Cayman Islands Funds

Cayman investment funds are regulated by the Mutual Funds Law, 1993 (it has been subsequently amending). Legislation of the Cayman Islands is based on English common law and is supplemented in accordance with local laws. The funds are regulated and supervised by the Cayman Islands Monetary Authority (CIMA).

Forms of business organization: company (the most common form of entity), limited partnership or unit trust. They are called ‘exempted’ since they are non-resident. Exempted companies may register as segregated portfolio companies (SPC).

Funds types

There are two categories of investment funds established in the Cayman Islands depending on the degree of regulation of the fund – regulated and unregulated. Regulated mutual funds are subject to regulation by CIMA and must notify it about all the amendments.

In accordance with the Mutual Fund Law in the Caymans there are four types of regulated mutual funds: registered mutual fund, administered mutual fund licensed mutual fund and master mutual fund, as well as one type exempted from the CIMA regulation – private fund.

  • Registered Funds
  • the most common category of regulation;
  • the minimum initial investment – 100 thousand dollars per investor (or its equity interests should be listed on a recognised stock exchange approved by CIMA);
  • they are not obliged to have a license or a licensed manager but must register its offering memorandum with CIMA).
  • Master Funds
  • the second most popular regulated funds;
  • any Caymans company, unit trust or partnership which issues equity interests and has a feeder fund which is regulated by CIMA investing in it must register as a master fund;
  • the registration requirements are less stringent and unless the master fund itself has an offering document already, it need not have one for registration.
  • Administered Funds
  • the third most popular regulated funds;
  • must have appointed a mutual fund administrator which is licensed with CIMA and based in the Cayman Islands;
  • this administrator provides the fund’s principal office in the Cayman Islands;
  • no minimum initial investment amount.
  • Licensed Funds
  • the rarest regulated funds;
  • must obtain a license from CIMA unless falls within one of the above categories;
  • must have a registered office in the Cayman Islands (or, if a unit trust – have a locally licensed trustee).
  • Exempted (‘Private’) Funds
  • the equity interests are held by not more than 15 investors;
  • the majority of them are capable of appointing or removing the operator of the mutual fund (i.e. the directors of a company, the trustee of a unit trust or the general partner of a partnership);
  • if funds meet above criteria they may conduct business without obtaining a licence under the Law, without appointing a licensed mutual fund administrator and without filing any papers with CIMA.

It should be noted that under the Cayman Islands Mutual Funds Law only open ended investment funds are referred to as ‘mutual funds’.

Therefore, closed ended funds (not mutual funds within the statutory definition) as well as funds which have no significant link with the Cayman Islands are referred to as unregulated mutual funds.

Nevertheless, Cayman Islands entities that are set up as closed ended funds must have a registered office in the Cayman Islands provided by a regulated entity and, if they have a separate advisor or manager which is itself a Cayman Islands entity, then that entity will be subject to regulation or exemption under the Securities Investment Business Law (SIBL).

Taxation

There is no personal income tax, corporate profit tax, tax on dividends. An annual fixed state fee for offshore maintenance is paid. There are no legal restrictions on the investment policy and strategy of the fund. Exempted trusts and exempted limited partnership can obtain a renewable 50-year tax undertaking.

Audit

Every regulated mutual fund is required to audit its accounts annually by an approved Cayman Islands auditor.