Key takeaways
- An exempted company is registered declares that it will do business mainly outside the Cayman Islands.
- “Exempted” does not mean exempt from filing: an annual return, an annual fee and an economic substance notification all fall due each January.
- The tax undertaking has to be applied for. It runs twenty years, protects against tax introduced in future rather than tax owed now, and has no effect outside the Cayman Islands.
- The local business restriction is narrower than it sounds. Selling to the Cayman market is prohibited; holding meetings, banking, and engaging local professionals there are not.
- The register of members is private. The list of directors is not, the Registrar makes it available for inspection on payment of a fee.
What a Cayman Islands exempted company is
An exempted company is registered under Part 7 of the Cayman Islands Companies Act (hereinafter – the Companies Act). It is formed like any other Cayman company, by subscribing to a memorandum of association. The difference with other company forms comes with the declaration that its operations will be conducted mainly outside the Islands.
An exempted company has separate legal personality, meaning it can contract, hold property and sue in its own name. Members’ liability is capped at any amount unpaid on their shares. There is no minimum share capital requirement.
In contrast to BC companies or Limited companies in other jurisdictions, an exempted company does not have to add “Limited” or “Ltd” to its name. The Exempted company can issue only registered shares, the issuance of bearer shares or negotiable certificates was outlawed under the Companies Act.
Exempted, ordinary resident, or non-resident?
The exempted company has its distinctive features, different from other copmany forms available in the Cayman Islands.
Exempted company
Business is carried on mainly outside the Islands. Eligible for a tax undertaking. No requirement to hold an annual general meeting in Cayman. The register of members is kept by the registered agent. May adopt a dual foreign name in a non-Roman script. Cannot trade locally, subject to the exceptions below.
Ordinary resident company
Trades inside the Islands under the Local Companies (Control) Act. That ordinarily means a trade and business licence plus Caymanian ownership, or a licensing exemption. It files an annual return listing its members. This is the vehicle for a real Cayman operating business. It is rarely what an international client needs.
Ordinary non-resident company
Designated non-resident by the Financial Secretary. It does not trade locally either. But unlike an exempted company, it must file an annual list of members with the Registrar. It is a legacy form and sees little use at the moment. Where the choice is open, the exempted company wins on the tax undertaking and the members register.
The companies can be converted into other forms. An ordinary non-resident company can be re-registered as exempted. An exempted company can be re-registered as ordinary resident if the business later moves onshore.
The local business restriction of exempt companies
There are two restrictions applicable to the exempt company. First, it may not carry on business in the Islands except so far as necessary for functioning of its business outside Cayman Islands. And second, it may not invite the public in the Cayman Islands to subscribe for its securities.
There are no other restrictions. An exempted company may:
- hold board and shareholder meetings in the Cayman Islands
- maintain its registered office and statutory records in the Cayman Islands
- engage Cayman lawyers, auditors, administrators and corporate services providers
- open and operate accounts with Cayman banks
- hold shares in other Cayman companies
- do business with other exempted entities
In other words, the restriction applies to business activity in the Cayman Islands market and is not applied to actual administration of the company in the Cayman Islands.
Taxation
An exempted company can apply under the Tax Concessions Act for a written undertaking from the Cayman Islands Government. If tax is later introduced on profits, income, gains or appreciations, that legislation will not apply to the company or to its shares. The undertaking ordinarily runs twenty years from its issue.
There are three things that are often misunderstood about exempted companies:
The company needs to apply for exemption
The tax exemption status is not automatic. A company that never applies still pays no Cayman tax, because none is levied. However, it does not have protection against any future legislative changes.
The tax exemption is forward-looking
There is no Cayman corporate income tax, capital gains tax or withholding tax to be exempted from today. The undertaking covers what might come at a later stage.
It applies only on the territory of the Cayman Islands
The tax exemption is applicable only in the Cayman Islands. It does not relieve the company or its shareholders from controlled foreign company rules, corporate residence tests based on central management and control, or hybrid mismatch rules in the country where the beneficial owner lives. It is always important to get tax advice in all the jurisdictions.
Beneficial Ownership Reporting
A Cayman exempted company must keep records of the beneficial owners. This information is uploaded and shared on a secure platform. The platform is run by the Cayman Islands Government through a competent authority. This enhances transparency about the ownership and control of Cayman exempted companies.
A person is considered a beneficial owner if they own or manage over 25% of the company’s shares. This also applies if they influence key actions through voting rights. The information on beneficial owners is not available publicly in the Cayman Islands. Cayman authorities can use the information for law enforcement. Also, it is used to share tax information to international standards.
Corporate governance of exempted companies
The exempted companies have reduced requirements to corporate governance compared to companies in major high tax jurisdictions.
No AGM requirement
An exempted company need not hold an annual general meeting in the Cayman Islands. Where the articles require one, it can be held anywhere in the world or dealt with by written resolution.
The register of members stays private
It is kept at the registered office and is not filed with the Registrar. Branch registers can be maintained outside the Islands.
The register of directors is filed with authorities
The register of directors and officers is filed with the Registrar. The Registrar then makes a list of directors available for inspection on payment of a fee, using the Cayman Islands company search. Any claims that Cayman directors are anonymous are out of date.
Beneficial ownership is reported
The Ultimate Beneficial Owner’s particulars go to the corporate services provider, which files them to the Government’s centralised platform under the Beneficial Ownership Transparency Act. The platform is not public. Competent authorities can access it, and since February 2025 so can applicants granted access on legitimate interest grounds. Detail is on our Cayman Islands company formation page.
Dual foreign name
An exempted company may adopt an additional name in a non-Roman script. It goes on the register alongside a translated name that meets the ordinary restrictions. Useful for groups operating in Chinese, Japanese, Arabic or Cyrillic-script markets.
Specialised forms of exempted company
An exempted company can take several further forms. Each has its own Part of the Companies Act.
Segregated portfolio company (SPC)
One legal entity, divided into segregated portfolios. The assets and liabilities of each portfolio are ring-fenced from the others and from the company’s general assets. They are often used by multi-strategy funds. They are also used in captive insurance cells and platforms where investors in one cell must be insulated from losses in another. The name of such a company must carry “SPC” or “Segregated Portfolio Company”. Each portfolio must be identified in dealings with third parties.
Exempted limited duration company (LDC)
Duration is limited by the articles. The usual reason is US check-the-box partnership treatment. The name must end with “Limited Duration Company” or “LDC”.
Special economic zone company (SEZC)
Registered to operate inside a Cayman special economic zone. That permits a physical presence and local employment an ordinary exempted company could not sustain. The name must carry “SEZC” or “Special Economic Zone Company”.
Company registered without “Limited”
Available under section 80 where the company promotes commerce, art, science, religion, charity or a similar object and applies its profits to it. This is the route for non-profit and philanthropic structures.
Share capital and share premium
Authorised capital can be denominated in any currency, or in several currencies. Shares can be issued with or without par value, but cannot be both at once in the same company.
It is possible to issue shares with different classes that carry different rights. Shares can be partly paid, redeemable, or held as treasury shares. Bearer shares are prohibited.
The share premium account is possible and distributions from the share premium are allowed. Any shares issued over their nominal (par) value get the difference credited to the share premium account. Funds in the share premium account can be used to pay dividends, bonus shares, or early expenses. It gives real flexibility compared with jurisdictions where distributions must come out of accumulated profits. However, there is one condition. Immediately after distributions, the company must be able to pay its debts as they fall due in the ordinary course of business. This solvency test must be carried out and signed by the directors. A director who knowingly authorises a distribution in breach of that requirement commits an offence carrying a fine and imprisonment.
A Cayman exempted company must keep proper books of account. The books of account can be kept anywhere in the world, and not necessarily in the Cayman Islands.
The uses of exempted companies
Investment funds. The dominant use by some distance. Open-ended funds register under the Mutual Funds Act, closed-ended funds under the Private Funds Act, both supervised by CIMA. The exempted company is the standard vehicle, frequently used as an SPC.
Holding companies. Group structures holding shares, intellectual property or real estate across several jurisdictions. Tax neutrality at the holding layer avoids stacking another layer of tax between operating subsidiaries and ultimate owners.
Special purpose vehicles. Securitisations, asset-backed finance, project finance. What matters here is legal separation and bankruptcy remoteness.
Joint ventures. Parties from different jurisdictions need neutral ground. Cayman offers English common law and a final appeal to the Privy Council.
Pre-IPO structures. Cayman exempted companies list on major international exchanges. They are also an established form for share option plans ahead of a listing.
Points to consider before choosing this structure
The exempted company can be a very attractive structure for certain purposes. Below are the points to consider:
Annual Expenses
Annual government fee, registered office and corporate services fees, compliance work. For a small structure the running cost can outweigh the benefit.
Economic substance
Every Cayman entity files an economic substance notification annually. Carry on a relevant activity and the substance test and an economic substance return apply too. Our guide to the Cayman Islands economic substance requirements covers what is in scope.
Home-country treatment
Cayman tax neutrality says nothing about the position where the owner lives. This is the most common source of difficulty by far. It is a question for a local adviser before incorporation, not after.
Counterparty perception
Some banks and commercial counterparties apply extra scrutiny to offshore structures. Therefore, the structure needs a commercial rationale you can articulate.
An LLC might suit better.
Where the parties want member-managed governance and contractual freedom rather than a board and share capital, a Cayman Islands LLC is often the right call. Particularly for US-facing fund general partners and carry vehicles. Other jurisdictions might be considered, such as BVI. See more detalis in our BVI vs Cayman Islands company guide
Legislative sources
- Companies Act (2026 Revision) — Part 7 (exempted companies), Part 8 (exempted limited duration companies), Part 8A (special economic zone companies), Part 14 (segregated portfolio companies), Part 15 (prohibition on bearer shares), plus the provisions on name restrictions, share premium, registers and annual filings
- Local Companies (Control) Act (2025 Revision) — resident and non-resident designations
- Tax Concessions Act — undertakings in respect of future taxation
- Beneficial Ownership Transparency Act and its Regulations, including the Legitimate Interest Access Regulations, 2024
- International Tax Co-operation (Economic Substance) Act
- Mutual Funds Act and Private Funds Act — fund registration and CIMA supervision
Current texts are published at Cayman Islands Legislation.
Disclaimer
This article is general information, not legal or tax advice. Cayman Islands legislation is revised periodically and revised editions supersede their predecessors, so the citations above may be overtaken. Verify the current text before relying on anything here.
