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Treaty rates

U.S.-Cayman Islands tax treaty: no income tax treaty

No income tax treaty; an information exchange agreement only. What that means for withholding on payments to residents of Cayman Islands.

Status No income tax treatyUpdated October 3, 2026Source Treasury tax information exchange agreements
In this guide
  1. Status
  2. What to withhold
  3. The information exchange agreement
  4. Where payers go wrong
  5. Documents
  6. Questions payers ask

Status

The United States has no income tax treaty with the Cayman Islands. Payments to Cayman entities are withheld under the Code with no treaty reduction. The two governments signed a tax information exchange agreement in London on November 29, 2013, which replaces their 2001 agreement once it enters into force.

What to withhold

  • U.S.-source fixed or determinable income (dividends, royalties, rents, interest that is not otherwise exempt, pay for services performed in the United States) is withheld on at 30% of the gross payment.
  • The Code's own exemptions still apply: portfolio interest, bank deposit interest, and income effectively connected with a U.S. trade or business documented on Form W-8ECI.
  • Pay for services performed entirely outside the United States is foreign-source: no withholding and no Form 1042-S.
  • A W-8BEN or W-8BEN-E that claims treaty benefits for Cayman Islands cannot be relied on for the claim, but still documents foreign status. A nonresident working in the U.S. has no treaty exemption to claim on Form 8233.
  • Payments are reported on Form 1042-S with the payee's country code, whether or not tax was withheld.

The information exchange agreement

A tax information exchange agreement lets the IRS and the other jurisdiction's tax authority ask each other for, and share, information needed to enforce their own tax laws. It is not an income tax treaty: it sets no withholding rates, has no residence, permanent establishment or business profits rules, and gives a payee nothing to claim on a W-8BEN or W-8BEN-E. The 2013 agreement covers all U.S. federal taxes, reaches bank and ownership information, permits automatic and spontaneous exchange, and applies without regard to the taxable period. An accompanying note records Treasury's view that it meets the Code's test for deducting the cost of conventions held in a beneficiary country, a benefit that would apply only if the Cayman Islands were designated as such a country.

Where payers go wrong

  • Treating a Cayman fund as treaty-protected. U.S. dividends to a Cayman fund or company are withheld at 30%. The UK treaty does not extend to the Cayman Islands.
  • Forgetting chapter 4. Cayman funds and investment vehicles are often foreign financial institutions for FATCA purposes, so the W-8BEN-E's chapter 4 status and GIIN matter as much as the chapter 3 rate. See the FATCA guide.
  • Missing the Code exemptions. Portfolio interest is exempt without a treaty, which is why many Cayman funds hold U.S. debt.

Documents

Questions payers ask

Is there a U.S.-Cayman Islands tax treaty?

No income tax treaty. The two governments have a tax information exchange agreement, which sets no withholding rates.

What does a U.S. company withhold on dividends paid to a Cayman fund?

30% of the gross dividend, subject to the chapter 4 rules for the fund's FATCA status.

Is interest paid to a Cayman fund withheld on?

Not if it is portfolio interest or bank deposit interest under the Code. Other U.S.-source interest is withheld at 30%.

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