Choosing the right jurisdiction for your innovative business can be a difficult decision. With many prime locations and various complex regulatory and tax requirements to sift through, the decision can seem overwhelming. In this article, we will compare two attractive destinations: the Cayman Islands and Panama.
The Cayman Islands Free Zones are an excellent choice, as recently recognized by fDi Magazine’s Global Free Zones of the Year awards. Winning five awards and ranking 5th overall, the Cayman Free Zones offered by Cayman Enterprise City are an attractive option. But it takes more than rewards to earn your investment or business interest, and Cayman isn’t the only choice. Let’s take a close look at the differences between Cayman and Panama, what makes the Cayman Islands the best place for your business and why it’s considered a better option compared to other tax-friendly destinations like Panama.
Cayman is rooted in UK law but offers opportunities in the US
Established in 2012, Cayman Enterprise City (CEC) and its free economic zones are increasingly attracting innovative and knowledge-based businesses with the ease of setting up their offshore operations. CEC makes it easy for businesses to establish a true physical presence in one of the most stable and transparent offshore jurisdictions in the world. As a British Overseas Territory, it is a stable country both politically and economically, thanks to a legal system rooted in English common law. Being just an hour from the United States by plane and in close time zones, businesses get the best of both worlds in Cayman – American opportunities, with the stability and protections offered by British laws.
Also of note is the Cayman Islands Index of Economic Freedom – which is a global scale that ranks countries in 5 areas including size of government, freedom of international trade, regulation or business, credit and work, along with legal structure and access to money – ranks 30th. Panama is even lower at 55th – a substantial margin. Cayman ranks as a safe and highly developed metropolitan area, attractive not only to do business, but also to live in.
Problems with Panama’s regulatory standards
In Panama, a major problem continues to be the lack of regulatory standards and compliance with tax and regulatory bodies in other countries. Secrecy and corruption have been debated since the leak of the Panama Papers. For Panama, many businesses are reduced to private wealth and wealthy individual funds that are often tied to illegal activities and corruption.
Caymans, however, abide by UK tax laws and rules, being part of the territories of the British Virgin Islands, and are adamant about staying on the right side of the law by adhering to international standards for tax transparency and exchange of information – which is somewhat problematic with Panama. Cayman Islands was also recently removed from the EU’s list of non-cooperative tax jurisdictions. In a statement from early October, the European Commission said the Cayman Islands had “delivered on their ongoing commitments to remove a harmful tax regime and increase tax transparency respectively”. Panama, meanwhile, continues to be listed, along with Vanuatu and Anguilla, for its continued encouragement of abusive tax practices that perpetuate tax evasion, tax evasion and money laundering.
Higher standard of living in Cayman (but higher cost of living too)
When it comes to standard of living, the Cayman Islands rank very high. In fact, it has the highest standard of living in the Caribbean thanks to the bustling business sector and well-established financial industry in the region. The infrastructure is well developed, with excellent health and education systems, and no restrictions on land ownership. Couple that with consistent year-round temperatures and pristine sandy beaches, and Cayman is a dream location for many.
But this, of course, costs more, especially compared to Panama, by 124%. But the most drastic difference in lifestyle is in the salary comparisons, with the average Cayman resident earning about 8 times their Panamanian counterpart. The GDP per capita of the two countries offers additional insight, with the Cayman Islands’ GDP per capita at $81,124, while that of Panama is just $15,575. This indicates that the Cayman Islands enjoys a higher standard of living across all sectors despite the higher cost of living.
A safer place for your business
With a higher standard of living also comes a much safer place. The Cayman Islands government has the resources and infrastructure to enforce local laws, which has led to a steady decline in crime rates since 2017.
The Cayman Islands are now often cited as one of the safest places in the Caribbean and have exceptionally low crime rates according to the 2019 Crime and Safety Report. Panama still has high crime rates and gang-related crimes in low-income areas, including violent crimes like shootings and armed robberies.
Tax freedom can only truly be achieved in Cayman Islands
Although often cited as a tax-friendly location, Panama is not truly tax-free like Cayman. Residents of Panama are responsible for a personal income tax rate of 25% and a corporate tax rate of 25%, even if you are a foreign company. The only way to truly avoid tax in Panama is to only conduct offshore business.
In the Cayman Islands, however, your business can enjoy true tax freedom, as there are no corporate or direct resident taxes, including no taxes on income, property or capital gains. capital. It is a completely tax-neutral territory that welcomes and accepts new businesses from all sectors.
Direct investment thrives in the Cayman Islands
Not only is CEC and the Cayman Islands a thriving economy due to the number of entrepreneurs finding their way, but the diversity of businesses attracts a high volume of Foreign Direct Investment (FDI).
The total stock of FDI in 2019 was $515 billion, making the Cayman Islands and the CEC the most active offshore financial center in the world and, as many of these investments have been in financial services, it is It is also the 8th largest banking center in the world.
The CEC now offers incentives to those who wish to invest and create local industries. Coupled with a strong legal framework, a well-developed financial and banking industry, and access to professional service providers, all of this makes the Cayman Islands the better choice over Panama.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.