I was researching corporate structures and stumbled upon a large Chinese company called SMIC. They are legally domiciled in the Caymans. I was wondering what the advantage for them to have a legal domicile there is. Is it just a Chinese thing to do?
The Cayman Islands are well known as a tax haven. They have a corporate tax of 0%, and that includes income from abroad. So by moving your company officially to the Cayman Islands, you can avoid to pay a lot of taxes.
Now of course most other countries will still send you a tax bill for any income you make with business activities within their borders. But there are accounting tricks to get around that. For example, many countries only tax profits, not revenue. So you can reduce your annual profits of your national subsidiaries to zero by having them pay money to your company on the caymans. For example, you can transfer your trademark to your subsidiary on the Cayman Islands and then have your subisdiaries in all other countries pay the Cayman company an annual license fee for using that brand name. And the license fee happens to be just so expensive that your national taxable profits become zero.
And no, that's not just a Chinese thing. Corporations all around the world use that method to avoid taxes.