US Expatriate Tax Filing and Cayman Islands Living

By Expat News

The Cayman Islands are one of the most popular vacation destinations for expats from all parts of the world. The territory consists of three islands of Grand Cayman, Cayman Brac and Little Cayman. For many years the Cayman Islands have been considered a major offshore financial center. The territory is the fifth largest banking center in the world with 1.5 trillion in banking liabilities. It is quite common to receive a request for from 5471 as well as 3520 form from American expats in the Cayman Islands. The territory does not levy any taxes on personal income. Cayman Islands living might look like a paradise. However, American expats still have to file US expatriate tax returns and comply with other US filing requirements.

Do you offer US expat tax preparation services to US expatriates working in Cayman Islands? How Cayman Islands living affects my US tax situation? Should American expats file US expatriate tax returns if they are not subject to a personal income tax as US expats in the Cayman Islands? These are most common questions from our clients in Cayman Islands.

Cayman Island Living and Expat Tax Returns/Rules

Americans working in the Cayman Islands must realize that US citizens and green card holders are taxed on their worldwide income. It means that American expats are subject to US expat tax filing requirements even if they have income only from the Cayman Islands. Consequently, American expats are required to file US expatriate tax returns and report their worldwide income.

American expats should take advantage of several exclusions per IRC section 911 to minimize US expat tax liability.

  • Foreign earned income exclusion. American expats can exclude up to $101,300 in a tax year 2016 if they can claim either the bona fide residence test or physical presence test.
  • Foreign housing exclusion. US expatriates can exclude or deduct some foreign housing expenses like rent, utilities as Cayman Islands living might be expensive.

American expats in Cayman Islands might be required to file the FBAR if the aggregate value of foreign financial assets exceeds $10,000 at any time during the year may be required to file the FBAR. The form TD F90-22.1 must be received by June 30 and no extension is allowed.

Tax system in Cayman Islands – FAQ

I am an American expat in Cayman Islands. What should I know about income taxes in Cayman Islands when I file US expatriate tax returns?

Cayman Islands does not levy taxes on income, capital gains, dividends, royalties, wealth or transfers. This rule applies both to residents and nonresidents. This is one of the major advantages of Cayman Islands living. Moreover, there is no sales tax or value added taxes.

Are there any additional taxes in Cayman Islands?

– Every employer must make pension contributions to a registered Cayman Islands pension plan for its employees per the Cayman Islands’ National Pensions Law as a part of Cayman Islands living.

Do the Cayman Islands have a double-taxation agreement with the USA?

The territory does not have either an income tax treaty or social security agreement with the USA.

Did the Cayman Islands sign the FATCA agreement with the USA?

As of November 2013, the Cayman Islands signed the FATCA with the USA. To read more about the Cayman Islands FATCA, please click the highlighted link.

These are some of the basic overseas tax issues that American expats in Cayman Islands should review before exploring the Cayman Islands living.


American expats must seek help of an expat tax CPA that specializes in US taxes for expats if they need help with overseas tax issues like FBAR, FATCA, as well as US expatriate tax filing. International tax experts at Artio Partners are here to help you.