Cayman information exchange and U.S. trust reporting

Cayman Islands information exchange and registration rules sit alongside IRS reporting regimes for U.S. persons connected with foreign trusts.

Cayman information exchange frameworks

The Cayman Islands Department for International Tax Cooperation lists laws, regulations, agreements, guidelines, reportable jurisdictions, and self-certification forms under its CRS resources.^[2]

The Cayman Islands has a Model 1 FATCA intergovernmental agreement with the United States, which Treasury lists as In Force.^[3]

Cayman trust business is subject to licensing or registration and ongoing supervision by the Cayman Islands Monetary Authority.^[1]

Registration of exempted trusts with the Registrar of Trusts is covered on the Cayman trust tax and reporting page.^[2]

U.S. reporting connected with foreign trusts

IRS materials say information reporting can apply to a U.S. person who enters into a transaction with a foreign trust, is treated as its owner, or receives a distribution. The IRS describes U.S. persons to include U.S. citizens and residents.^[5]

Form 3520 covers specified transactions with foreign trusts and ownership under the grantor trust rules. IRS materials list creating or funding a foreign trust, receiving distributions or certain loans, and being treated as its U.S. owner among the circumstances that can require the form.^[5]

For a foreign trust with a U.S. owner, Form 3520-A is its annual information return. The IRS says the U.S. owner must ensure the trust files it and provides annual statements; if the trust does not file, the owner files a substitute with Form 3520 and furnishes the required statements.^[5]

The IRS also identifies Form 8938 for specified foreign financial assets when their total value exceeds applicable reporting thresholds. FBAR reporting may apply when a person has a financial interest in or signature authority over a foreign financial account, including a trust account.^[5]

The IRS treats these as distinct reporting regimes. Its materials state that exceptions from Forms 3520 and 3520-A do not remove any applicable Form 8938 or FBAR obligation.^[5]

Cayman Islands treaty and FATCA position

The United States does not have an income tax treaty with the Cayman Islands.^[4]

The IRS describes treaty provisions as potentially reducing or exempting tax on specified income, depending on the country, the income, and the treaty's terms. It describes rules for residents of foreign countries receiving U.S. source income and for U.S. residents or citizens receiving certain foreign source income. When no treaty applies or a treaty does not cover an income type, the IRS says tax is paid under applicable U.S. return instructions and rates.^[4]

Treasury describes FATCA as requiring foreign financial institutions to report account information to the IRS when accounts are held by U.S. taxpayers or by foreign entities in which U.S. taxpayers have a substantial ownership interest. Treasury describes intergovernmental agreements as arrangements used in connection with financial institution reporting under FATCA. Institutions may register directly with the IRS or comply with FATCA agreements treated as in effect in their jurisdictions.^[3]

Treasury publishes model intergovernmental agreements to improve tax compliance and implement FATCA. Its Model 1 entry for the Cayman Islands is a FATCA information reporting framework, distinct from an income tax treaty listing addressing tax treatment of particular income.^[3]^[4]

Questions and answers

What does Cayman Islands CRS information cover?

The Cayman Islands Department for International Tax Cooperation lists CRS-related laws, regulations, agreements, guidelines, reportable jurisdictions, and self-certification forms.^[2]

What FATCA agreement status does Treasury give the Cayman Islands?

Treasury lists the Cayman Islands agreement as Model 1, with status In Force.^[3]

When does Form 3520 relate to a foreign trust?

The IRS says Form 3520 can apply when a U.S. person creates or transfers property to a foreign trust, receives specified distributions or loans, or is treated as its owner under grantor trust rules. The form also covers certain gifts and bequests from foreign persons.^[5]

Who files Form 3520-A for a foreign trust with a U.S. owner?

The foreign trust files Form 3520-A and provides annual statements to its U.S. owners and beneficiaries. If it does not file, the IRS says the U.S. owner completes and attaches a substitute to the owner's Form 3520 and furnishes the required statements.^[5]

Can a foreign trust interest relate to Form 8938 or FBAR?

Yes. The IRS says Form 8938 may apply to specified foreign financial assets above applicable reporting thresholds. FBAR may apply when a person has a financial interest in or signature authority over a foreign financial account.^[5]

Related glossary terms

Section 679: Section 679 addresses certain transfers by U.S. persons to foreign trusts. It treats a U.S. person who transfers property to a foreign trust with a U.S. beneficiary as the owner of the portion of the trust attributable to that property.
Section 6048: Section 6048 sets information reporting rules for certain foreign trusts. Its parts cover notice of events, U.S. owner duties and beneficiary distributions.