by Brian Mahany
As the implementation deadline for the Foreign Account Tax Compliance Act (FATCA) nears, more and more jurisdictions are becoming “transparent.” That means an end to the financial privacy that many wealthy Americans have come to expect. The Cayman Islands are no exception.
Once known for its strict bank secrecy laws, the Caymans still enjoy a reputation as a world financial center. Until recently, the tiny island nation had one of the strictest bank secrecy laws in the world. A banker or other professional wrongfully disclosing account information faced jail… that has all changed.
Recently the Global Forum on Tax Transparency and Exchange of Information for Tax Purposes conducted an audit of the Caymans. While considered a tax haven in 2010, the recent audit says the country is now tax transparent. New laws give the country broad powers to gather tax information and exchange it with other taxing authorities.
The country will likely remain a popular financial center despite the anticipated compliance with FATCA. Beginning next year, FATCA requires foreign financial institutions to review account information and report accounts with ties to the United States. Hiding money from Uncle Sam is getting much harder.
As noted above, despite FATCA and the good report from the Global Forum, the Caymans are likely to remain a banking center. The country has no capital gains or income taxes, it has a well developed body of trust law and it retains some of its strong secrecy laws for non tax purposes. Protecting money from creditors by creating a trust may work, but using the nation to hide money from the IRS will cost you dearly.
Currently Cayman corporate laws allow foreigners to form corporation with minimal paperwork and no recorded shareholder information, however, FATCA may force banks and hedge funds to begin to gather additional data before opening accounts.
What does this mean for investors and American businesses? The Bank Secrecy Act requires U.S. taxpayers to report their offshore financial holdings. Compliance is handled through a Treasury form known as an FBAR, short for Report of Foreign Bank and Financial Accounts (TD F 90-22.1). Failure to file an FBAR may be a felony and always carries the risk of huge civil penalties.
To help taxpayers comply, the IRS is currently offering a foreign account amnesty program and there are also other alternatives available. Doing nothing in the hopes of not getting caught or quietly trying to file missing back FBARs (called “quiet disclosures”) are probably the two worse options available.
If you have an unreported bank, brokerage, hedge fund or even insurance policy with a cash or investment component in the Cayman Islands, time is quickly running out.
For more information, contact attorney Bethany Kroes at or by telephone at (414) 223-0464. All inquiries are protected by the attorney – client privilege and kept in strict confidence. Whether you hire or us or not, we will gladly discuss your options at no cost and without obligation.
Mahany & Ertl – America’s Tax Lawyers. Offices in Milwaukee, Wisconsin; Detroit, Michigan; Portland, Maine; Minneapolis, Minnesota and San Francisco, California. IRS tax services available worldwide.
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