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Special purpose vehicles get special tax treatment in the Cayman Islands writes James P Lawler of Wilmington Trust.
In today's global economy, corporate managers must make the most of available opportunities, wherever they are in the world.
For asset-financing transactions, which frequently have a myriad of tax, legal, and financial issues associated with them, creating a special purpose vehicle (SPV) is frequently the ideal approach. Establishing this SPV in the Cayman Islands, meanwhile, may enhance the associated benefits.
As the name suggests, an SPV is an entity created to engage in a specific transaction, most commonly for asset acquisition, leasing, and securitisation. Various structures may be used, including corporations, trusts, partnerships, and limited liability companies. Often, the documents creating the SPV contain language that clearly limits permissible activities. For example, the individuals managing the SPV might be prohibited from engaging in any unauthorized transactions, such as taking on additional debt or disposing of assets.
An SPV may be formed in many jurisdictions, but the Caribbean's Cayman Islands are gaining favor. The legal talent available in the Cayman Islands, a British Overseas Territory, ranks among the best in the world, including many attorneys who were educated and have practiced in the United Kingdom. For sophisticated asset financing transactions, conducting business in the Caymans is akin to doing business in New York or London.
The political and economic stability of the Cayman Islands is certainly appealing to corporations wishing to sponsor SPVs. The Cayman legal structure allows companies to raise capital off of their balance sheets, often at lower costs, and SPV activities may be insulated from claims of potential creditors.
While other jurisdictions also offer the opportunity to create SPVs, these rival venues may be more closed to outsiders, with fewer world-class law firms. Plus, banking and trust structures may not be as easy to arrange as they are in the Caymans.
There are many other advantages to operating in the Caymans. Fees are generally modest, and the legal and regulatory framework is extremely flexible.
Red tape is also minimal: No governmental authorizations or licenses are necessary in order to establish an SPV in the Cayman Islands. Incorporation generally takes less than 24 hours once the process is underway, and costs are modest. To...