Mar 2023
Special Economic Zone Companies offer a straightforward and cost effective way of establishing a physical presence in the Cayman Islands, enabling eligible businesses and their employees to access the benefits of living and working in the Cayman Islands, as well as the corporate flexibility offered by a Cayman Islands company.
What is a Special Economic Zone Company?
A Special Economic Zone Company (or “SEZCo”) is a special form of Cayman Islands exempted company which is licenced and permitted to operate from within the Cayman Islands’ Special Economic Zone (the “SEZ”), established pursuant to the Cayman Islands Special Economic Zones Act (the “Act”).
In order to qualify as an SEZCo, the company must show that its principal purpose is the carrying on of business mainly outside the Cayman Islands. An SEZCo can still trade directly with other businesses within the SEZ, as this is not deemed to be within the Cayman Islands for these purposes, but cannot trade with other companies in the Cayman Islands outside the SEZ.
Although most SEZCos are established specifically for the purpose of entering the SEZ, it is also possible to convert a pre-existing exempted company into an SEZCo if this is required (for example in order to facilitate the establishment of a physical presence in the Cayman Islands), provided it meets the requirements for an SEZCo under the Act.
How Does the SEZ Operate?
The Cayman Islands government has established a Special Economic Zone Authority (the “SEZ Authority”) for the purpose of providing oversight and guidance in relation to the establishment and operation of the SEZ. In particular, the SEZ Authority has the power to specify the name, geographical limits and developer of the SEZ and specify the types of business authorised to be carried on within the SEZ.
Pursuant to the Special Economic Zones (Cayman Enterprise City) Order, the SEZ Authority has designated Cayman Enterprise City Limited as the developer of Cayman Enterprise City (“CEC”), which is currently the sole SEZ in the Cayman Islands. CEC are responsible for managing the day to day operations of the SEZ, and provide the physical office space and administrative support required to enable the establishment and ongoing operation of SEZCos within the SEZ.
What Types of Businesses Can Enter the SEZ?
In order for a company to be established as an SEZCo it needs to demonstrate that its activities fall within one of the types of businesses currently approved to operate within the SEZ. These are divided into seven separate “Business Parks”:
- Cayman Internet Park: designed to attract information technology and software businesses, with the intention of creating the largest information and communications technology cluster in the region. This park does not include businesses involved in the separate sale of computer hardware or software or the separate installation of servers and personal computers;
- Cayman Science and Technology Park: designed to attract businesses specialised in natural sciences, specifically focused on biotechnology (research and application of technology that uses biological systems, living organisms or derivatives thereof, to make or modify products or processes for specific use), development of biomedical devices, development of pharmaceuticals and environmental technology (research and application of technology to monitor, model and conserve the natural environment and resources, and to curb the negative impacts of human involvement). SEZCos licenced in this park may be engaged in clinical research, but the research cannot be conducted locally in the Cayman Islands;
- Cayman Media Park: designed to attract electronic media and integrated media-related businesses including electronic publishing and the development and digital publication of music, film and entertainment. This park does not include businesses involved in the retail sale of software, nor the online provision of software, that is, application hosting and application service provisioning and does not include business involved in the wholesale or retail trade of CDs, DVDs, etc., including rental;
- Cayman Commodities & Derivatives Park: designed to create a centralised global commodity and derivatives market in Cayman, with the intention of being the first dedicated commodities and derivatives centre in the Americas time zone;
- Cayman Outsource Park: the intent of this park is to facilitate the production and manufacturing, for special economic zone based businesses, of products in other jurisdictions. Please note, however, this park is not open to businesses other than in respect of Cayman Enterprise City Limited, being the developer, a subsidiary of the developer, or businesses working in a formal partnership with the developer, and offering services only to businesses established within any of the parks in the SEZ;
- Cayman International Academic Park: designed to attract higher education institutions with a focus on the areas of technology underlying the other parks, that is, information technology, biotechnology, environmental technology, and integrated media and new media technology. This park also includes higher education institutions related to the Cayman Maritime Services Park; and
- Cayman Maritime and Aviation Services Park: designed to attract maritime and aviation services businesses to assist in the establishment of the Cayman Islands as the largest maritime and aviation services cluster in the region.
CEC will work with potential SEZCos to determine the nature of their business and ensure that the proposed activities of the company are suitable for inclusion in the SEZ.
What are the Benefits of Using an SEZCo to Establish a Physical Presence in the Cayman Islands?
One of the key benefits of the SEZ is that it offers a straightforward way to establish a physical presence in the Cayman Islands quickly and efficiently. The Cayman SEZ application process has been streamlined to guarantee incorporation within ten days.
SEZCos are exempt from various licencing requirements that apply to other local companies including the requirement to maintain a trade and business licence and the requirement for Caymanian majority control of the business. There are no restrictions on the transfer of any investment in or by an SEZCo within the SEZ, nor is an SEZCo restricted to investing in any other SEZCo. More particularly, a non-Caymanian may own, hold, freely transfer, securitise, finance, raise security on or list the legal or beneficial title of any or all of his equity in any SEZCo.
Employees of SEZCos are granted five year work/residency visas.
An SEZCo located in the Cayman SEZ will also benefit from guaranteed protection of intellectual property and will be exempt from direct or indirect taxes, certain import duties and fees and work permit requirements.
What makes the Cayman Islands a good jurisdiction for establishing a company?
The Cayman Islands are recognised as a leading international financial centre, combining a well-established, stable and trusted legal and political framework with a flexible yet robust corporate regime, creditor-friendly laws and a tax neutral environment.
As a British overseas territory, the legal system is based on English common law, and the Privy Council forms the ultimate court of appeal. The laws of the Cayman Islands are passed by a democratically elected parliament and the electoral system is based on the British parliamentary model.
The Cayman Islands are a tax neutral jurisdiction, and there is currently no income, capital gains or withholding tax imposed by the Cayman Islands government on any Cayman Islands company or arising within the Cayman Islands as a result of any transactions entered into with a Cayman Islands company.
What is the Process of Establishing an SEZCo?
Before an SEZCo can be incorporated, CEC will need to review and consider the proposed activities of the company to determine whether they fall within scope for one or more of the categories of business authorised to be carried out in the SEZ. If so, CEC will also consider which Business Park would be most suitable for the SEZCo to be established within.
Assuming that the proposed activities of the SEZCo fall within scope for one of the Business Parks, CEC will then discuss the physical needs of the SEZCo with the company (including the type and size of office space required, staffing requirements, projected growth etc.) to identify a suitable space for the SEZCo within the SEZ. The SEZCo will be required to enter into a licence agreement with CEC setting out the terms on which CEC will provide the office space and administrative support to the SEZCo.
Once CEC has approved the activities of the SEZCo and the terms of the licence agreement have been settled, the SEZCo can be incorporated. The registrar of companies will require a copy of the approval letter from CEC in order to proceed with the incorporation.
Following incorporation, the SEZCo will need to apply for a trade certificate specifying which of the approved categories of business the SEZCo will be conducting in the SEZ. The application for the zone trade certificate will need to be submitted to the SEZ Authority for consideration, and, if thought fit, the SEZ Authority will approve the application and grant a zone trade certificate to the SEZCo. Once the zone trade certificate has been issued, the SEZCo will be entitled to the benefits of the relevant zone as set out in the Act.
How Easy is it for an SEZCo to Bring Staff into the Cayman Islands?
The Cayman Islands is a fantastic place to live and work. It offers miles of pristine white sand beaches, clear blue Caribbean waters, world class dining, minimal commute and great international connections all on your doorstep, making it an excellent lifestyle destination. The islands are well connected, with good infrastructure and high speed fibre broadband connections throughout most of the island.
For those travelling with families, the very low crime rates, safe and family-friendly neighbourhoods, excellent schools and access to world leading healthcare are an added bonus.
SEZCos are free to employ both Caymanians and non-Caymanians. Any non-Caymanian employees will need to hold a valid work permit before they are entitled to commence work in the Cayman Islands. There is a fast-track work permit application process for SEZCos, and, as noted above, holders are entitled to an initial five year work permit, which can be renewed.
Any application for a work permit will need to be accompanied by a police clearance certificate, a medical questionnaire and details of the employee’s health insurance and pension plan. CEC are able to advise companies on completing the accompanying work permit applications in relation to any zone application and can put SEZCos in touch with appropriate service providers to facilitate the necessary pension and health insurance arrangements.
What is Cayman Enterprise City’s Role in Respect of the SEZ and SEZCos?
CEC aims to reduce the “red tape” that companies may otherwise face in establishing a physical presence in the Cayman Islands and make the process as user friendly as possible. The CEC team are highly experienced in the process of bringing companies into the SEZ and guiding their clients through the application process, both for establishing the SEZCo and in applying for work permits to bring any overseas employees who will be working for the SEZCo into the Cayman Islands.
CEC are connected with local service providers who can assist with the legal aspects of incorporating an SEZCo. They also have strong links with pension providers and insurers can assist in putting in place the mandatory health insurance and pension provisions that are required for any employee located in the Cayman Islands.
As the developer of the SEZ, perhaps the most important role which CEC have is to provide the physical office space for the SEZCos established within the SEZ. CEC currently have a number of office spaces across the Cayman Islands to suit the differing needs of their clients. Work is well underway, however, on the development of a purpose built campus that, when completed, will provide over one million square feet of modern office space.
Are SEZCos Difficult to Administer?
The Cayman Islands corporate regime offers a great deal of flexibility, without burdening the SEZCo and its directors with excessive regulation. An SEZCo offers the following benefits:
- Cayman Islands companies are generally incorporated with limited liability and have separate legal personality.
- A Cayman Islands company can have a single director.
- There are prima facie no nationality or residency requirements for directors or shareholders of a Cayman Islands exempted company.
- There is no minimum level of authorised or issued share capital for a Cayman Islands company. A Cayman Islands exempted company has a great deal of flexibility in issuing, redeeming and repurchasing shares. In particular, the company may issue shares at a premium to their par value, and can use any proceeds of the share premium account arising from such issue to pay dividends.
- There are no statutory restrictions under Cayman Islands law preventing a company from providing financial assistance for the purchase of its own shares, and consequently no need for any whitewash procedure.
- Cayman Islands companies have separate legal personality.
- There is no requirement as a matter of Cayman Islands law for a Cayman Islands exempted company to appoint an auditor or file audited financial statements with the Registrar of Companies or any governmental body within the Cayman Islands.
- There are no exchange controls in the Cayman Islands.
Is the SEZ Open to Partnerships as Well?
Yes. In addition to exempted companies, exempted limited partnerships can also apply to be registered as a special economic zone entity and to obtain a trade certificate and establish themselves in the SEZ.