Cayman Sandwich structure: Guide for LatAm startups

What is a Cayman Sandwich?

A "Cayman Sandwich" is a three-tiered corporate structure that helps Latin American startups attract international investment, optimize their tax outcomes, ensure legal compliance, and simplify their path to future exits.

The Cayman Sandwich is the market-standard structure for startups seeking venture capital funding.

Its name comes from its three layers: The Cayman Islands holding company, the Delaware LLC, and the local operating company in the home jurisdiction of the business in Latin America.

Top layer: Cayman Islands holding company

The top layer of a Cayman Sandwich is the holding company, in which investors and individuals hold shares. The Cayman Islands are known for their favorable tax laws, providing a tax-neutral jurisdiction and simplifying legal complexities for international stakeholders. In this scenario, the holding company formed in the Cayman Islands owns 100% of the shares of the middle layer: The Delaware LLC. 

Middle layer: Delaware LLC

The middle of a Cayman Sandwich is a Delaware Limited Liability Company (LLC) that is fully owned by the Cayman Islands holding company (top layer). 

The LLC benefits from Delaware’s business-friendly laws, which include flexible corporate structures, efficient governance processes, and strong legal protections for investors. Delaware’s well-established legal precedent and specialized courts, such as the Court of Chancery (a court that handles corporate disputes and provides expert legal rulings in business matters), ensure a reliable and predictable framework for resolving business disputes. 

This combination of flexibility, investor security, and legal certainty makes Delaware LLCs particularly attractive to international investors. The Delaware LLC owns 100% of the shares of the bottom layer: The local operating company or companies.

Bottom layer: Local Latin American operating company

The bottom layer of the Cayman Sandwich is the base entity, which handles the primary business operations within the region and helps a startup maintain its local identity. This entity typically employs local staff, manages contracts with local vendors and customers, maintains local licenses and permits, handles local tax and regulatory compliance, and manages regional banking relationships.

Advantages for startups 

The Cayman Sandwich offers three significant benefits for founders: legal predictability, regulatory compliance, and tax savings.

Legal predictability

A key advantage of the Cayman Sandwich structure is that it leverages stable, favorable legal frameworks that investors already trust. Most VCs are comfortable  doing business in the Cayman Islands and Delaware because these areas are known for their legal predictability and investor-friendly regulations. The sandwich structure helps reduce perceived risk, streamline negotiations, and simplify future exits, making your startup more attractive to potential investors. 

Regulatory compliance

The layered approach also helps LatAm startups satisfy both international and local regulatory requirements. The top two layers—the Cayman Islands holding company and the Delaware LLC—provide a straightforward framework for regulatory compliance, and the operating company manages compliance with local regulatory requirements, including labor laws, business licensing, and industry-specific regulations. Startups are able to adapt to regulatory changes in different regions without disrupting the entire structure.

→ Learn more about private fund regulations in the Cayman Islands

Tax benefits 

The Cayman Sandwich offers tax advantages at each tier, helping startups minimize tax liabilities. 

Top layer

The Cayman holding company operates in a tax-neutral jurisdiction, which means no corporate income tax, payroll tax, capital gains taxes, or withholding taxes on profits. Plus, funds flowing into and out of the holding company—including investments, dividends, and exits—are not subject to additional taxation.

Middle layer

The Delaware LLC operates as a “pass-through” entity. Any income it generates is funneled to the Cayman holding company without being taxed in the U.S. at a corporate level. This minimizes tax liabilities and prevents double taxation. 

Bottom layer

The local operating company ensures regional tax compliance, handling all local tax obligations, including income, payroll, and VAT where applicable. 

Together, these three layers optimize a startup's tax efficiency, creating a structure that satisfies local tax requirements while maximizing the capital available for innovation.

→ Learn more about tax deadlines for corporations and LLCs

Advantages for investors

Direct investment in Latin American operating companies without the Cayman Sandwich structure can be complex. In most jurisdictions, investors may be subject to burdensome legal requirements, such as requirements for complex powers of attorney and the need to appoint local nominees to represent them. These requirements may create added operational complexities and expenses.

For VCs and other investors, the Cayman Sandwich structure removes many of the barriers to investing in LatAm startups and provides the following benefits:

• Familiar investment framework: Most U.S. VCs are familiar and comfortable with Cayman entities and Delaware LLCs. This increases trust and streamlines due diligence, negotiation, and deal execution, making the investment process faster and less costly.

• Tax efficiency: The Cayman Islands’ tax neutrality simplifies financial processes, including dividend payments, profit distribution, and exits. This minimizes administrative burden while optimizing tax efficiency and maximizing investor returns.

• Risk mitigation: The local operating company insulates investors from potential legal and regulatory risks associated with Latin America’s economic and political landscapes. 

How the Cayman Sandwich impacts exit strategies 

The Cayman Sandwich structure makes startups more attractive to potential buyers and public markets, setting them up for a familiar path to exit.

Mergers 

Because the Cayman holding company is the primary ownership entity, international buyers can approach mergers without navigating complex local regulations or tax liabilities than if buyers were to purchase the local operating company directly. Mergers in the Cayman Islands are well known by international corporate advisors and practitioners and therefore can be completed efficiently, greatly reducing the time and cost of a merger.

Acquisitions

In addition structuring a transaction at the Cayman holding company level, startups with Cayman Sandwich structures can sell their business at any of the three levels: the Cayman holding company, Delaware LLC, or local operating company. This flexibility widens the pool of potential buyers and provides significant optionality to structure transactions that are tax advantageous, including preventing double taxation across jurisdictions. Sales of shares at the Cayman level are exempt from corporate capital gains taxes. Structuring deals at specific layers also limits disclosure requirements to only the relevant entity, protecting sensitive investor information and simplifying regulatory compliance.

Note that the disclosure requirements in connection with the transaction depend on what level the transaction is occurring. For example, if a buyer purchases the local operating company only, then there will not be a need to diligence and get operational representations and warranties and corresponding disclosures from any of the two upper layers.  But if the buyer purchases the top Cayman holding company, then the expectation is that the buyer would diligence and get operational representations and warranties and corresponding disclosures over all the entities in the structure.

Initial Public Offerings (IPO)

The Cayman sandwich structure may make startups eligible for Foreign Private Issuer (FPI) status under Securities and Exchange Commission (SEC) rules. Under this status, startups are not required to report quarterly results, can file annual reports (Form 20-F) up to 120 days after the end of the fiscal year, and are exempt from U.S. proxy rules which require certain disclosures and shareholder votes.   Startups will need to consider other potential limitations that may limit the availability of FPI status, including if any assets or executives are the located in the United States, or the requirements of listing exchanges.

The structure also means that regional regulatory complexities do not impact the IPO process, and the tax-neutrality and investor-friendly nature of the Cayman holding company make the company extremely attractive to public markets. 

How the Cayman Sandwich gained popularity 

In the early 2010s, VC interest in LatAm startups began to surge—but complex legal and regulatory challenges often prevented international investors from funding these companies. To combat this, many LatAm entrepreneurs formed legal entities in the U.S., typically creating Delaware C-Corps. However, this usually resulted in double taxation, forcing companies to pay business taxes both locally and in the U.S..

The Cayman Sandwich structure emerged as a solution to bridge the gap. By layering a Cayman holding company, a Delaware LLC, and a local operating entity, startups could successfully attract international investors while maintaining a tax-efficient, compliant, and scalable business. As more LatAm startups successfully leveraged this model, it quickly rose in popularity.

As LatAm startups continue to push innovation forward, the Cayman sandwich structure empowers them to get the international capital they need to grow beyond their borders.