Cayman Islands: New Payroll Tax Proposed Would Hit Expatriate Employees
Cayman Islands Premier McKeeva Bush announced on 25 July that the government was considering plans to introduce a “community enhancement fee,” a payroll tax on expatriate employees.1 The plan calls for implementing the payroll tax before the end of August. (All dollar figures expressed are Cayman Islands dollars.)
The new payroll tax would hit only individuals holding work permits and employed in the Cayman Islands who earn $20,000 or more annually. The new tax would not apply generally to Caymanians, non-Caymanian permanent residents, and non-Caymanian government contract holders.
In addition, under the proposals, the government would remove the current requirement that employers make a 5-percent contribution to the pensions of their expatriate employees. Currently, an employee holding a work permit must pay 5 percent of his or her salary into a Cayman Islands pension account and a matching 5-percent contribution from the employer must also be paid into that Cayman Islands pension account. Pensions are currently mandated for the first $60,000 of salary per year.
Rate of New Payroll Tax
In the event that an employer decides to pay a 50-percent portion of the new payroll tax, the effective tax rate would be 9.52 percent of the employee’s gross salary (that amount being split between the employer and the employee). If the employer chooses to forego contributing, then the effective rate that will hit the expatriate employee rises to 14.28 percent. It appears that the plan would impose no salary cap, but details on this are sketchy at this point and we await further clarification.
Budget Background and Reactions to Announcement
In order to pass and implement a budget, the Cayman Islands government must secure approval from the U.K. government. The Cayman Islands is a British overseas territory.
There have been some concerns about the condition of Cayman Islands public finances.
It was reported that the Cayman Premier believed that he “had no choice” except to introduce this new tax because the U.K. was demanding a sustainable budget.2
It was also reported that shortly after the Premier made the announcement in a 25 July public broadcast address, a social media Web page called “Caymanians and expats united against taxation” was created and 1,500 people had signed up as group members within three hours.3
The opposition leader Alden McLaughlin opposes the proposed measure.
Other Budget Measures
Premier Bush also announced for fiscal year 2012-2013, a 5-percent fee “on certain categories of employment” payable by businesses.
KPMG Note
Budget negotiations with the U.K.’s Foreign and Commonwealth Office are ongoing and it is not clear if this proposed payroll tax will survive those negotiations.
If the new tax is enacted, however, Cayman employers with expatriate employees in the Cayman Islands or foreign employers looking to send employees to the Cayman Islands may incur higher costs related to their expatriate employees in the Cayman Islands.
There could also be ‘knock on’ effects for recruitment and retention of top talent for industry in the Caymans.
Source: KPMG