Stefanie Suckoo and Kathryn C Carter Solomon Harris Grand Cayman

The Special Economic Zones Law 2011

The Special Economic Zones Law, 2011 (the ‘SEZ Law’) came into force in the Cayman Islands on November 21 2011. The SEZ Law provides for the creation and operation of Special Economic Zones (SEZ), such as the established Cayman Enterprise City.

Setting up process

To conduct business within the Cayman Enterprise City applicants must first engage the services of a local law firm or other corporate service provider to incorporate a Cayman Islands Exempted Special Economic Zone Company (SEZ Company) or convert an existing Exempted Company into an SEZ Company. The corporate services provider must obtain a letter from Cayman Enterprise City inviting the SEZ Company into the SEZ and provide it to the Registrar of Companies when submitting the incorporation application.

The Special Economic Zone Authority

Created by the SEZ Law, the Special Economic Zone Authority (SEZA) is comprised of a Chairman, Deputy Chairman and two other persons appointed by the Governor in Cabinet. The SEZA carries out specific functions such as the implementation of relevant policies and programs, the examination and processing of applications from prospective SEZ businesses, the maintenance of current data on the performance of SEZ businesses and the enforcement of compliance with all related requirements and procedures.

Trade Certificates

Once the SEZ Company is incorporated, the staff at the Cayman Enterprise City will prepare and submit the application to the SEZA for a Zone Trade Certificate, which, if granted, will enable the SEZ Company to begin conducting business. The Zone Trade Certificate must specify the period of its validity, the type of business the SEZ Company may conduct, the name of the zone in which the SEZ Company may conduct business, the address from which the business is carried on and any additional terms and conditions imposed by the SEZ Law or any other law or regulation in force in the Cayman Islands.

Trading

The SEZ, though established in the Cayman Islands, is deemed to be outside the Cayman Islands for the purposes of the SEZ Law, the Companies Law (2011 Revision) and the Exempted Limited Partnership Law (2010 Revision) which each expressly prohibit Exempted Companies and Exempted Limited Partnerships from carrying on business within the Cayman Islands. SEZ Companies may not carry on business locally, but they may contract with local companies for the provision of services to the SEZ Company, which are considered ancillary to or for the furtherance of the business within the SEZ.

Benefits for SEZ Companies

Under the SEZ Law, SEZ Companies are exempt from the Trade and Business Licensing Law (2007 Revision), the Local Companies (Control) Law (2007 Revision), the Electronic Transactions Law (2003 Revision) and the Land Acquisition Law (1995 Revision). SEZ Companies are also exempt from liability or obligation to pay direct or indirect taxes, import or other duties, or fees, whether currently levied or levied in the future by the Government, for 50 years from the commencement of the SEZ Law.

The SEZ Law permits businesses to set up in the SEZ which fall within the six business parks: Cayman Media Park, Cayman Internet & Technology Park, Cayman Commodities & Derivatives Park, Cayman Biotechnology Park, Cayman Outsource Park and Cayman International Academic Park. Cayman Enterprise City offers a range of flexible and cost-effective packages to suit any SEZ Company conducting these types of businesses.

Proposed Incorporated Cell Company legislation for the insurance sector

Proposed legislation to amend the Insurance Law, (2010) is set to increase Cayman’s competitiveness in the insurance industry by allowing insurers formed as segregated portfolio companies (SPCs) to enjoy the same benefits as incorporated cell companies in other jurisdictions.

Features of Portfolio Insurance Companies (PICs)

A new or existing SPC insurance company will effectively be able to incorporate one or more of its segregated portfolios (i.e. cells) by establishing a Portfolio Insurance Company (PIC) under the cell. The PIC will then conduct the relevant insurance business instead of the cell. Whilst regulated by the Cayman Islands Monetary Authority, the PIC will not need to be separately licensed as an insurance company and unlike a traditional segregated portfolio (cell), will be a separate legal entity.

Advantages

The particular advantages of a PIC compared to a cell of an SPC include:

• ability to contract with other cells or PICs within the same SPC to facilitate reinsurance, quota sharing and pooling;
• a separate board of directors permitting governance flexibility;
• for counterparties unfamiliar with cells, a PIC may be more readily accepted than a cell;
• a PIC can easily transition to a stand-alone captive; and
• likely recognition as a separate legal entity for US tax purposes.