Cayman Island Taxes for US Expats: Everything You Need to Know

Cayman Island Taxes for US Expats: Everything You Need to Know

Whether you’re currently residing in the Cayman Islands or considering moving, it’s essential that you’re familiar with how becoming an expat will affect your income tax rate in the Cayman Islands.

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 Taxes at a Glance

  • Primary Tax Forms: FBAR, 5471, 3520
  • Date Primary Tax Form Is Received: N/A
  • Tax Deadline: No income taxes and therefore no deadline
  • Currency: Cayman Islands Dollar (KYD)
  • Population: 66,000
  • Number of US Expats in the Cayman Islands: Approximately 29,000
  • Capital City: George Town
  • Primary Language: English
  • Tax Treaty: No
  • Totalization Agreement: No

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 a prime harboring point 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?

Since the Cayman Islands government doesn’t collect taxes from residents, no one has to file taxes in the Cayman Islands.

Who Qualifies as a Tax Resident in the Cayman Islands?

Because no resident is obligated to pay taxes to the Cayman Islands, no one qualifies as a legal tax resident.

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.

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 a total of 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 real downside to the lack of a US totalization agreement is that you can’t reduce your Social Security tax liability. 

Get Expert Help with Your Expat Tax Return

Although there are no Cayman Islands taxes for US expats, you’ll still need to continue paying US income and Social Security taxes. When preparing to file, make sure you take advantage of any programs you’re eligible for, including FEIE and the foreign housing exemption credit.

Consider partnering with a professional tax prep service for expats like Greenback Expat Tax Services. to maximize your savings. Contact us today to learn more about our services and how we can help you reduce your tax liability.

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