The legal system of the Cayman Islands has been developed from the British model which consist today of common law and local legislation.

There is no direct taxation imposed on the offshore banking Cayman Islands provide. Instead it has adopted a system of indirect taxation by the imposition of customs duties on imported goods, stamp duties, and license fees. In addition, there is no exchange control and currency is freely convertible and may be held in various denominations. The Cayman Islands have no central bank however there is Monetary Authority which exercises its functions in the financial and offshore banking sectors. The Banking Supervision Division processes the applications for bank licenses.

The government, over the last decades, passed legislation for offshore banking Cayman which has served as a model for the world’s leading financial centers in the areas of banking. The laws have been carefully modeled to provide a degree of regulation which has proven to be effective by providing internationally standards. The Cayman Islands have led the world in legislation which essentially codifies the common law position in the United Kingdom as regards confidentiality to all business and professional people. The Cayman Islands also entered into treaties and passed laws to ensure that the confidentiality laws do not protect persons who may seek to use them in order to hide their criminal activity. The islands’ record in this regard is outstanding and it has again been able to balance carefully the need of confidentiality and the public interest by ensuring that the flexibility given to the financial world is not used by persons who may seek to do so in unscrupulous ways. The treaties do not apply to offences which relate to the imposition and collection of tax by other countries.

The relevant law on offshore banking provides for two categories of licenses: A and B. B license includes B restricted and B unrestricted licenses.

A category of licensed banks can carry out bank business within the Islands without any restrictions. They are usually full service banks which carry on both domestic and international services. This license is reserved to major international banking institutions.

B unrestricted category of licensed banks exercise offshore business without restriction but, in very limited and specified circumstances, are not permitted to carry on business with any person in the Cayman Islands except other licensee and exempted or ordinary non-resident companies which cannot carry on business in the islands. These licenses account for the majority of those issued today.

Restricted B category of licensed banks is subject to the same restrictions as B licensed banks with some additional restrictions. The restricted B licensed banks may not receive or solicit funds by way of trade or business from persons other that those listed in an undertaking accompanying the application for the license.

Although there is a stereotype that Cayman Islands allow money laundering, it is not much easier than opening a bank account in  the USA with minimum due diligence. Although Cayman Islands has a record of being a offshore banking jurisdiction, where money laundering and illegal transactions were frequent, nowadays offshore banking Cayman Islands operations are regulated by Cayman Islands Monetary Authority (CIMA) that ensures that financial sector is more strictly regulated than many financial sector sof many onshore financial centers.

Current the regulatory and the supervisory framework of offshore banking Cayman Islands is based on “Know Your Client” (KYC) principle. KYC requires that an offshore banking institution providing an offshore bank account to a client is required to know everything that is relevant about the client. For this purpose banks request complete information on the background of their clients to ensure that he/she was not suspected in money laundering, terrorism financing and in conducting other illegal transactions and that he/she shall not use future offshore bank account for fraudulent purposes. As a result nowadays procedure for opening an account in Cayman bank can be much more sophisticated than the similar procedure in the USA or European countries.

There are different banking licenses that Cayman Island authorities provide. The main types of licenses are Class A and Class B license. The rules governing licenses are quite elaborated however summarizing shortly it can be said that Class B licensed banks are more involved in offshore banking and provision of banking services mainly to non-residents, while Class A licensed banks can deal with both onshore and offshore transactions. Out of 280 banks that are licensed in Cayman Islands only 6 of them (Cayman National, RBC, Butterfield, Scotia, First Caribbean and Fidelity) offer onshore banking. The rest of them are involved in offshore banking practices.

Foreigners that want to open bank account in Cayman Islands are asked a written recommendation from the bank, where they hold an account or held it in the past. Banks also require letter of the employer indicating the position an individual holds and future projected earnings and proper identification document such as passport or driving license.

Cayman is a tax haven. There are no personal income tax, corporate income tax, property tax, capital gains tax or any other tax that creates highly favorable environment for international companies. There are no foreign exchange restrictions in Caymans, currency can be freely transferred in and out of the country that encourages international trade and investment. These benefits in addition to confidentiality, bank secrecy, strong economy and stable government makes Cayman Islands one of the top investment destinations in the world.