Cayman Islands Expat Tax
The Tax Samaritan country guide to Cayman Islands Expat Tax advice intends to provide a general review of the tax environment of the Cayman Islands and how that will impact your U.S. expatriate tax return as a U.S. Expat in the Cayman Islands.
As a U.S. taxpayer, all worldwide income is subject to taxation and reporting and for most expatriates you are required to file a U.S. tax return on an annual basis due on April 15 each year (June 15 if you are residing overseas on the April 15 deadline). The tax treatment for different classes of income can vary greatly from the Cayman Islands and the U.S. For example, certain benefits may be tax free or excluded from taxable income in the Cayman Islands, but in the U.S. these benefits are likely to be non-qualified benefits that are subject to being included as taxable income in U.S. As such, there are a number of considerations related to Cayman Islands Expat Tax and this brief article will address a few of those considerations.
US Expat Living In Cayman Islands
The Cayman Islands is a safe, clean and friendly place to live for expats and their families. And they speak English as well… This beautiful paradise is a great place to living for diving aficionados and beach lovers.
The Cayman Islands was previously seen as a tax haven for the wealthy, but with US FATCA that is no longer the case for US expats. However, a huge benefit is that there is no income tax, capital gains or corporation tax.
Below is a list of our top 10 most attractive Cayman Island cities for foreigners to reside in (in no particular order):
- Seven Mile Beach, Grand Cayman
- Camana Bay, Grand Cayman
- South Sound, Grand Cayman
- Prospect & Red Bay, Grand Cayman
- George Town, Grand Cayman
- Savannah & Lower Valley, Grand Cayman
- Cayman Brac
- Little Cayman
Cayman Islands Expat Tax
Who Is Liable For Income Taxes In The Cayman Islands
As far as Cayman Islands expat tax, there is no tax on income or capital gains for both residents and non-residents.
Cayman Islands Expat Tax Advice For Your US Expat Tax Return
When dealing with your US expat tax return in the Cayman Islands, there a number of preferential expat tax treatments that may benefit your U.S. expatriate tax return. In fact, for many U.S. expats it could reduce your U.S. taxes to zero.
Below is our Cayman Islands expat tax advice for your US expat tax return:
- If you are a U.S. citizen or a resident alien of the United States and you live in the Cayman Islands, your US expat tax return in the Cayman Islands is based on your worldwide income and as such you must file a U.S. return for all the years that you are residing in the Cayman Islands. However, as a U.S. expat you may qualify to reduce your U.S. taxable income up to an amount of your foreign earnings adjusted annually for inflation ($99,200 for 2014). In addition, you can exclude or deduct certain foreign housing amounts. This is known as the Foreign Earned Income Exclusion and foreign housing exclusion .
- When it comes to your US expat tax return in the Cayman Islands, most US expatriates worry about “double taxation” – paying taxes to two different countries – the U.S. and the Cayman Islands. A U.S. taxpayer working overseas in the Cayman Islands may be able to reduce U.S. taxable income and “double taxation” by claiming the Foreign Tax Credit on Form 1116. Should any foreign income not be fully offset by the foreign earned income exclusion, housing exclusion or housing deduction, the foreign tax credit paid or accrued may be used as a deduction or credit on the U.S. tax return. Taxpayers can elect to either deduct the taxes as an itemized deduction on Schedule A or claim a credit against tax. In most cases, it is to your advantage to take foreign income taxes as a tax credit.
A common but dangerous mistake is the assumption that if there are zero taxes owed with these tax benefits that a US tax return while living in the Cayman Islands does not need to be filed. That is not true. If you are working overseas, it is likely that you meet the filing requirements to file a tax return and must do so. It is important to note that these tax benefits, such as the foreign earned income exclusion and foreign tax credit do not apply to the outcome of your tax liability and tax return until they are claimed on a filed tax return. So, be sure to file your US expat tax return!!!
When it comes to Cayman Islands expat tax advice there are many tax items to consider, but the above are by far the most common tax benefits.
U.S.- Cayman Islands Tax Treaty And Cayman Islands Expat Tax
The U.S. does not have a tax treaty with the Cayman Islands and as a result there are no benefits for Cayman Islands Expat Tax from this perspective.
Cayman Islands Foreign Bank Account Reporting – The FBAR (FinCen Form 114)
Another important tax deadline that frequently applies to US expat tax in the Cayman Islands is in regards to the disclosure of foreign assets on the FBAR (Foreign Bank Account Report – Form 114 – formerly known as TD F 90-22.1).
The FBAR filing deadline is June 30th (or the preceding business day if June 30th falls on a weekend). Unfortunately, requesting an extension on your individual return does not extend the FBAR due date – there is no extension available for the FBAR deadline. Any reports filed after this date are considered a delinquent FBAR. In addition, the FBAR is different than many other tax forms in that it must be received by the deadline date (and not postmarked by the deadline date).
The FBAR must be filed with the Treasury Department (it is not filed with your federal income tax return) whenever you meet the FBAR filing requirements, which in a nutshell is whenever a U.S. person has a financial interest in, or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust or other type of foreign financial account (including an insurance policy with a cash value such as a whole life insurance policy) maintained with a financial institution, with an aggregate value of over $10,000 at any time during the calendar year based on the highest value of each foreign account during the tax year.
If you have bank accounts at Butterfield Bank, Cayman National Bank, Fidelity Bank, First Caribbean International Bank, HSBC, Royal Bank of Canada, Scotia Bank and Trust or at another bank in the Cayman Islands or any other foreign country, you may meet the filing requirement to disclosure your foreign accounts on the FBAR. Please don’t hesitate to contact Tax Samaritan to learn more about your filing requirements.
U.S. – Cayman Islands Social Security Totalization Agreement
The United States has entered into agreements, called Totalization Agreements, with several nations for the purpose of avoiding double taxation of income with respect to social security taxes. These agreements must take into account when determining whether any alien is subject to the U.S. Social Security/Medicare tax, or whether any U.S. citizen or resident alien is subject to the social security taxes of a foreign country. As of this time, the Cayman Islands has not entered into a Totalization Agreement with the United States thus there is no opportunity to avoid double taxation of social security income for US expat tax in the Cayman Islands. But alas, that is okay because there is no social security taxes in the Cayman Islands.
Click the button below to request a Tax Preparation Quote today to prepare your return for Cayman Islands Expat Tax or to request a free 30-minute tax consultation.
Tax Samaritan is a team of Enrolled Agents with over 25 years of experience focusing on Cayman Islands Expat Tax and other countries throughout the world. We maintain this tax blog to educate US taxpayers on their tax responsibilities and the selection of a tax professional. Our articles are also designed to help taxpayers looking to self-prepare, providing specific tips and pitfalls to avoid.
When looking for a tax professional, choose carefully. We recommend that you hire a credentialed tax professional such as Tax Samaritan that is an Enrolled Agent (America’s Tax Experts) that is experienced and knowledgeable about Cayman Islands Expat Tax. If you are a US taxpayer overseas, we further recommend that you seek a professional who is an expert in expat tax preparation, like Tax Samaritan (most tax professionals have limited to no experience with the unique tax issues of expat taxpayers).
Randall Brody is an enrolled agent, licensed by the US Department of the Treasury to represent taxpayers before the IRS for audits, collections and appeals and experienced with Cayman Islands Expat Tax. To attain the enrolled agent designation, candidates must demonstrate expertise in taxation, fulfill continuing education credits and adhere to a stringent code of ethics.
Every effort has been taken to provide the most accurate and honest analysis of the tax information and Cayman Islands Expat Tax Advice provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog does not intend to be a substitute for seeking professional Cayman Islands Expat Tax advice based on your individual needs.