2021.
Adam focuses his practice on commercial litigation, insolvency and restructuring matters acting for insolvency practitioners, shareholders, directors, officers and companies; and routinely represents clients in complex cross-border proceedings. He has worked on some of the largest and most prominent disputes and insolvency matters in the Cayman Islands in recent years.
He has consistently been recognized for his litigation prowess by Benchmark Litigation (Latin America) as a Star in 2020 and Future Star in 2019, in Benchmark Litigation (Canada) as a Future Star in 2018, and was named to Benchmark Litigation’s 40 and Under Hot List (Canada and USA) in 2018 and 2017.
In 2020, Adam was inducted to the International Insolvency Institute’s NextGen Leadership Program and appointed to the program’s Executive Committee in late 2020. Adam holds leadership positions and is actively involved with many international insolvency organizations including the American Bankruptcy Institute, INSOL, Turnaround Management Association and RISA Cayman.
HSM Managing Partner, Huw Moses, OBE shares: “Adam will make an excellent addition to the partnership team at HSM and I wish him every success in this new role at HSM.”
HSM IP and Sophie Peat have been recognised in the 2021 edition of IP Stars by Managing Intellectual Property (IP). These 2021 rankings cover more than 80 jurisdictions and HSM IP is listed as a recommended firm in the Caribbean.
Managing IP is a leading specialist guide to intellectual property law firms and practitioners worldwide. They have been researching and ranking firms since 1996. Firms and individuals are chosen based on merit through a rigorous research process and cannot buy entry into this award body.
“I could not be more proud of this achievement and I am honoured to be recognised, along with HSM IP as IP Stars 2021.” shares HSM IP Partner, Sophie Peat.
HSM IP specialises in the Caribbean, Central and Latin America and offshore jurisdictions. Our broad perspective, practical approach and wealth of international experience allow us to offer unique insight into intellectual property issues globally.
HSM celebrates eight years in business in the Cayman Islands. Named after Huw St. J. Moses OBE. HSM was founded on 1 October 2012.
HSM is comprised of these entities: HSM Chambers, offering a full-suite of legal services; HSM Corporate Services Ltd. and HSM Corporate Services & Management Ltd.; corporate service providers and HSM IP, a specialist intellectual property law practice. The Group has grown rapidly over the years of its existence and proudly employs nearly 60 members of staff with the majority being Caymanian.
The year 2020 has proved to be a challenging one for many businesses in the Cayman Islands and while no exception at HSM, the team was able to persevere and quickly adapted to working from home as mandated by the Cayman Islands Government. Operations have now returned back to our physical building on 68 Fort Street in George Town.
HSM’s lawyers were at the forefront of this global crisis and provided professional support to many businesses and individuals in the Cayman Islands. In addition to producing a client guide and media interviews, the team facilitated webinars in partnership with the Cayman Islands Chamber of Commerce where they discussed employment and immigration, wealth management, financial strategies and business liabilities. Click here for more details and to view the webinar recordings.
HSM continued to grow through the promotion of 4 Senior Associates: Linda DaCosta, Kerrie Cox and Sarah Allison became Partners of HSM Chambers.
Another milestone included HSM’s acquisition of H&J Corporate Services following the closure of Higgs & Johnson’s Cayman operations. Higgs & Johnson is headquartered in the Bahamas and anticipates a continued business relationship with HSM on Cayman related matters to enhance their offshore reach.
Reflecting back on the past year, Huw Moses commented “I am proud of HSM’s continued growth despite these challenging times. This is testament to our firm’s resilience and the support we receive from our clients, staff and the community at large.”
HSM’s Employment and Immigration lawyers are advising a number of persons and businesses as to the requirements and expectations of the Cayman Islands Law during COVID-19, in particular where businesses may be required to make staff redundant.
Redundancy is defined in Cayman Islands Law as “a situation in which, by virtue of a lack of customers or of orders, retrenchment, the installation of labour-saving machinery an employer’s going out of business, force majeure or any other reason, tasks which a person was last employed to perform no longer exist.”
Cayman Islands Labour Law
A redundancy is a form of “fair dismissal” provided it is carried out in accordance with the Labour Law. The Law provides for preference in employment. If a group of persons carrying out a specific role within an organization are to be made redundant, the Law requires that preference be given according to immigration status. It follows that work permit holders are expected to be made redundant before permanent residents, permanent residents are expected to be made redundant before the spouse of a Caymanian holding a Residency and Employment Rights Certificate, and Caymanians are expected, by Law, to be the last to face redundancy. This is entirely academic if a business is closing down. All persons (without regard to immigration status) will likely be made redundant together. That is perfectly lawful.
Given that a redundancy constitutes a form of termination, it triggers a series of entitlements.
These include severance pay, notice pay, and accrued (but untaken) vacation pay.
Severance Pay is calculated as being one week’s pay, at the latest “basic wage”, for each completed year of service. “Basic wage” means the ordinary wage due to an employee under his or her contract of employment. It does not include such matters as future anticipated gratuities and commissions. Accordingly, for many, the basic wage will be CI$6.00 (or such other higher number set out in their contract of employment. Where no formal contract exists, the amount can be determined by reference to the conduct of the employer and employee – i.e. what is the basic wage that has in fact been paid.
Notice pay is determined by reference to the contract of employment. Where no notice period is prescribed it is deemed to be the interval between pay days.
Accordingly (by way of example) an employee who is made redundant on 31 March and who:
- has been employed by that employer for 3 years and 2 months
- earns CI$6.00 per hour at basic wage for a 40 hour week (CI$12,480 per annum); and
- has a 10 day annual vacation entitlement and has taken none this year;
would generally expect to be entitled to payment on redundancy of:
- 3 weeks severance of CI$720
- One month’s notice pay of CI$1,040 (assuming the employee is not asked to work during their notice period); and
- 2.5 days accrued but untaken vacation pay of CI$120.
A person in this situation would accordingly expect payment on redundancy of CI$1,880. Such payment is payable immediately on termination.
National Pensions Law
There is generally no entitlement to access pension monies prior to retirement. However, severance payments made on redundancy are not pensionable, but accrued untaken vacation pay, and any payment due in lieu of notice, are considered to be pensionable under the National Pensions Law. Also it should be noted that any additional voluntary contributions made by the employee can be withdrawn due to unemployment.
Health Insurance Law
All residents in the Cayman Islands are required to have “adequate” health insurance. As a general rule the obligation to ensure that health insurance is in place rests with employers. Upon termination of employment employers are generally required to ensure that health insurance is maintained for 3 months following the termination of employment. Employers are however entitled to charge those premiums to the employee. The employer’s obligation to maintain health insurance ends upon the person becoming employed elsewhere, being covered by an alternative qualifying policy of insurance, upon the expiry of 3 months, or upon the person leaving the Cayman Islands (whichever happens first). It follows that it may be of direct economic benefit for persons who held work permits, but who have been made redundant (or otherwise terminated), to leave the Islands as soon as practicable.
Immigration Law
Regulation 9 of the Immigration Regulations provides that where a person on a work permit is no longer employed, any work permit ceases to be valid, and the employer must forthwith notify the Department of Workforce Opportunities & Residency Cayman. Redundant employees who were on a work permit to be in Cayman have no right to remain once their employment ends. In normal circumstances that means that persons are expected to register as tourists and remain in accordance with permissions extended by WORC/Customs and Border Control. Customs and Border Control have announced that where a permission to work in Cayman ends before 22 March persons can simply proceed to leave before the anticipated 22 March, 2020 closure, without first having to “regularize” their permission to be in the Islands.
As matters stand, no expatriate can work in the Cayman Islands without express permission or exemption from requirements. It will not be impossible for an expatriate made redundant to seek and obtain alternative employment without first having to leave, and if normal rules continue to apply, Caymanians, Spouses of Caymanians and Permanent Residents will be given preference for any opportunity.
Rent
The obligation to pay rent will be based on the terms of any applicable lease. In normal circumstances appropriate notice will need to be given, and deposits may be forfeited if notice is not given or there is damage to the rented unit. Some leases may provide for the lease to end upon the termination of a work permit.
Repatriation
Unless provided for by contract, there is no obligation on an employer to ensure that an expatriate employee is able to return to their home country. It is worthy to note that employers have paid substantial “repatriation fees” to the Cayman Islands Government in the expectation that those funds could be applied towards the costs associated with workers getting to their homeland. For some, returning home is not a reasonable possibility. It requires closed third party borders to be crossed, even if flights are available. They may be stuck in Cayman, perhaps for an extended period. The Government has recognized this and it, employers, and the community will have to come together (maintaining social distancing) to ensure that everyone’s basic needs can be met.
We are ultimately, all in this together.
This article is intended only to provide a summary of the subject matter. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this article without first obtaining specific professional advice. Alternative solutions also exist which may better suit the requirements of a particular individual or entity.
Key Contacts
Alastair David
Senior Associate
adavid@hsmoffice.com
Hilary Brooks
Senior Associate
hbrooks@hsmoffice.com
The HSM Group is proud to once again offer a legal internship for the 2019/20 academic year in partnership with the Cayman Islands Further Education Centre (CIFEC).
Eleven interns have been recruited from the CIFEC Career Fair that was held in September 2019. The team at HSM has welcomed: Joshua Bent, Nahomy Bonilla-Zelaya, Derique Powery, Sheyla Scott, Rickhams Zuniga, Aaliyah Morris, Toshonna Kelly, Zara Hydes, Chrissy Stewart-Brown, Nyanza Henry and Amaya Jackson.
Since HSM is a full-service law firm, these students are able to gain experiences across a wide-range of practices including immigration, debt collection, intellectual property and even areas outside of law, such as finance.
Natasha Whitelocke coordinates the CIFEC Internship Programme on behalf of HSM and is also the Head IP Paralegal. Whitelocke along with HSM’s Managing Partner, Huw Moses, carefully select and pair an intern with a lawyer or expert at HSM. These personnel will monitor the student’s work and mentor their professionalism.
As part of the CIFEC curriculum, the internship runs until April 2019 and each student attends work twice a week during school hours. When the programme ends, HSM offers a select amount of summer jobs that will provide some students a deeper look into the working world. HSM currently employs six CIFEC graduates fulltime.
“We remain committed and passionate about developing Cayman’s next generation of professionals,” shares HSM Managing Partner, Huw Moses OBE. “Whether they become lawyers or not, our team will also teach them the basic skills needed to excel in any industry they choose.”
HSM has worked with the CIFEC progamme since the firm’s inception in 2012.
Photo (L-R): Natasha Whitelocke (HSM IP Head Paralegal) and Huw Moses (HSM Managing Partner) seated in front of HSM Interns: Aaliyah Morris, Amaya Jackson, Nyanza Henry, Joshua Bent, Nahomy Bonilla-Zelaya, Sheyla Scott, Chrissy Stewart-Brown, Derique Powery and Toshonna Kelly. Missing from photo: Rickhams Zuniga and Zara Hydes.
The HSM Group is proud to sponsor the 3rd Annual Society of Trust and Estate Practitioners (STEP) Cayman Conference, taking place at The Ritz-Carlton Grand Cayman from January 23-24.
HSM’s Head of Private Client and Trusts, Robert Mack, will be attending the conference.
Robert specialises in private and commercial trusts including purpose/STAR, reserved powers, unit, foundation companies, charitable, and fixed interest trusts. Robert is also a member of the local branch of STEP where he currently holds the position of branch Secretary.
As part of our sponsorship, HSM will have an information booth and our legal expert Samantha Bartley will be on hand to answer any questions you have. She can also put you in touch with our attorneys not only in Trusts and Private Client, but across Immigration, Labour and Employment Law, Corporate and Commercial Services, Debt Solutions and Intellectual Property.
We look forward to connecting with you at this conference.
HSM’s Immigration team have taken a close look as to why there is a decline for work permit fees in the Cayman Islands.
It appeared to be inevitable, and may now just be coming true. Income from work permit fees is likely to fall, perhaps precipitously.
According to the Economics and Statistics Office latest Compendium of Statistics, the Cayman Islands Government received $87.3 million dollars in work permit revenue last year. There had been $88.9 million in 2017, and the number had consistently grown in each of the 8 prior years.
The drop in work permit revenue ought not to come as any surprise. What may surprise is the fact that the government revenues appear likely to fall (perhaps significantly), even if (or as) the number of work permit holders grows.
The reasons are straightforward enough. In some cases, Caymanians are advancing in their careers, and replacing expatriates who are leaving. Other expatriates find relief from high immigration fees in the Special Economic Zone. Still others (working for foreign companies with no presence in Cayman) have taken the authorities up on their kind invitation (that we simply cannot understand) to have no work permit at all, as is the case for expatriates in government service.
Those are not however the primary reasons.
With the abandonment of Term Limit Exemption Permits, and an easing of the PR system, significant and growing numbers of expatriates are inevitably proceeding to become Caymanian. The whole process (from arrival and without being married to a Caymanian) usually takes no more than 15 years. This, subject to appropriate limitations, should be celebrated. We are now at a stage that the many of our long term residents have obtained Permanent Residence and are now becoming (or will shortly become) Caymanian. A significant wave of others have acquired Permanent Residence in the past two years. Many of them were delayed in the processing of their applications and so only have a year or two to go before they (and their families) also become Caymanian.
Almost all will have met (or exceeded) the government required conditions for membership. Being Caymanian is an honour, and for those on whom it is bestowed, a privilege. It can (and should) be a source of great pride, but being Caymanian also brings with it a myriad of benefits, including an exemption from having to pay any work permit fees. That exemption applies not only to the Caymanian, but also to their spouse.
The advantage of any exemption varies by occupation. Not all work permits (or permanent residence certificates) are created equal. For teachers, the annual fee is nil; for labourers it is $550; for accountants it is $13,650; and for (equity) partners in law firms, it is $32,400. The reality is that financial services industry professionals (those responsible for the highest fees) have been granted PR in substantial number. They are wholly deserving having fulfilled the criteria for that award. They now qualify and cross the next threshold. They are becoming Caymanian. There does not appear to be corresponding levels of growth amongst executive-level work permit holders (with the pace of their predecessors becoming Caymanian, retiring, or leaving) now outpacing the supply of new accountants, bankers, and lawyers from overseas.
Certainly, the number of work permit holders will likely continue to grow, but at current work permit fees it takes 59 labourers (or 108 Produce Clerk’s or 216 baby sitters) to generate the equivalent revenue in work permit fees, as a single law firm partner. With the ongoing apartment construction boom (fueled in part by a recent change in the stamp duty treatment of pre-construction purchases) there will be heavy construction activity for the next two years. The number total of work permits may well continue to grow, all while the average price paid for each work permit appears likely to continue to decrease.
The likelihood is for substantially decreasing work permit revenues. These will likely be offset by import duties on materials and furnishings required for the new buildings, but when all the construction is complete, that too will diminish. At that stage large numbers of construction workers may be without work and will return to their home jurisdictions. At the same time, we will celebrate the latest wave of PR recipients becoming Caymanian. The monies generated in work permit fees, and the number of work permits, will then fall in unison, perhaps significantly. We can only hope that this prospect is recognized, and being planned for.
All is far from lost. There are alternative revenue sources and options mitigate the consequences, but these will need to be actioned very soon, and likely must include welcoming new residents to our shores.
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