Comprehensive Guide to Cayman Islands Taxes for US Expats

Living as an Expat in the Cayman Islands 

The Cayman Islands is a popular destination for expats due to its warm climate, beautiful beaches, and high standard of living. The Cayman Islands are distinguished by their unique tax policy, which includes a 0% corporate tax rate, making it an attractive location for multinational corporations to shield potential income from taxation. This tax-neutral environment extends to residents, as the Cayman Islands do not impose income, capital gains, or corporate taxes on individuals.

However, expats are still subject to taxes in their home country, such as US expats who must report their worldwide income to the IRS. The Cayman Islands also has agreements with several countries, including the US, UK, and Canada, to prevent double taxation. 

This handy guide covers everything from tax considerations for Americans working in the Cayman Islands to reducing your US tax liability if you’ve established residency in a foreign nation. We even throw in a few pro tips for saving money and protecting yourself from liability when filing expat taxes.

Cayman Islands at a Glance

US Expat Taxes in the Cayman Islands

The tax rate for foreigners in the Cayman Islands is 0%. This is the same for citizens. Whereas most nations charge non-residents a higher income tax rate than citizens, the Cayman Islands government doesn’t charge anyone any taxes. 

As a result, the Cayman Islands are one of the top choices for wealthy expats. The territory is a tropical paradise with some of the world’s most favorable tax laws for the wealthy. These beautiful Caribbean islands are home to several lavish resorts and are prime harboring points for multiple cruise lines.

The 0% tax rate applies to those working and earning wages in the Cayman Islands and those who have migrated from the United States and are receiving pension payments or similar retirement income. 

No matter where you get your income, you can enjoy a non-existent income tax rate. Cayman Islands expats, however, will still have significant US tax obligations. For example, you’ll have to pay Social Security taxes at a rate of 6.2%. If you’re self-employed, this rate will double to 12.4%.

You could incur hefty penalties and fines if you fail to pay your Social Security taxes. Therefore, you must accurately calculate your Social Security tax obligations and pay accordingly.

Who Has to File Taxes in the Cayman Islands?

 In the Cayman Islands, residents are not subject to income, property, or capital gains taxes. However, US expats must still report their worldwide income to the IRS and file a US tax return, even if they are not earning income in the Cayman Islands. 

Who Qualifies as a Tax Resident in the Cayman Islands?

In the Cayman Islands, the determination of tax residency depends on several factors, including the length of stay, the purpose of the stay, and the individual’s ties to the country. 

Under the Cayman Islands tax law, an individual is considered a resident for tax purposes if they have been present in the country for 183 days or more in a calendar year or if they have a permanent place of abode in the Cayman Islands and are present for at least 30 days in that calendar year. 

If an individual qualifies as a tax resident in the Cayman Islands, they will be subject to taxes on their worldwide income, including income earned outside the Cayman Islands.

However, as mentioned earlier, there is no income tax, property tax, or capital gains tax in the Cayman Islands, which makes it an attractive location for many expats. 

What Types of Taxation Does the Cayman Islands Have?

The Cayman Islands does not rely on taxation to fund infrastructure. Instead, it derives most of its revenue from its bustling tourism industry. 

Additionally, the government obtains funds by requiring those applying for residency to invest substantial money into the islands. Over 40% of the population of the Cayman Islands consists of expats, which means that the territory’s government has generated significant revenue from the investments of people applying for residency.

However, it’s important to note that becoming an expatriate living in the Cayman Islands is quite expensive. As part of the application process, you must demonstrate that your annual income is $150,000 or more. You’ll also need to open and maintain a bank account in the Cayman Islands with a minimum balance of $500,000.

Lastly, you’ll have to invest a significant amount of money (usually $1,000,000 or more) into the Cayman Islands. The exact amount will vary based on which island you want to inhabit, and the investment requirements are adjusted annually.

Essential Tax Forms for US Expats in the Cayman Islands 

To comply with US tax laws, US expats residing in the Cayman Islands must report their global income to the IRS by filing a tax return. Some essential tax forms that may be required for US expats in the Cayman Islands include Form 1040, Form 2555 (Foreign Earned Income Exclusion), and Form 1116 (Foreign Tax Credit).

Form 1040 is the standard US tax return form that US citizens or green card holders must file annually. The FEIE Form 2555 allows eligible expats to exclude up to a certain amount ($120,000 for the 2023 tax year which is filed in 2024) of their foreign-earned income from US taxation. The Foreign Tax Credit Form 1116 can help reduce or eliminate double taxation on income tax in the Cayman Islands and the US. 

US expats may also be required to file additional forms, such as the Foreign Bank Account Report (FBAR) and Foreign Account Tax Compliance Act (FATCA) Form 8938, if they have certain foreign financial assets. 

Does the US Have a Tax Treaty with the Cayman Islands?

There is no Cayman Islands-US Tax Treaty. US tax treaties are agreements between the United States government and the governments of foreign nations. They’re designed to protect US citizens living and working abroad from double taxation.

The exact terms of each treaty vary from one nation to another. However, these treaties generally give US expats access to lower tax rates on both their US and foreign returns.

For instance, imagine that your tax liability in the US was 12%, and your liability in the nation where you reside is 13%. If that nation doesn’t have a tax treaty with the US, you may have to pay 25% in income taxes.

Does the Cayman Islands Have a Totalization Agreement with the US?

There is no Cayman Islands-US totalization agreement. US totalization agreements are intended to address the overlap between Social Security and similar social programs in other nations.

However, double taxation isn’t a concern since they don’t have a social program like Social Security or charge any taxes. The only downside to the lack of a US totalization agreement is that you can’t reduce your Social Security tax liability. 

Navigating Tax Compliance for US Expats in the Cayman Islands

As there are no taxes in the Cayman Islands for US expats, it’s important to remember that you still need to pay US income and Social Security taxes. To maximize your savings, make sure to take advantage of eligible programs like FEIE and the foreign housing exemption credit when filing your taxes.

To make tax preparation easier, consider working with a professional tax prep service like Greenback Expat Tax Services. Our team of experts can provide personalized guidance and support to help you navigate your tax obligations and meet your requirements accurately and on time.

If you’re ready to be matched with a Greenback accountant, click the get started button below. For general questions on expat taxes or working with Greenback, contact our Customer Champions.