Cayman Islands on EU-Blacklist; Can relocation of Alternative Investment Funds solve the problem?

Most recently the European Union added the Cayman Islands, a British Overseas Territory, to its Tax Haven Blacklist.

The EU considered that the Cayman Islands does not have appropriate measures in place to prevent tax abuse and would allow firms to register there despite having minimal presence in the territory. Along with Cayman Islands the EU also put Panama, Palau and Seychelles on the blacklist.

Companies registered in blacklisted countries face substantial difficulties in accessing the EU market and doing business.

Cayman Islands is home for more than 10’000 investment funds. Due to the blacklisting, in particular the large number of Alternative Investment Funds registered in the Cayman Islands are likely to face substantial difficulties not only to attract investors from the EU Area. In particular they may face difficulties in investing the funds in the EU and European Economic Area due to decreased acceptance of Cayman Island structures with Banks in the EU and EEA. This may substantially affect their investment strategies.

Given this situation several Funds are considering to relocate from the offshore jurisdiction Cayman Islands to onshore jurisdictions such as Liechtenstein.

Since 2015 Liechtenstein has an agreement on automated exchange on tax matters (AEOI) with the EU and is generally considered as a reliable member of the OECD countries which has implemented effective measures against tax evasion and money laundering.

Liechtenstein offers an advantageous regime for Alternative Investment Funds. Besides the fact that no tax is imposed on the funds, one of the major benefits is the timeframe to set up an investment fund start the activities. Regularly the Alternative Investment Fund can be set up within two months. Also relocating existing Investment Funds from foreign jurisdictions to Liechtenstein regularly is conducted in a similar time frame. Since February 2020 the registration process for Alternative Investment Funds with the Liechtenstein Financial Market Authority has been further simplified which further increases efficiency.

Already a few years ago a large number of Cayman Island Investment funds decided to relocate to Liechtenstein to get onshore. Given the latest step of the EU Liechtenstein may expect a further wave of relocating as this step enables the managers of the Investment Funds to solve the difficulties they are about to face.

Contact us if you are interested to learn more about Liechtenstein Alternative Investment Funds and how to make use of the legal regime.