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Caymans Warn Of HIRE Act Implications

Tuesday, May 11, 2010

US citizens living and working in the Cayman Islands will need to familiarize themselves with new legislation that affects their tax obligations, Cayman Finance has said. The rule changes apply to all of those people living in the jurisdiction with US citizenship.

The Hiring Incentives to Restore Employment Act of 2010 (HIRE act), passed by the US Congress in March 2010, has new reporting obligations on US taxpayers in connection with non-US accounts and investments. This new legislation will affect US passport holders in the Cayman Islands and provides the US tax authority, the Internal Revenue Service, with tools “to find and prosecute US individuals hiding assets overseas.” The new rules also limit the ability of non-US investors to access US markets.

A new 30% withholding obligation will be imposed upon non-US financial institutions and investment structures, as well as the individuals who invest through them, on US investments unless they agree to undertake due diligence and turn over account information about all of their US citizens, green card holders and US tax resident clients.

According to Cayman Finance, the new rules also limit the ability of non-US investors to access the US markets via derivatives, loan notes and other synthetic arrangements and will impact those US taxpayers who have homes, artwork, planes, yachts and other personal use property held in non-US trust structures.