Cayman Islands. Digital Securities Landscape Overview.

Introduction

There is no specific legislation for digital securities or security tokens in the Cayman Islands, they are rather covered by conventional securities legislation if the instruments fall under the corresponding definition. Considering that most issues are targeted at offshore jurisdiction, the securities and fund legislation in those jurisdictions has much more impact on the issuers. In order to have the freedom to offer fund units, the fund manager should be registered in corresponding jurisdictions, although there are some exemptions.

Legal Landscape

General Overview

The financial market of the Cayman Islands is regulated by the local authority Cayman Islands Monetary Authority (CIMA) within the framework of the following legislation pieces:

  • Securities Investment Business Law (SIBL)
  • Mutual Funds Law
  • Cayman Islands Anti-Money Laundering Regulations
  • Companies Law
  • International standards to which CIMA adheres (CRS, FATCA)

Applicable Entities

An issuer may use several types of entities for its offering depending on the nature of the project. The most common type of Cayman-based Issuer is an Investment Fund. However, stand-alone companies may use this jurisdiction as well.

Investment Fund

Regulation in establishing and operating investment funds varies depending on their type and some key parameters.

  • The minimum initial capital of at least 100,000USD from each investor.
  • Provision of audited financial statements annually.
  • Appointment of an authorized Manager responsible for operations. Typically, a fund Director performs as a Manager.
  • Passing the registration procedure in CIMA.

Structured Portfolio Company

A Segregated Portfolio Company (SPC) is a structure that can create and operate one or more segregated portfolios that have statutory segregated assets and liabilities between portfolios. Under the Cayman Islands law, a Segregated Portfolio Company is an exempted company that has been registered as an SPC. It has the full capacity to undertake any activity subject to restrictions imposed by its Articles of Incorporation.

Foundation

The Foundation Company is a special kind of company that may be used for structuring financial transactions, wealth management, charitable purposes, and others. It is a body corporate with separate legal personality, which may be limited by shares, or guarantee, or without share capital, as there are no minimum capital requirements. A Foundation Company may be established for any lawful purpose, which must be specified in its Articles of Incorporation. Like any other exempt company, Foundation Companies will be exempt from any income tax. A Foundation Company is required to appoint a local qualified secretary licensed under the Companies Law, who would maintain full and proper records of the company activities.

Security vs Non-Security

An instrument issued by a Cayman-incorporated entity may be classified as a security or not depending on how the offering is structured. The general criteria are as follows: if an instrument entitles the holder to any rights that it could claim, such an instrument would be considered a security.

Tax Regime

The Cayman Islands offshore companies are exempt from corporate income tax. Furthermore, there is no withholding tax on dividends or similar payments. However, the Cayman Islands have double taxation with the majority of world countries, which reduces the benefits of that regime.

Marketing in Other Jurisdictions

The general rule is that the securities should be registered in the jurisdiction in which they are offered unless being exempted from registration requirements. Even when making use of exemptions, an offering should be conducted through financial institutions registered in corresponding jurisdictions.

What #Stobox Does?

Stobox is a provider of multiple professional and technology services related to securities operations with a strong focus on fundraising.

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