The Cayman Islands are considered by many market
participants to be the leading offshore jurisdiction for the
establishment of SPVs in structured finance transactions. The
key reasons for this are that the Cayman Islands are tax
neutral, have a well developed legal system for structured
finance transactions including a creditor friendly insolvency
regime and non intrusive regulation, have low country risk and
have established a reputation for having professional,
responsive and cost efficient service providers, and also have
a long established history as an offshore jurisdiction in the
Is there a specific type of SPV?
An SPV is usually incorporated as an exempted limited
liability company with a share capital. The term
exempted reflects the exemption of the company from
certain requirements of the Companies Law (2003 Revision) (the
Companies Law) granted by virtue of an undertaking by the
relevant company not to conduct business in the Cayman Islands
and the availability to the company of an undertaking from the
government not to impose any taxes on the company for a period
of up to 30 years in the unlikely event of their introduction
in the future.
Exempted companies may also take the form of limited
duration companies or companies limited by
guarantee which possess the relevant criteria to enable
the SPV to be treated as a partnership in certain other
jurisdictions (such as the US) for tax purposes, thus enabling
the shareholders (where the SPV is not owned by a charitable
trust) to benefit from the related tax transparency.
Unit trusts and limited partnerships are also used as
alternative vehicles where participation in a unit trust or
partnership is more attractive to investors for tax and/or
In addition, the Companies Law now permits an SPV to be
registered as a segregated portfolio company. This corporate
structure allows the company to create one or more segregated
portfolios or cells to separate the assets and liabilities held
within one portfolio from those held within another portfolio
and/or to separate any assets and liabilities of the company
that are not held within a segregated portfolio from those
which are. Essentially this amounts to statutory ring-fencing
and accordingly may be attractive for a multi-issue vehicle
either as a statutory reinforcement of the usual contractual
ring fencing or in circumstances where contractual ring fencing
What is the timing for setting up an
A new company can be incorporated on a same day basis. The
certificate of incorporation and stamped constitutive documents
evidencing the company and its incorporation will be received
from the Registrar of Companies within 24 to 48 hours of
filing, if requested on an express basis, for which a higher
fee is payable, or within two to five business days, if not.
The date of incorporation is, however, the date of filing. Due
to the speed of incorporation, shelf companies are rarely
What is the cost of setting up an SPV?
The usual cost of setting up a standard SPV is approximately
$2,000 to $2,500.
This cost includes the fee payable to the Cayman Islands
government on incorporation, the cost of obtaining the tax
exemption certificate, fixed incorporation fees, registered
office fees for the remainder of the year of incorporation and
ancillary disbursements such as stamp duty, register of
directors filing fees and so on. This does not include fees for
the provision of legal advice in connection with any structured
finance transaction into which the SPV may enter. Such costs
obviously vary on a transaction-by-transaction basis depending
on its complexity.
What is the procedure for setting up an
Assuming that the SPV is being set up with a view to enter
into a structured finance transaction as an orphan vehicle
where the voting shares will be held by a licensed trust
company under the terms of a charitable trust, then the normal
procedure is for the arranger or onshore lawyer to contact
Maples and Calder or another incorporator in the Cayman Islands
with the request to incorporate. Subject to the usual
know-your-customer and due diligence checks, the only
information required to incorporate the SPV (assuming standard
constitutive documents) is the name of the company. In due
course shares of the SPV will be transfered to the local trust
company which is going to act as share trustee, directors of
the SPV provided by such trust company will be appointed and
the necessary trust and adminstration documentation will be put
in place prior to or simultaneously with, the entry into the
relevant structured finance transaction. No regulatory
approvals are required to set up an SPV.
Is the SPV subject to taxation?
No taxes are imposed in the Cayman Islands upon an SPV.
There are no forms of corporation, income or capital taxation
whatsoever whether direct (on the SPV or holders of securities
issued by the SPV) or indirect (by way of withholding on
payments made by the SPV).
As mentioned previously, an exempted company is entitled to
receive an undertaking from the government that no law enacted
in the Cayman Islands imposing any tax of any nature (other
than stamp duty) shall apply to the company for a period of up
to 20 years at the first instance, but usually renewable for a
further 10 years upon expiry.
Minimal stamp duty may be payable on documents executed or
brought into the Cayman Islands but typically a transaction
would not require this.
Are there any exchange controls?
There are no foreign exchange controls in the Cayman
Are SPVs subject to regulation?
There are no restrictions or regulatory requirements
applicable to an SPV lending, borrowing or issuing debt
securities (none of these activities, for example, constitute
banking business requiring the SPV to be licensed as a bank),
except with certain insurance related products or where the SPV
is conducting securities investment business (broadly defined
along the same lines as regulated activities under the
UK's Financial Services and Markets Act 2000 although with
wider exemptions such that a structured finance SPV is unlikely
to be required to be regulated with respect to the carrying on
of securities investment business). Generally most credit
derivative transactions are structured so that they do not fall
within the definition of insurance business requiring
Do the Cayman Islands have in place internationally
compliant systems for dealing with money laundering and tax
The Cayman Islands do have in place internationally
compliant anti-money laundering legislation and have
through the OECD to enter into tax information exchange
agreements on a bilateral basis with OECD members aimed at
eliminating criminal tax evasion.
In addition, the Cayman Islands have recently committed to
further assist international efforts aimed at eliminating tax
evasion by committing to automatic exchange of information with
EU member states by implementing similar measures to the EU
Can securities issued by an SPV be listed locally on
a stock exchange?
Yes, the Cayman Islands Stock Exchange (CSX) is one of the
fastest growing international stock exchanges and is considered
by many to be the leading offshore stock exchange. The CSX's
listing rules have been designed specifically to facilitate the
listing of asset-backed securities, eurobonds and depositary
receipts. In US style collateralized bond obligations the
preference shares in the SPVs have also been listed and the CSX
has developed rules specifically to facilitate this and the
listing of other equity products.
The CSX is an associate member of the International
Organization of Securities Commissions (Iosco) and has recently
been designated as a recognized stock exchange by the Board of
the UK Inland Revenue. As a result debt securities listed on
the CSX can satisfy the Quoted Eurobond exemption
which allows payments by a
UK paying agent to be made gross without deduction of UK
withholding tax. Securities listed on the CSX are also
recognized as qualifying investments for PEP and ISA
savings purposes and UK pension schemes can hold securities
listed on the CSX.
More information on the CSX can be found at its website
(www.csx.com.ky) which includes an electronic copy of the
Are the Cayman Islands politically
The Cayman Islands are a British Overseas Territory and as
such are the responsibility of the British government in
London. However, for all practical purposes they are governed
under a constitution that gives executive and legislative power
to a governor, an Executive Cabinet and a Legislative Assembly.
The Cayman Islands therefore enjoy a large measure of
self-government. The Cayman Islands enjoy stable government and
there is no desire for independence from Britain. The Cayman
Islands have a rating of Aa3 from Moody's.
Do the Cayman Islands have a well-developed legal
The substantive law of the Cayman Islands is based on
English common law with the addition of local statutes that
have in many respects modified and modernized the common law.
The Cayman Islands have a sound legal and judicial system which
is constantly being upgraded to meet the demands of the
Do the Cayman Islands have a pool of experienced
financial and legal professionals?
This is one of Cayman's biggest strengths. In legal,
accounting and financial services, the Cayman Islands have a
large and experienced pool of professionals, many of whom have
been trained in and who have practised in the world's leading
onshore financial centres.
About the authors
After graduating from Edinburgh University, Alasdair trained
and then practiced at Clifford Chance in the debt and equity
capital markets group in both London and Hong Kong before
joining Maples and Calder Asia in Hong Kong. Alasdair relocated
to the Cayman office of Maples and Calder in 2001.
Alasdair specializes in the areas of corporate
securities, in particular CDOs and other structured finance
transactions as well as doing regulatory related work. He is a
member of the Law Societies of England and Wales, Scotland and
the Cayman Islands and is admitted as a solicitor in Hong
Telephone: (345) 814 5345
Rebecca joined Linklaters after graduating from Oxford
University. She worked in their London and New York offices,
predominantly specializing in capital markets. She joined
Maples and Calder in 1994 and became a partner in 1999.
Rebecca specializes in capital markets and structured
finance transactions, banking and joint ventures. She is a
member of the Cayman Islands Law Society.
Telephone: (345) 814 5333