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seven mile beach, grand cayman, cayman islandsruth elliott

One among thousands of lawyers, accountants and other workers from around the globe, Paul Fordham is escaping cold weather and the taxman by working in a sunny British territory in the Caribbean.

He and many others, however, worry they soon may be looking for another haven.

The Cayman Islands have lost some of their allure by proposing what amounts to the territory's first ever income tax.

And it would fall only on expatriate workers like Mr. Fordham who have helped build the territory into one of the most famous or, for some, notorious offshore banking centres that offer tax advantages for foreign investment operations.

It is also where U.S. presidential candidate Mitt Romney has allegedly set up offshore investment accounts.

"The discriminatory nature of the tax has stirred up so much uncertainty for people who moved here thinking they knew what they were getting into," said Mr. Fordham, an insurance-sector specialist from the London area who moved to the main island of Grand Cayman 6½ years ago.

His recent attempt to sell his house collapsed because an interested buyer was spooked by the prospect of the islands' first direct tax.

In the seaside capital of George Town, where financial experts in casually elegant clothes unwind over beer or white wine, conversations have been about little else since July 25, when Premier McKeeva Bush declared his intention to impose a 10 per cent income tax on expatriate workers as part of an effort to bail the government out of a financial hole.

Mr. Bush refuses to call it a tax, preferring instead to dub it a "community enhancement fee."

The 10 per cent payroll levy, as things stands now, will be imposed Sept. 1 on expatriates who earn more than $36,000 a year.

It's a monumental shift for the territory of 56,000 people where zero direct taxation, friendly regulations and the global money they lured in recent decades helped transform the economy of the island chain, a dependency of Jamaica until 1959, from a reliance on seafaring, fishing and rope-making.

Government data show 91,712 companies were registered as of March, 2011.

A total of 235 banks, including most of the world's top 50 banks, held licenses at the end of June as did 758 insurance companies.

Assets for the registered companies totaled $1.607-trillion last September, down from $1.725-trillion a year earlier.

Opponents argue that a social contract may have been broken by targeting only the roughly 5,875 expatriates who are paid more than $36,000 a year, saying it could drive some away and hurt the financial services and tourism sectors that are now the pillars of the Caymans' economy.

Government reports say a majority of the wealthiest residents are Cayman citizens.

Numerous competing tax havens, from Jersey to the British Virgin Islands, impose income taxes on workers, but not on one sector of the population.

Under a controversial "rollover" immigration policy, expatriates in the Cayman Islands already are required to leave the islands for a year after living and working locally for a period of seven years.

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