Welcome to the DAO Legal Guide focusing on the Cayman Islands Foundation, an integral segment of the Pontinova Global Top 100 DAO Legal Report.
Delve into this comprehensive guide to gain insights into the legal set up requirements and the regulatory compliance framework surrounding Cayman Islands Foundations. Explore the other jurisdictions to understand why they excel at fostering DAO initiatives and navigating the intricacies of decentralized governance structures.
Suits best for Protocol DAO
Governance Robustness ⚫⚫⚫⚫⚫
Ease of Setup ⚫
Asset Protection ⚫⚫⚫⚫⚫
Community Involvement ⚫
Legal
CI Foundations are incorporated under the Foundation Companies Law.
Constitution
Memorandum of Association, Articles of Association, one or more Founders who can be either individuals or companies and do not need to be residents of the CI.
Regulatory Board
Cayman Islands Monetary Authority (CIMA)
Administration, Management
Secretary who is licensed or permitted to provide company management services in the CI according to the Companies Management Act (2021), Registered Office at the secretary’s business address, Bank Account within or outside the CI, Board of Directors which consists of one or more persons who can be either individuals or companies and do not need to be residents of the CI.
Reporting, Accounting, Auditing
Accounting is mandatory, Reporting and Auditing are not mandatory. How-ever, persons registered or licensed under the VASP Act are required to undertake and submit annual audits of their Anti-Money Laundering (AML) systems and procedures at the request of CIMA. Moreover, the registrant or licensee must make sure its senior officers and beneficial owners are fit and proper persons.
Please note that no minimum capital is required to set up a CI Foundation. However, a Foundation is required to pay the annual registry fees in January of each year of USD 854. The calculation of the incorporation fees should include legal consulting fees as well as the registry fee of USD 609. The incorporation duration is about 4 weeks.
Taxation
No corporation tax, capital gains tax, wealth tax, or any other tax is applicable to CI Foundations.
In May 2020, the Cayman Islands introduced the Virtual Assets Service Providers Act. Hereunder, a “virtual asset” is broadly defined as a digital representation of value that can be digitally traded or transferred and can be used for payment or investment purposes. “Virtual service tokens”, such as utility tokens, as well as digital fiat currencies are not considered virtual assets.
Virtual Assets Service Providers Act [P, A / VA I]
Applicable to issuers of virtual assets who are required to register with CIMA.
Mutual Funds Act and Private Funds Act [A / VA I]
Applicable to open-ended funds, if the entity operates as investment fund and issues virtual assets, because these are defined as “equity interest” and need to be registered or licensed under MFA. The Private Funds Act may apply mutatis mutandis to closed-ended funds. Open-ended funds, such as Exchange Traded Funds (ETFs), allow investors to buy and sell shares at any time, while closed-ended funds have a fixed number of shares and trade on an exchange like stocks.
Virtual Assets Service Providers Act [P, A / VA S]
Applicable providers that provide (a) virtual asset custody, (b) virtual asset trading platform, or (d) virtual asset financial services. Virtual asset custodians and trading platforms require a license, while virtual asset financial services require registration. However, CIMA may grant a sandbox license for a maximum of one year to an applicant that utilizes innovative technologies or provides innovative activities. Please note that a non-refundable assessment fee of USD 1’220 is payable at the time of application for license or registration. The application fee of between USD 1’220 and USD 18’500 – less the assessment fee – is payable by a successful applicant. The amount of the application fee will be determined by CIMA based on factors such as the type of virtual asset services business to be conducted and CIMA's assessment of the nature, size, scope, and complexity of the applicant's virtual asset services. The annual renewal fee is equal to the application fee and is due to CIMA by January 15 of each subsequent year. The license and registration duration are about 6 to 9 months. VASPs carrying on business without being registered or licensed are liable on summary conviction to a fine of USD 25’000- and 1 year imprisonment.
Securities Investment Business [A / VA S]
Applicable, if the virtual asset is a “security”. Virtual assets are securities that can be sold, traded, or exchanged immediately or at any time in the fu-ture and that (a) represent or can be converted into another form of tradi-tional securities, or (b) represent a derivative of traditional security. CIMA may exempt an applicant from registration or licensing under either SIBA or VASP Act. However, an applicant must first apply under either law before having this exemption granted. The application fee is USD 610. The annual fee is USD 2,000 to USD 10,000 depending on the activities provided.
Money Services Act [P / VA S]
Applicable, if the virtual assets service is classified as “money services business”, which would apply if the virtual assets were primarily used to facilitate the transfer of fiat currency from one party to another, or the conversion between fiat currencies. Any entity carrying on such money services business in or from the CI must get licensed by CIMA.
Proceeds of Crime Act and Anti-Money Laundering Regulations [P, A / VA S]
Applicable to all VASPs operating within CI because virtual asset services are “relevant financial business”.
Foreign Account Tax Compliance Act and Common Reporting Standard Regulations [P, A / VA S]
Applicable to all VASPs operating within CI.
Check the other DAO Jurisdictions:
• Switzerland - Foundation
• Switzerland - Association
• Liechtenstein - Foundation
• Lithuania - Private Limited Liability Company
• Marshall Islands - DAO (Non-Profit) Limited Liability Company
• British Virgin Islands - Limited Liability Company
• Abu Dhabi ADGM - Distributed Ledger Technology Foundation
• Ras Al Khaimah Digital Assets Oasis - DAO Association
