The “Cayman Sandwich”

A Powerful Tool for Latin American Startups

In the dynamic business landscape of Latin America, startups and growing businesses face numerous challenges, from navigating complex tax regulations to attracting international investment. One innovative strategy that has gained traction is the so-called “Cayman Sandwich.” While the name may sound unconventional, this approach provides significant benefits for Latin American entrepreneurs looking to optimize their tax structure, secure international funding, and streamline their business operations. Spiegel & Utrera, P.A. is here to help you understand and implement this powerful tool to set your business up for success.

What is a “Cayman Sandwich”?

A “Cayman Sandwich” is a legal and financial structure used by Latin American companies to gain access to the U.S. or international markets while minimizing tax liabilities in their home countries. The strategy involves creating a corporate “sandwich” by placing a U.S. company between two offshore entities, typically in tax-friendly jurisdictions like the Cayman Islands.

Here’s a simplified breakdown of how the structure works:

• Cayman Islands Holding Company: This entity is established in the Cayman Islands, which acts as the ultimate holding company for the startup. The Cayman Islands offers a tax-neutral environment with no direct taxes on corporate profits, income, or capital gains.

• U.S. Operating Company (typically a Delaware Corporation): A U.S. company is formed, often in Delaware, which acts as the intermediary between the Latin American startup and the offshore holding company. The U.S. company is the main operating entity, benefiting from access to U.S. markets, investors, and protections under U.S. law.

• Latin American Subsidiary: The startup’s original operations remain in its home country in Latin America, operating as a subsidiary of the U.S. company. This setup allows the business to remain active in its home market while leveraging the advantages of the U.S. and Cayman Islands.

Key Benefits of the “Cayman Sandwich” Structure

Access to U.S. and International Investment:

By forming a U.S. company, startups can tap into a broader pool of venture capital, angel investors, and other funding sources that may be less accessible in Latin American markets. U.S. investors often prefer to invest in entities governed by U.S. law, which provides more familiarity and protection for their investments.

Tax Optimization

The Cayman Islands holding company allows businesses to legally avoid or reduce taxation in their home country by routing profits through a tax-neutral jurisdiction. This structure can significantly reduce the startup’s overall tax burden, allowing it to reinvest more of its earnings into growth and development.

Simplified Cross-Border Operations

For startups that plan to expand internationally, the “Cayman Sandwich” simplifies cross-border transactions. The U.S. operating company provides a stable base for handling international contracts, managing foreign employees, and working with international partners, all under the protections and advantages of U.S. business law.

Intellectual Property Protection

By holding intellectual property (IP) in the Cayman Islands holding company and licensing it to the U.S. operating company, startups can better protect and control their valuable IP assets. This also allows for flexible revenue-sharing agreements that can further enhance tax efficiency.

Global Market Access

With a U.S. operating company, the startup gains credibility and access to one of the world’s largest consumer markets. This structure allows the business to expand into the U.S. and other international markets more easily while maintaining its presence in Latin America.

Ready to Get Started?

If you’re prepared to move forward and take advantage of the agility and efficiency that the Cayman Sandwich offers, get in touch with Spiegel & Utrera, P.A. today! Our experienced team of attorneys can assist your startup in setting up the optimal corporate structure for your business goals, ensuring compliance with both U.S. and international laws.