Stepping-Up on Stamp Duties: Cayman Net News, April 29, 2009

The Lands & Survey Department has announced renewed monitoring, with effect from 1 May, the application of stamp duty on all purchase agreements and agreements for sale of real estate in the Cayman Islands.

To ensure compliance with stamping requirements, Lands & Survey will require that the stamped purchase agreement (or a statement confirming that no purchase agreement was signed) accompany every transfer of land submitted to the department.
In addressing the change of policy, Chief Valuation Officer Jon Hall acknowledged “the small additional administrative burden” posed through the new submission process.
He also noted, “The requirement to stamp purchase agreements is a longstanding requirement of the law. We suspect, however, that it has been largely ignored in recent years, and this policy will help to ensure that this requirement is met.”
Stamp duty is currently set at CI$100 per document (unless purchasers opt to pay stamp duty on the proposed purchase in advance) which is applicable on any form of written agreement wherein one party agrees to sell and another agrees to buy property.
Stamp duty on purchase agreements can be applied either by presenting the document to Lands & Survey with payment or through “self-stamped” process which requires purchase of a CI$100 Revenue Stamp from the Post Office. In the latter case, the stamp must be affixed to the document with the word “Cancelled” and date written across both the stamp and adjoining document.

In a news announcement, the department further instructed that all commercial leases, regardless of length, must also be submitted to the Lands & Survey Department for the payment of stamp duty.

Mr Hall noted, “Despite publicity over a number of years, my office continues to hear too many stories of persons not being aware of this requirement, and paying hefty penalties as a result of late submissions.”

Meanwhile, some industry professionals have criticised current requirements, calling them “ineffective” generators of revenue that are too difficult to enforce.
At least, that’s the perspective of Simon Watson, a former Lands & Survey employee who now serves as director of the property evaluation firm of Charterland. Mr Watson says he would rather welcome the government’s adoption of a new system similar to the Uniform Business Rate used in the United Kingdom. In this arrangement, he said, “It is the occupier who pays, whether or not there is an actual lease.”

Mr Watson says the UK system of revenue collection has several advantages over Cayman’s current system.
“Business Rates do not rely on the rate payer to make a declaration, as opposed to the need to submit a lease to the Land Registry before stamp duty can be assessed,” said Mr Watson. “Business Rates are transparent. If someone is in occupation of the premises, then they are liable for payment, as opposed to occupiers who claim they are on a ‘verbal tenancy’ with respect to the Stamp Duty Law.”

Mr Watson says business rates provide a greater level of certainty to government with respect to the revenue, and are more equitable. “Under the current Stamp Duty Law, the tenant is required to pay duty for the full term of the lease upfront even though they may vacate the premises prior to term end. Business rates can be apportioned to a daily rate.”

Mr Watson acknowledged the requirement for stamp duty to be paid on all purchase agreements is nothing new but, “What is new is the requirement that all transfer of land forms need to be accompanied by a copy of a stamped purchase agreement or a statement saying that no purchase agreement was signed.”
He also added that there is an advantage for purchasers to pay the full stamp duty on the purchase agreement up front, in that “it avoids the possibility of the Lands & Survey Department’s Valuation Office reassessing the consideration payable on the transfer for stamp duty purposes.”
“This may occur in a rising market when the Valuation Office is of the opinion that the property has increased in value between the time of signing the purchase agreement and the submission of the transfer of land form for registration,” said Mr Watson.
“This is of particular relevance for pre-construction contracts where unsuspecting purchasers have had to pay many thousands of dollars more in stamp duty because they did not pay the full stamp duty on the original purchase agreement.”

Meanwhile, Ian Franklin of Lands & Survey emphasised the department is not changing the Stamp Duty Law, but enforcing its provisions.
In so doing, he provided insight as to difficulties with monitoring and revenue collection. When asked the degree to which government had been deprived of revenue as a result of non-payment, Mr Franklin said, “It is impossible to tell… Whilst Lands & Survey will be monitoring to ensure that purchase agreements have been stamped, the majority of revenue will likely be received by the Post Office, and then received directly into central government funding, rather than that of either department. Only after this programme has been in operation for a period of time will any past deficiencies in revenue collection be known.”
He also said that “it would be reasonable to suggest” the amount is a six-figure sum.

On the subject of leases, Mr Franklin said analysis is more problematic since the department does not know how many leases exist. “We continue to operate our Request for Occupational Information programme, whereby each company receives a notice and is requested to confirm whether they hold a lease or not,” said Mr Franklin. “This helps to ensure that revenue that would otherwise slip through the net is collected.”