In late March 2020, we published a note regarding the de-facto “downgrade” of the Cayman Islands by the European Union’s Economic and Financial Affairs Council (ECOFIN) as a “non-cooperative jurisdiction” for tax purposes. This was regarded by the international investment community as a “blacklisting” of the Cayman Islands. We noted then that this blacklisting was “a technical result of the delay in the enactment of [certain Cayman Islands] laws, and therefore it is expected the EU will agree to return the Cayman Islands to its previous status and remove it from the list of ‘non-cooperative jurisdictions’ by as early as October 2020.”
Indeed, on October 6, 2020, ECOFIN removed the Cayman Islands from its “blacklist” of non-cooperative jurisdictions in tax matters. ECOFIN has graded Cayman as a cooperative jurisdiction with respect to tax good governance, endorsing the assessment of the EU’s Code of Conduct Group (Business Taxation) that Cayman has addressed the outstanding concerns previously raised by the EU. Thus, the Cayman Islands can safely remain one of the most preferred fund formation jurisdictions of the Israeli private investment funds industry.
Challenges in Establishing New Private Investment Funds in 2020
However, over the course of the last few months, we, and other fund formation professionals, have encountered a new, albeit temporary, challenge when forming investment funds in the Cayman Islands. This has slowed down fund formations by a month or two. In February 2020, the Cayman Islands government enacted legislation requiring closed ended funds (such as VC funds and private equity funds) to register with the Cayman Islands Monetary Authority (CIMA). This legislation is a result of certain EU and other international recommendations designed to align the Cayman Islands investment fund regulatory regime with other jurisdictions. The deadline for such registration was early August 2020. CIMA was (and still is) overwhelmed by the sheer number of funds requesting to be registered. (According to our Cayman Islands sources, the approximate number of such funds is over 18,000.)
COVID–19’s Consequences on Employee Productivity
The coronavirus pandemic continues to force CIMA employees to work from home, resulting in unprecedented delays in the registration of new funds (including hedge funds). The good news, however, is that once CIMA overcomes this deluge of fund registration applications, Cayman fund formation schedules are expected to return to normal, i.e., to highly efficient and swift levels.