Cayman Cryptocurrencies

Sales Regulation

Under the VASP Act, any issuance of virtual assets requires prior approval from CIMA, especially if it involves selling newly created virtual assets to the public for fiat currency or other consideration. There is a distinction between “public” and “private” sales, with different regulatory requirements. Direct issuances have a prescribed maximum threshold.

Entities operating as investment funds issuing digital assets may fall under the Mutual Funds Act or Private Funds Act, depending on the nature of the assets. Similarly, under SIBA, entities engaged in dealing with digital assets may require registration or licensing from CIMA.

Taxation

The Cayman Islands does not impose taxes on income, inheritance, gift, capital gains, or corporate profits related to digital assets. Stamp duty may apply to certain documents, but the amounts are generally nominal. Entities in the Cayman Islands can apply for tax exemption certificates that last for 20 to 50 years.

Money Transmission Laws and Anti-Money Laundering Requirements

Money transmission laws under the Money Services Act may apply to cryptocurrency transactions, depending on their nature. If digital assets are primarily used for transferring fiat currency, the legislation may apply. The Cayman Islands’ Anti-Money Laundering Regulations (AML Laws) impose obligations on entities conducting “relevant financial business,” which includes providing virtual asset services.

AML compliance officers, reporting officers, and risk-based monitoring are essential components of AML requirements. Specific AML-related guidance for VASPs has been issued by CIMA.

Promotion and Testing

The VASP Act introduced sandbox licenses for innovative fintech and virtual asset businesses. These licenses offer flexibility and exemptions, allowing CIMA to assess and regulate innovative businesses more effectively. The Special Economic Zone (SEZ) provides benefits to fintech companies, including streamlined processes and cost-effective work permits.

Ownership and Licensing Requirements

The Cayman Islands does not impose restrictions or licensing requirements specifically for owning or trading digital assets for personal use. However, VASPs must ensure that their beneficial owners are approved by CIMA.

Mining

Mining digital assets is not regulated or prohibited in the Cayman Islands. However, practical factors such as import duties on computing equipment and high electricity costs may deter significant mining operations in the jurisdiction.

Border Restrictions and Declaration

The Cayman Islands does not impose general border restrictions on the ownership or importation of digital assets. Currency declaration requirements do not apply to virtual assets.

Reporting Requirements

VASPs registered or licensed under the VASP Act must comply with various reporting requirements, including submitting audited accounts to CIMA annually, appointing compliance officers, and notifying CIMA of any license or registration in another jurisdiction.

Estate Planning and Testamentary Succession

Cayman Islands law treats virtual assets like other assets upon an individual’s death. Virtual assets can be bequeathed in a will or distributed according to intestacy rules. However, practical challenges may arise in accessing and transferring virtual assets without proper information and keys.

The Cayman Islands has created a regulatory environment that balances innovation in the cryptocurrency space with financial probity and transparency. Understanding and complying with the regulatory framework is crucial for businesses and individuals operating in the Cayman Islands’ cryptocurrency ecosystem.  For any questions, please complete the inquiry form below.