Life in the Cayman Islands offers a relaxed island lifestyle and access to a global financial hub. For U.S. citizens and green‑card holders, the priority is staying compliant while avoiding double taxation. With Cayman’s tax‑neutral status and the right U.S. elections, you can minimize tax without risking penalties.
Why Double Taxation Happens
The United States taxes citizens and residents on worldwide income. Without planning, income earned abroad can be exposed to U.S. tax and, in some countries, foreign tax. Cayman generally does not levy income tax; your U.S. filing duties still apply.
Key Strategies to Avoid Double Taxation
- Foreign Earned Income Exclusion (FEIE): Qualify via the Physical Presence or Bona Fide Residence test; pair with the housing exclusion/deduction where applicable.
- Foreign Tax Credit (FTC): Offset U.S. tax with income taxes paid to another country (useful for income taxed outside Cayman).
- Entity & compensation planning: Align salary vs. distributions and entity choice to reduce mismatches.
- Investment & retirement coordination: Classify income correctly and time events to maximize FEIE/FTC.
Note: FEIE and FTC generally can’t be used on the same dollar of income.
Compliance: FATCA & FBAR
Even in a tax‑neutral jurisdiction, reporting rules remain: file FBAR (FinCEN 114) and FATCA Form 8938 when thresholds apply.
Practical Example
Alex, a U.S. consultant in Cayman, claims FEIE (and possibly housing) on salary, uses the FTC for taxed dividends in another country, and files FBAR/FATCA—result: compliant, no double tax on the same income.
Work with a Professional
Ledger Pro specializes in U.S. expat filings for Cayman residents—strategy, preparation, and year‑round support.
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FAQs
Do U.S. expats in Cayman still owe U.S. taxes?
Yes—U.S. citizens/residents are taxed on worldwide income.
What is the FEIE?
An exclusion for qualifying expats that removes a portion of earned income from U.S. tax.
Can I use FEIE and FTC together?
Often yes, but not on the same income.
Do Cayman residents have FBAR/FATCA duties?
Yes if reporting thresholds are met.
